5 Holiday Financial Gifts for Kids That Keep on Giving

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual. 

As the holiday season approaches, you might not love the idea of buying your kids more stuff. That’s why many parents have found that focusing on giving more meaningful gifts that emphasize experiences, such as a zoo membership or a charitable donation made in a child’s name, is a better option.

Financial gifts for kids can also give back in a big way—and set future generations up for financial security. You don’t have to ignore your child’s wish list, but you can encourage grandparents, family and friends to give financial gifts that could benefit your kiddo for years to come. Here are five ideas to help get you started.

5 holiday financial gifts for kids that keep on giving

1. Contribute to their education

It’s no secret that college is expensive. For the 2024-25 school year, the average estimated budget for an in-state student earning a four-year degree at a public college is $29,910, according to the College Board. Loved ones can help ease that burden by contributing to the following types of accounts this holiday season:

• 529 plan: This is a tax-advantaged savings plan that’s designed to make saving for college a little easier. Earnings grow on a tax-deferred basis, and withdrawals that are used for qualified education expenses are tax-free. That includes tuition, fees, books and room and board. (Keep in mind that contribution limits vary by state.)
• Coverdell education savings account (ESA): This works like a 529 but typically offers a wider range of investment choices. One downside is that annual contributions are limited to $2,000 per beneficiary. To contribute the full amount, your income cannot exceed $190,000 for married couples filing jointly (or $95,000 for single filers). Plus, the beneficiary must use their funds by age 30 to avoid tax consequences.
• Custodial accounts: There are two main types of custodial accounts: Uniform Gift to Minors Act (UTMA) accounts and Uniform Transfers to Minors Act (UGMA) accounts. Both can be used for college expenses. They function in a similar way, but UTMA accounts provide more flexibility in terms of investments. Unlike an UGMA account, UTMAs can hold physical assets like cars, fine art, real estate and jewelry. Life insurance, intellectual property and annuities might also be included. This allows friends and family members to make cash contributions or give physical assets.

2. Start early with their life insurance

Getting life insurance for your kids or grandchildren is a great way to protect their financial future. Most kids’ policies provide whole life insurance, which could cost as little as $40 per month for a 4-year-old. As long as the premiums are paid, the policy never expires and the premiums are locked in. Getting life insurance while young and healthy also helps protect insurability. If children develop health issues as they age, they may have trouble getting insurance. But a policy that already exists will continue to cover them—and if their policy has an additional purchase benefit, they'll be able to buy more insurance at set times in the future (even if they develop a health issue later in life).

What’s more, whole life insurance accumulates a cash value over time. When your child is grown, they could tap those funds for any reason.¹

3. Pad their savings accounts

Everyone likes cash. Putting money into a high-yield savings account can help those funds grow faster. If your child doesn’t have a savings account, you can use his or her next cash gift to establish one. Or you could open a custodial account. The child will technically own the assets, but an adult will manage it on their behalf. They’ll have full access to the account when they come of age.

Both UGMA and UTMA accounts can hold cash. Anyone who contributes can kick in up to $18,000 in 2024 without tax consequences. The limit for married couples is $36,000. Anything beyond that will count toward their lifetime gift-tax exclusion, which is $13.61 million for individuals in 2024.

To put a fun spin on it, you could earmark the account for a specific purpose—like a down payment on a car or a college semester abroad. Another idea is to invite the child to participate in saving. For example, a grandparent might agree to match every dollar the child contributes. You can also use an app to gamify the experience and motivate your child to work toward a meaningful financial goal.

4. Invest in stocks on their behalf

Stock investing is often a key part of building long-term wealth. The earlier you begin, the more time you have to benefit from compound interest or compound growth. This puts kids at a big advantage because time is on their side. If you’ve got a child who’s curious about the stock market, use it as an opportunity to teach them what it’s all about. It could instill a lifelong interest in investing.

UGMA and UTMA accounts can also serve as custodial investment accounts. You manage contributions and make investment choices on behalf of the child, and they’ll gain full access when they’re older. These accounts can hold all types of assets, including stocks, mutual funds and exchange-traded funds (ETFs).

5. Buy savings bonds

Issued through the U.S. Treasury, savings bonds have long been a go-to financial gift for kids. They’re insured by the federal government and can accumulate interest for decades. If you go this route, you may want to encourage the recipient to wait until their bonds have fully matured before redeeming them. Savings bonds are available as:

• Series EE bonds: The value is guaranteed to at least double after 20 years.
• Series I bonds: While Series EE bonds have fixed interest rates, Series I bonds use a mix of two different rates—one that’s fixed and another that’s indexed to inflation. The inflation rate resets every six months.

Financial education may be the best gift of all

While receiving money is great, learning how to be responsible with money is even more valuable. The financial gifts above present an opportunity to help your children:

• Become more financially literate.
• Gain experience spending money responsibly.
• Understand the value of saving. They’ll see their account balance or investments grow over time.
• See why insurance is so important, especially if they’re accumulating a cash value.

Financial products like these, and the tax laws surrounding them, can be complicated. It’s a good idea to work with your financial advisor and a qualified tax professional who can help you give strategically. You can even invite older children to tag along for the conversation as they might benefit from meeting with your financial advisor, too.

1 The primary purpose of permanent life insurance is to provide a death benefit. Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.

This article is for informational and educational purposes only and should not be interpreted as financial or investment advice. Northwestern Mutual Financial Representatives cannot sell or recommend the purchase of I bonds.

All investments carry some level of risk including the potential loss of all money invested. You should carefully consider risks with fixed income securities such as bonds, these include: Interest rate, Duration, Credit, Default, Liquidity and Inflation.