Years ago, after watching my nieces and nephew on Christmas day get so much stuff that they couldn’t even figure out who gave them what, I started thinking. These kids are lucky. They get so much. But did they need all of this stuff?” No. So what could I give them that would be meaningful.
I told my wife I wanted to stop buying gifts for the kids. Instead, I wanted to pay for their college education. For my four nephews and three nieces, I did not want to give one more gift, not for Christmas, not for birthdays, nothing, not one more gift. Instead, I said each time they had a special moment in their life, let’s put what we would have spent on a present into an education account.
She Wasn’t Always Into It
It took a few years to convince my wife that this was a good idea. But she eventually bought into the concept, and we stopped. Talking about money can be tricky especially when you are talking to kids. We told our nephews and nieces what we planned to do. The little ones didn’t get it. The older ones probably didn’t get it either. Instead of a gift on birthdays, we would print out a statement and send it to them, but until my oldest niece went off to school, I don’t think anyone got what we were trying to do.
We tried to make it super easy for parents, uncles, grandparents and even the kids to contribute. And some did. Grandparents jumped on board and gave what they could.
Don’t get me wrong; this wasn’t all good. There were times we worried our family would see us as the “bad” uncle and aunt. The ones who would show up on Christmas day with our arms swinging, not a gift in sight, but we stuck with it. College is not cheap, and we were determined to make a meaningful gift.
And this summer, we once again were able to see the results. We just paid for the first semester of my nephew’s college tuition. Saving and investing require time. We set up the account for my nephew 7 years ago, and in that time, his account was able to earn $2,000. That is $2,000 more than he would have received in gifts throughout the years. Two grand more that he can pay his college tuition, books, housing or a new laptop. We get to spend this money on him to help him increase his earning power and increase his odds of finding employment. If only we would have started sooner, right?
The added benefit of this approach it gives my nephews and nieces an early appreciation and front-row seat at seeing how investing works. In addition, they got to experience the power of compound interest at work for them.
I know this is not going to be an opinion for everybody, but if you are in a fortunate position where you have children in your life who do not need gifts from you, I would strongly encourage that you set up a similar account for them. So that you two can pay for their college education.
Here Are Some Options
All my nephews and nieces are in the United States. For each one of them, we set up 529 accounts. I am not a financial advisor, but I can say that those accounts provided the ease of setup, easy methods to contribute, and flexibility that our family needed.
My kids both have Registered Education Save Plan (RESP) accounts. Those accounts have the added benefit of the federal government kicking in a maximum of $7,200 in free money. That’s right; if you put money into a child’s RREP, the federal government will contribute up to 20% of your contribution up to a maximum of $7,2000.
All of this to say that investing is a great tool that you can use to save for retirement, build wealth and reach your finical goals, but it doesn’t need to stop there. You can also use it to set up all of the children in our lives for success.