Gifts for Grads More Valuable Than Cash

Graduation is more than a milestone; it’s a critical financial starting point. In this episode, learn how to help the grad in your life get started out on strong financial footing from WHZ's AVP, Wealth Advisor Logan Lum.

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Transcript

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Welcome to You and Your Money. Today's episode features Logan Lum, associate vice president, lead wealth advisor at WHZ Strategic Wealth Advisors. a lot of families are about to give graduation gifts— cash, checks, maybe something practical but apparently this is actually a bigger opportunity than people realize. True story? Yeah, yeah. I mean, if you take a step back and look, these graduates have done phenomenal. They've gotten through, whether it's college or high school, and they're about to move on and have a lot more responsibility and take one step closer to total financial independence. And when you look at that, gifting cash or checks is great for them to reward them for their hard effort, but it's also a great opportunity to point them in, in the right direction to build these healthy financial habits. By right direction, you mean what? Yeah, so something that these graduates have, again, whether it's high school or college, they have something that you don't have, that I don't have, a lot of your listeners don't have, and that's time. They, they have time on their hands, and that's really valuable, especially when you consider investing, compounding growth. But these graduates don't yet have the direction or habits yet to truly take advantage of this time. So if someone just gives cash as a graduation, is there a downside? No, no, I think it's a great gift again to reward them, but simply giving cash doesn't really help them build any habits. It's sort of directionless. In many cases, it gets spent. I know when I got cash when I graduated high school, I went out to dinner with my buddies or to the movies. So it's not innately bad, but there's definitely more opportunity there. So what are some better options that families should consider? Yeah, there's a lot of great tools out there. There's Roth IRAs, which is a great wealth builder. The earnings grow tax-deferred, and when you take the money out in retirement, it's also tax-free. You have 529 plans as well, which is also great if the graduate wants to pursue some further education. And then you have the brokerage accounts, which is a good way to really dip your toes into the investing world. All right, so the Roth IRA, you just mentioned the benefits there. So that's something worth looking into for graduates? Yeah, definitely. Tax-deferred growth and tax-free withdrawals in retirement. And what is really beneficial for these graduates again is time. Let's say, you know, high school graduates are 18 years old. They have, you know, they have almost 40+ years before retirement, and 40 years of tax-free growth can really compound over time into something truly meaningful. What about 529 plans? What's that? Yeah, another powerful tool which is really good if the grad has established they want to pursue some sort of future education. Tax-free growth and tax-free distributions as long as it's used for a qualifying educational expense. And with the 529 plans as well, recent legislation has opened it to be a lot more flexible on what you can use the money for. K-12 education up to— I believe they just increased it to $20,000 lifetime withdrawals for K-12 education. And something really cool as well is that You can withdraw or you can convert $35,000 into a Roth IRA if the graduate doesn't pursue future education or if there's anything left over in the account afterwards. And that also too, you can do what's called a bloodline transfer if there's leftover funds or the graduate doesn't go pursue future education. You can give the money to someone in the bloodline as well. Yeah, keep going with that too. Speak to the grads who— they're done, they're done with college, they're done with their master's degree or whatever, and now they're they're breaking out into the world. Yeah, still, still young. Great opportunity there is a brokerage account getting into the investing world. And it's important too, the direction that you can help and educate the grad in is disciplined, long-term strategic investing, right? Like, we can chase the hot stocks all day long but what, what is really beneficial to help these graduates is if you open a brokerage account and you can teach them and educate them on, on diversifying, not, not looking at the headlines and seeing, oh, I should panic sell or I should panic buy, and really just coaching them on long-term disciplined, diversified investing. So not just the money, which is nice, but the tools and support so you can really put it to work, right? Yeah, yeah, the financial gift matters, but what we believe is that the direction and the habits and the discipline that comes with it is equally as important. It's a pretty big statement there, brother. Yeah, I mean, we see it all the time at WHC. A lot of clients come in and they are looking for some sort of direction. And if you can give at a very young age, you know, the graduates, whether it's your son or daughter, niece, nephew, this, this great direction and education at such a young age, it's going to stay with them for the rest of their lives. So again, families, run it down. Families should be teaching or talking about what at this stage? Yeah, you can keep it really Really simple and baseline, you know, are they working? Do they have earned income? Can they even contribute to a Roth IRA? Are they interested in investing? Brokerage account would be great for that. Do they even have a checking or savings account? And coming up with a savings plan and disciplined spending. What about making those habits stick? Yeah, you know, it's funny, we have a lot of clients that come in here and their parents were living through the Great Depression and the the children of those, of those people are clients now, and they say, oh, you know, my parents always told me don't keep the money in the bank, put under the mattress. So the point to that is what your parents and people teach these graduates really stay with them and stick with them through the rest of their lives. So you got to keep it simple, I guess, right? Yeah, exactly. The structure along with the understanding, and of course, you know, a little bit of fun with the cash gift, is what really builds the most long-term For more information regarding wealth management and customized financial planning with WHZ Strategic Wealth Advisors, please visit whz wealth.com whz strategic wealth Advisors offer securities and advisory services through Commonwealth Financial Network Member FINRA sipc, a registered investment advisor Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street Pomfret Center Center, CT 06259 and 392AMerrow Road, Toland, CT 06084. They can be reached at 860-928-2341. WHZ Strategic Wealth Advisors do not provide legal or tax advice. The tenured financial services team strives to support clients in achieving their financial life goals while providing absolute confidence and unwavering partnership for life.