The simple savings strategy that's helping me pass down wealth
In this week's Personal Finance Insider newsletter: How to pass down cash to the children in your family.
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Here's what: A new strategy for gift-giving
When my niece was born three and half years ago, I obsessed about getting her the best, most memorable, most impactful gifts (I am forever campaigning for Auntie of the Year). But I learned pretty quick that babies are, to put it mildly, finicky creatures, and my best bet was to stop shopping and find a way to invest in her future.
My initial idea was to contribute to her education savings fund, but because she's in Canada, I couldn't get access to that account. Ditto her regular savings account. So for the past couple years I've been sending books to build her love of reading. It's a good investment, to be sure, but it's not exactly fulfilling my urges as a Personal Finance Person®.
But then, last month, I published an essay that gave me an idea. Freelance writer Danielle Cappolla wrote movingly for Insider about her uncle, who, after Cappolla graduated from college in her early 20s, handed her the bank book for an account containing $6,000 — money he'd been tucking away for her since she was born.
Instead of giving physical birthday and Christmas gifts, Cappolla's uncle had been putting small sums — $25 to $100 — into a savings account. When she reached young adulthood, he handed over access with the advice to keep up the savings habit and work towards a down payment on a home.
Now, I know $6,000 isn't buying anyone a house in the United States today — and Cappolla knows that, too — but the point is: It's a start. It's a whack of cash she wouldn't have otherwise had, and it sets her on the path to homeownership, or business ownership, or a new car if she needs one.
That money is a substantial gift at a moment in her life when expenses are ramping up fast and the material pressures of adulthood are mounting. And as a lump sum, it can go further than the $25 to $100 her uncle had been putting away for each occasion.
It was a lightbulb moment for me: In addition to the books I love sending my niece, I'll be putting small sums into a high-yield savings account for every occasion (I considered investing on her behalf, but the tax implications were a bit too complicated with an international border in the mix) with a plan to give her access to the money in about two decades.
I'll tell her to do with it as she likes, but encourage her to choose something meaningful and impactful: a once-in-a-lifetime trip, the money to back a creative dream project, or even the start of a down payment on a home. And hopefully I'll finally win Auntie of the Year.
— Stephanie Hallett, senior editor of Personal Finance Insider
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