There are many ways you can contribute to a child's future financial success, but what will help them the most? Learn more with the Sootchy savings experts.
In just about every family, the birth of a child is a joyous event, one that calls to mind the possibilities of life and the bright future we all wish for those we love. Unfortunately, there will come a time in the life of any child when they need a pool of funds on which to draw – when buying a car, for instance, or paying for college – and it’s this challenge that families often start planning for when a child is newly born. Of course, there are many different ways to go about this, each with its own pros and cons that must be considered; the wealth of options open to families prompts many grandparents, aunts, uncles, and other relatives to ask, “What is the best financial gift for a child?” To find out, keep reading as the college savings plan experts at Sootchy discuss the important question.
It’s only natural to want to help start your newest family member off on the right foot, financially speaking, even if they haven’t even learned to stand, but what form should that assistance take? The truth is that the best investments for a baby will depend on the finances of that baby’s immediate family; we’ll look at some of the top options below.
When most people think about investing, they think about the purchase of stocks – bits of ownership of a company – and bonds – small loans you make to a company or government entity. Although these options are certainly popular, they may not be the best investment for a baby because they can sometimes be unpredictable.
Stocks especially tend to make for risky investments – which, admittedly, also means you could see a high rate of return. Bonds, on the other hand, are often safer, especially if you buy government bonds and other low-risk investments. In either case, keep in mind that stocks and bonds are best reserved for funds that won’t be needed in the near future, since there’s always the possibility that some of the money is lost; if the baby’s parents are looking to fund, say, childcare services, you may want to consider another financial gift for the child.
While providing for a baby is an expensive undertaking from the moment they’re born, many of the biggest expenses in a child’s life won’t come until years later, so families often have time to earn some interest on financial gifts for a child. One of the simplest ways to do so is through a certificate of deposit, or CD; they’re available at most local banks, and they’re easy to set up.
All you have to do is deposit some funds in an account and agree not to touch them for a set amount of time – this could be as little as three months or as long as a decade. In return, the bank will provide a certain rate of return, with the best interest rates reserved for the longest term lengths. Just keep in mind that you won’t be able to access the funds (without paying a penalty) until the term is up.
One of the best investments for babies is the 529 plan, which allows investments to grow tax-free as long as they’re used for education expenses. A great feature of these plans is that family members can contribute to the account, adding to the pool of funds that will be compounded through investments.
Many 529 plans make it easy to give a contribution as a financial gift for a child, especially if you use a service like Sootchy’s mobile app. All you have to do is download the app on your smartphone or tablet and you’ll be able to open, manage, or contribute to your preferred 529 plan at the touch of a button, giving you the opportunity to easily provide a financial gift that will help fund the future success of a child you care about.
Ultimately, what determines the best financial gift for a child is the purpose of the gift; those looking to help pay for summer camp may simply want to offer cash, while those who want to fund long-term goals will likely prefer an option like the 529 plan.
Perhaps the biggest advantage 529 plans have over other types of financial gifts is the fact that they combine the best aspects of other gifts in one place. For example, say you want to gift some stocks, bonds, or other investments to a baby; a 529 plan will let you do that, plus the gains on those investments are protected from federal (and often state) income taxes.
Or, maybe you want to give a financial gift that won’t impact a child’s financial aid prospects; a 529 plan can do that, too, as long as it’s used properly. The one limitation of 529 plans is that they are designed to cover education costs, so if you’re giving a financial gift for a child with the intention of funding any other enterprise, you may want to look elsewhere.
They say it takes a village to raise a child, and 529 plans are often opened with that very philosophy in mind. If you’re looking to provide a financial gift for a child you care about, consider contributing to their 529 plan and giving the gift of a college education. Learn more by visiting Sootchy online or downloading our app today.