Graduation season is here, which means you have some gifts to purchase.
Americans spent $4.77 billion on graduation gifts in 2015, according to the National Retail Federation, with individuals shelling out an average $103. Cash accounted for more than half of that. Yet you have lots of ways to give money, and a number of them also teach financial smarts.
Of course, it's always a good idea to make sure that what you're gifting gives pleasure as well as new life skills, said certified financial planner Marguerita Cheng, chief executive of Blue Ocean Global Wealth. You don't want to be the person giving the equivalent of a vacuum cleaner on Mother's Day.
But even with that caveat, you have plenty of options. Read on to find the graduation gifts that financial advisors recommend.
— By Kelley Holland, special to CNBC.com
Posted 13 May 2016
If the person you are gifting had an on-the-books job in the past year, you can put money in a Roth individual retirement account for them, up to the amount they earned that year or the legal limit of $5,500, whichever is less.
Money in a Roth IRA grows tax free, and withdrawals are also tax free, so these accounts are a potent way to help a graduate build a nest egg.
They also offer a certain degree of flexibility, said Howard Pressman, a CFP with Egan, Berger & Weiner.
"You have the option to take out the initial contribution if you need to," he said. That could come in handy for, say, a downpayment on a house.
This gift isn't exactly fun, though it can be incredibly useful to a young person trying to sort out student debt payments, 401(k) plan contributions, rent and more.
Garrett Planning Network's advisors charge an hourly rate and will meet with someone even once — but that could be enough to demystify much of the financial world for a new grad.
"For a parent who just spent well into six figures on college to spend $1,000 or so to help a college graduate look over their benefits package and set them in the right direction is such a worthwhile investment," said Barry Glassman, CFP and president of Glassman Wealth Services. "Chances are this college graduate has a negative net worth. There is nothing to manage, but they are the ones who likely need financial planning the most."
If you have your own financial advisor, he or she may be willing to sit down with your graduate for a complimentary session, too.
Nothing says grownup like a credit card bill. Stories abound of new cardholders getting into trouble with their plastic, yet used properly, a card can help build a credit record.
Even if they do not have the employment or credit history to get a card on their own, if your graduate is age 18 or older, you can get them access by providing collateral for a secured credit card. Just be sure that whatever they do with the card is reflected in their credit score, not yours, Glassman said.
While you cannot make a 401(k) plan contribution directly for your graduate, you can encourage them to make their own by offering to subsidize it, Pressman said.
Of course, not all graduates will have access to a plan: Only 53 percent of American workers do, according to the Employee Benefit Research Institute. But Pressman said he has recommended this to parents to encourage saving in either a 401(k) or an IRA, which anyone can do.
"Anything to help them establish the good behaviors," he said.
Not every graduate has a job when they get their diploma, and they may really appreciate some high-quality professional clothing or a nice laptop case for when they interview, Cheng said.
Even those with jobs will probably have to transition out of sweatshirts and jeans for their new life, and a work wardrobe, even at an outlet store, does not come cheap.
Sure, your graduate will be busy, and he or she may not be thrilled to curl up with a book on investing. But sooner or later they will open volumes with titles like "The Millionaire Next Door" or "The Richest Man in Babylon," and they will be glad they did, Glassman said.
These books will teach the value of investing and saving, he said, and they are good reads.
"What you don't want to do is burden your college graduate with a textbook," Glassman said.
Many of the cities college graduates gravitate toward have expensive housing, and many landlords there require tenants to have more income or assets than new grads can produce.
If you co-sign a lease, you can set them on their way toward building a credit history and learning to live within a budget. But be careful: If your child or a roommate moves out, you may be on the hook for rent payments.
After the graduation celebrations end, student loan payments start to come due, just as many new graduates are trying to pull together housing, clothes and more for their post-college life.
You can soften the blow by making part or all of a first loan payment, buying them time to get their financial house somewhat in order.
Cash can evaporate quickly in the hands of a new graduate in the middle of a life change. Shares of stocks are a bit harder to use to buy that third round.
If you gift shares of stock you own, the cost basis transfers to your graduate, Pressman said. But if they sell the shares, they will pay any capital gains tax at their own rate, which could be as low as zero.
Another way to give stocks is with a stock gift card. A start-up called Stockpile has launched such a card, with which you can even give fractional shares, and they are available through several national retailers.
If your graduate winces at the thought of retirement cash as a gift, money toward a trip can lessen the eye-rolling.
"I'm a firm believer in wanderlust. Even if they take some time to regroup and travel, that's an amazing experience," Cheng said.
Seeing how others live may even help 20-somethings get a better understanding of the difference between needs and wants. That's a financial lesson anyone can use.