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Five ways to give your kids a financial head start this holiday season

We’re fast entering the season of giving, with the year-end calendar crammed with one holiday after another. But in an uncertain economy, it’s important to get your giving right.

That means avoiding the usual waste, like plastic toys that will get ignored or broken or discarded within days. In fact, last year Americans spent more than $10 billion on unwanted gifts, according to a by Finder.

Instead, think about a gift with a more durable future: Something with the potential to grow, to be used for an important life goal down the line, and to teach valuable lessons along the way.

In other words, money.

Not the most sentimental of gifts, sure. But if you can use the holidays to teach young adults about how to handle money – saving, spending, budgeting, investing – you are equipping them with skills they will be able to use for the rest of their lives.

To really impart some financial lessons, it’s going to need to be more than a throwaway gesture like $20 from Grandma’s purse. So what’s the best way to pass along lasting money smarts? , a consumer fintech banking platform, shares a few ideas:

Open their first accounts. If they don’t have accounts already, this kind of basic financial infrastructure is where you need to start. Ideally you’re looking for a spending account that won’t sock them with charges — so seek out those with no annual fees, no overdraft fees, no minimum balance requirements, and an extensive ATM network. Since young adults don’t have much of a credit record yet, look for an account that also has a credit building feature

Youth IRAs. You might not realize it, but it is possible for young adults to open a Roth IRA. Getting an early jump on saving might not seem like a big deal now, but fast forward to their own retirement years, and the difference could mean hundreds of thousands of dollars.

“I often recommend using a Roth IRA to teach teenagers the process of saving,” says Brian Cody of Cody Financial Advisors in Gillette, N.J. “The teens can spend some of what they earn over the summer, while the parents match those earnings with a Roth IRA contribution. It’s one of the most effective ways I’ve seen to get young people excited about working, saving, and developing lifelong financial habits.”

The rule here is to open such an account, they have to have some earned income: That could be from part-time or summer work that issues them W-2s or 1099s, or it could be from more informal arrangements, like babysitting or mowing lawns (keep records in case the IRS wants it).

College savings. The holidays are an ideal time to top up kids’ 529 plans — not just for parents, but grandparents as well. According to the , average annual tuition for four-year public in-state colleges is now $11,950; out-of-state rises to $31,880; and private to $45,000. So you want to start as early as possible (think: delivery room) so that money has sufficient time to grow from investment.

The added bonus for relatives is the state tax break, which often can be quite substantial. For New York State, for example, you can erase up to $10,000 from your taxable income for a married couple filing jointly. (Research your own state .)

Regular savings. Admittedly, retirement may be a far-off goal that young adults have a hard time wrapping their minds around. But here’s something that’s a little more immediate for them: A savings account for nearer-term goals.

That might be for a down payment on their first car, or to move out into their own rental apartment (which often requires an up-front lump sum for the first month, last month, and security deposit). With holiday contributions from them as well as relatives, and then juiced by interest from a high-yielding account, those goals of independence can start looking a lot more realistic. Consider looking at an online or mobile only bank, many of which offer savings rates significantly higher than traditional banks.

Charitable giving. The holiday season isn’t just about getting, it’s about giving. In fact, it’s the time of year when many families make contributions to the causes that matter most to them — not just to help others, but to lock in the tax deduction by the end of the tax year.

Involving teens in those discussions can be an ideal way to get the focus off themselves, and to start them thinking about how to deploy money to create the most impact in their community. “Don’t forget the power of giving back,” says Jamie Bosse, a financial planner with CGN Advisors in Manhattan, Kansas. “Do something charitable together this season, to show them what generosity looks like in action.”

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