Don't be so quick to hand your favorite high school or college grad a congratulatory card with cash. Other financial gifts can have a bigger impact.
More than a third of consumers will buy gifts for a graduate this year, according to the National Retail Federation — which projects total spending at a record $5.6 billion. Spending among consumers age 18 to 24 averages roughly $78 for such a gift, they found, while "parent-age" givers age 45 to 54 give an average $120, and "the grandparent bracket" of those age 65 and older, $112.
Cash is king, with 52.8 percent of givers citing it as a planned gift. Another third of consumers expect to offer a gift card.
Many new grads have big plans for any gifts of money they receive, including saving it (23.8 percent), investing it (19.2 percent) and using it to pay down student loans (18.7 percent), according to a survey from investing app Stash. The company polled 214 of its users who are part of the Class of 2017.
The right gift could help a grad meet those aims, or otherwise get a leg up financially, said certified financial planner David Demming, president of Demming Financial Services Corp. in Aurora, Ohio.
"What you want is to set a good example, something they can build on," he said.
Financial advisors say these four gifts could benefit a new grad more than cash.
Offering to help fund a Roth IRA can be an especially valuable gift, said certified financial planner George Padula, principal at Modera Wealth Management in Boston. Those contributions grow tax free and can be withdrawn tax free in retirement, and an early start gives the money decades to compound.
Rather than offering a flat gift, consider matching your grad's contributions up to a set amount over several years, Padula said.
"It creates good savings habits as a new graduate going into the workforce," he said.
If you're in a higher tax bracket, gifting appreciated stocks can help you avoid capital gains taxes, said certified financial planner Frani Feit, managing director for Tradition Capital Management in Summit, New Jersey.
"Typically, young graduates will be in a lower tax bracket than their gifter, so if the stock was sold, the assumed capital gains would be taxed at a lower rate," she said. "Or the recipient could hold the stock, which might encourage investment research and a future interest in the stock market."
Other ways to gift investments include funding a new brokerage account, or purchasing gift cards that can be redeemed for shares, via a site like Stockpile.
Offering extra help during the six-month grace period after graduation can cut interest accrued, resulting in lower monthly payments or a faster payoff for a new grad. If you want to make sure the money goes toward loans, there are gift cards like GiftofCollege.com that can be redeemed directly into a student loan account.
Or you might split up your gift into installments, helping a new grad ease into juggling student loan repayment as part of their overall budget, Feit said.
Wealthier individuals might consider paying off one or more of the loans in full, said Demming. That could be an outright gift, or a loan to the grad at a much lower interest rate, he said — essentially gifting them a shorter payoff time and less paid in interest.
Think about gifts that could help a new grad fill in financial gaps.
For example, you might cover their health insurance, auto insurance or disability insurance for a set period, said certified financial planner Carolyn McClanahan, director of financial planning for Life Planning Partners in Jacksonville, Florida. That can smooth the transition from being on a parent's policy, she said, and help ensure they're protected.
If you want to buy gift cards, think about ones that could help make a new grad's life easier, Feit said. Look for a card that can lighten the burden of ongoing expenses (like a cellphone bill) or an upcoming expense (like furniture for that new apartment).
"Or how about an HBO gift card so the grad can enjoy some entertainment while watching the rest of his or her graduation money grow?" she said.