A More Heartfelt Alternative to Gift Cards

Q: We want to give a financial gift to our kids for the holidays, but gift cards are so cold and impersonal. What do you suggest?

A: Spending on gift cards has declined over the last three years, in part for that very reason — gift cards are seen by many as a gesture that doesn’t require a lot of thought. Consumers also were turned off by the fees and penalties associated with gift cards, though new federal regulations may address some of those concerns.

For parents, grandparents and loved ones, there are a number of ways to give financial presents that show you put some thought into the gift. It’s all in the packaging.

Helping to pay for a kid’s college education is always a welcome gift — for the child, as well as the parents. The younger the children are, the greater the gift’s value, since the savings will have the opportunity to grow tax-deferred over many years. Opening a 529 college-savings account in your name, with the child as a beneficiary, will not only let your financial gift appreciate tax-free until it’s time to pay for college costs, but you have complete control over the account. (So junior can’t blow the gift on, say, a hot new sports car.) Websites such as SavingforCollege.com can help you choose the right 529 plan.

Teens who are nearing their college years might especially appreciate the gesture, particularly if they’ve been touring college campuses. Warm up the gift by wrapping up a banner, sweatshirt, or team jersey from the university the child has expressed interest in attending, along with a note about your gift. Also consider including a brochure from the 529 plan provider to explain how the account works -- never miss an opportunity help a child understand the power of saving and investing in a tax-advantaged account.

Speaking of tax-advantaged savings, you can also help an employed teen on the road to a solid financial future by opening a Roth IRA in the child’s name and contributing the amount of his or her earned income for the year, up to $5,000 in 2010. (You have until April 2011 to make the actual deposit.) The savings will grow tax-free for life, as long as the money is withdrawn after the child reaches age 59½. To make the gift more personal, wrap a note detailing your gift with an item, gift card-packaging or other logo-embossed product from the child’s employer.

(It’s generally always a good idea discuss any large financial gift with the child’s parents before you make the gift. They may already have a tax-advantaged savings account set up that will save you the time and hassle of setting up your own, or have a suggestion about how your gift might be best used to provide financial support for the child in another way.)

If you have an adult child who is struggling financially -- or who may need a little guidance getting his or her financial house in order — there are a number of ways to make a financial gift that doesn’t come off as an embarrassing hand-out.

If you want to help your adult kids start planning for the future, consider offering the gift of financial advice. A fee-only financial planner generally will charge a flat fee, and many charge by the hour. (You can find a fee-only planner located where your child lives at the National Association of Personal Financial Advisors. If you have a financial advisor you trust, even better -- many will offer to work with their long-time clients’ children for a reduced fee.

To dress up the gift, consider wrapping up a leather-bound day planner, or perhaps a financial-planning and budgeting software program, along with a business card from the financial planner.

If you have adult children in severe financial distress, cash is typically the most welcome gift. But there are smart ways to help dig your kids out of a financial hole without handing over a wad (particularly if you’re concerned that your gift may be used for something other than financial relief). You can pay down your child’s student loan, auto loan or credit-card debt directly to the lender, and other household bills (utilities, mortgage, etc.) can also be paid to the service provider without involving your child. In 2010, an individual and his or her spouse can each give away up to $13,000 before gift tax kicks in. (Take note: This limit doesn’t apply if you use the money to pay college tuition or medical expenses.) The gift recipient doesn’t have to report the financial gift as income.

HAVE A QUESTION FOR "ASK THE EXPERT"? Email Physician's Money Digest at tcullen@hcplive.com.