Don't get me wrong - when I graduated from college, it was great to get a few checks as gifts from family members and friends. But what I really could have used was some sound financial advice to properly plan my finances as a young adult.
As I often mention in these columns, in America, there is no standard financial literacy education requirement in elementary school, high school or college. For those of us who were lucky, we got solid money training at home that prepared us for the transition from student to working adult. For most new grads, it's trial and error.
There are two reasons for this - many students (and often their parents) make a significant investment to afford a four-year degree, coupled with the unfortunate fact that too few colleges and universities offer beginning personal finance instruction to students.
Instead, let me suggest an alternate gift list for your favorite graduate, one that will allow him or her to do something truly meaningful for their financial future with those first dollars they receive as gifts and their first paycheck. Think about the young adult and what they'll respond to, and then consider the following:
Buy them a session (or more) with a money coach. If you already work with a qualified financial planner or professional tax preparer, why not pay for a session or two for the new grad to help them work out their first budget as a working adult? Take the time to talk with the professional about specific financial issues the grad will need to address as well as their first, formal budget setup if they've never budgeted before.
If they need it, find them career coach. If your grad is still waiting for the right position in the field of their choice, tips from the right career coach might help them sharpen their resume, interviewing skills and overall job search. The right advice can help a young adult avoid significant money and professional mistakes and put them on a faster path to their goals.
Help them get a start on their retirement savings. Again, most of these gift ideas can come from one person or a group throwing in cash contributions. Consider taking your new grad out to open a Roth IRA or Traditional IRA. Early retirement investing is one of the most important lessons any new college grad can learn. As grads are young adults, they'll have to do their own paperwork, but you can accompany them to the institution they've selected to open the account, and you can celebrate with lunch or dinner afterward. While you can't make direct contributions to their IRA, you can offer to "match" their contributions each month or year in cash. Also, do make sure you evaluate any cash gift for tax purposes.
If they're continuing school, create a 529 plan or contribute to an existing one. Many new college graduates return to school to start a master's degree or other advanced training. If such an idea makes sense for your finances, consider opening or contributing to a 529 college savings plan to support their continuing education. A 529 plan is a college savings plan set up by a state or educational institution that offers tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild. While all college savings plans are best started early in a child's life, if a new graduate plans to work a few years before returning to school, a 529 is still a good vehicle to consider for tax-advantaged college savings. These plans allow a friend or a relative to set a 529 account up at any time and name anyone as a beneficiary - the new grad, another relative, even yourself, and there are no income restrictions on doing so. You'll also be free to change the beneficiary if necessary. One suggestion - before you act, talk it over with the new grad or his or her family members to make sure this is the best approach for helping with their future education.
Make a sartorial contribution. Chances are that if your new grad has always dreamed of a career on Wall Street, they probably will own a suit by the time they get their diploma. But if they're going to need to create or spruce up a job-hunting wardrobe for embarking on a new job, a contribution for an appropriate suit or business casual clothing might help.
Spring for lunch with a valuable mentor. Depending on your grad's field of study or future career plans, is there a person you know well enough who can offer career or continuing education advice to help? Whether you tag along or simply set up a meeting, putting a new grad in touch with someone with great advice or connections can give them a fresh viewpoint and a potential leg up on their career plan.
Teach them the value of long-term investing. Having investments in one's own name - either through individual stocks or a mutual fund - can be that first valuable lesson in investing for a lifetime. Consider opening a brokerage or mutual fund account based on what you can comfortably afford in the new grad's name, maybe establishing a "matching" relationship where you contribute a few dollars each year afterward to "match" the young adult's own contributions over time. One thing I know for sure - the adult me certainly knows I would have rather received shares in an index fund over the cash I blew so quickly after graduation.
Bottom line: Graduation gifts don't have to be dull. Check your finances, talk to their parents as appropriate and come up with some fun ways to give a new grad a good financial start.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.