Giving to Grads
Money: Choosing the right gift for those graduating young relatives
It’s graduation time and, if you’re like me, a surprising number of your nieces and nephews — by family or by friends — are receiving their high school and college diplomas. Graduation announcements are popping up like cicadas. So what’s the right gift for those budding scholars that can help get them off on the right foot, both scholastically and financially?
Well, that depends on the person and your relationship. Frankly, a graduation announcement from my second cousin, twice removed, whom I haven’t seen in 20 years, merits nothing more than best wishes. But for those closer relatives or children of good friends, whom you actually like, here’s a list of some gifts to celebrate the milestone and help the new graduate for years to come.
- Tuition assistance. The College Board reports that the annual tuition and fees in 2003-2004 at private four-year colleges averaged $19,710. Although public college costs a lot less (around $4,694), that’s still a big expense. High school grads heading to university certainly will appreciate any help here from friends and family.
Make sure, however, that you give the gift discreetly. If a college finds out about the money — either because you paid the tuition bill directly or deposited the money in the student’s personal account — it will reduce his or her financial aid package by about the same amount.
Ain’t life grand.
To avoid this penalty, hold onto the money until the bill comes due, let junior’s parents do the paying and then compensate them. The Internal Revenue Service allows gifts of up to $11,000 per person per year without gift-tax implications for either the giver or recipient.
- Computer equipment. A laptop computer is a necessity at many colleges and a nice thing to have at all of them. But don’t rush out and buy the one that pleases you. Different colleges have different requirements. A gift certificate that allows the student to pick the one he needs makes the most sense. And, importantly, this gift won’t affect a student’s financial aid package.
- Staying in touch. For many high school grads, heading off to college can be a traumatic and unsettling experience (unless, like me, you grow up in a small Midwestern town where keggers by the river are considered high culture). To ease the pain, consider buying a phone and paying for an annual calling plan.
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- Equipment for the modern student. Your graduate will appreciate a portable DVD player, an MP3 player-recorder or a personal digital assistant. These electronics will help him blend in with the crowd, and a good set of headphones will improve his relationship with his roommate.
- A Visit Home. Being left alone on campus while classmates head home (or elsewhere) during one of college’s many breaks is not a college memory anyone wants, particularly during that first year when a student already is facing a lot of adjustments. The gift of a round-trip ticket that your favorite grad can use for a quick trip home or a visit to Grandma’s at Thanksgiving can ease homesickness.
- Textbooks. Class books add hundreds of dollars to a student’s bill every year. A gift certificate in any amount for the campus bookstore lessens this heavy higher-education load.
- Automobile. Take it easy — I’m not saying you should buy your nephew a car. But if you know that he’ll be taking a car to school, you can help with the costs. Since most students drive older cars, you could offer to pay for a tune-up or to cover a year’s worth of insurance.
- A Roth IRA. Paradoxically, this may be the best, yet least-appreciated gift you could give a young person. Very few 18-year-olds will get excited about you putting $3,000 in a Roth IRA, where earnings grow tax-free, for them. Their young minds can barely look past this weekend, let alone 30 years down the road.
Some schools even make wired phones in dorm rooms optional because most students prefer cells. Just be sure to choose a plan with free night and weekend minutes, and insist that the deal includes a weekly or monthly call to the giver.
But as we all know, these young kids will someday be nearing retirement, and when that time comes, they will remember you with deep gratitude. If you put $3,000 in a Roth IRA when a person is 18 and the money earns 8 percent, it will grow to more than $110,000. Think how much you would appreciate having that money — which is tax-free — sitting in an account in your name.
Mark Helm is a personal finance writer and financial planner. He can be reached at HelmFinancial@aol.com.
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