If you have been shopping for prom attire and yearbooks, then you know all too well that it’s graduation season. That means graduation parties—and gifts.
Graduation gifting pales in comparison to gift spending around the holidays, but the amount is still substantial. According to the National Retail Federation, Americans are on track to spend over $4.7 billion in cash, gift cards, clothing and electronics for graduates this year.
Really, though, some gifts have more staying power than others.
Money is certainly a popular option, with more than half of the respondents in the NRF survey planning to give cash to the graduates they know and love. But what are the odds that that cash will last beyond the first spring break trip?
If your goal is to make a grad happy and give something he or she can always use, other gift options will do the job better, experts say.
Some financial planners recommend opening a Roth IRA account for a recent graduate.
“Then they can even follow the market” to see how their retirement investments are faring, said Catherine Seeber, a principal and senior advisor at Wescott Financial Advisory Group.
IRS rules limit deposits to a Roth IRA to the amount of the recipient’s earned income, so some financial planners warn that setting up an account for a graduate can involve some uncomfortable poking into personal financial matters.
Also, some low-fee funds companies that offer Roth IRAs have a relatively large minimum balance requirement, according to Elizabeth Scheiderer, a financial advisor at NCA Financial Advisors. But a Roth account will help graduates start saving early and benefiting from the power of compounding.
Another option is to pay all or part of a college graduate’s upcoming loan payment. This amounts to giving cash—but cash that is earmarked for something that will pay off long term.
Some experts suggest cooking lessons, or a gift certificate to a local supermarket along with a cookbook, for a graduate who will have a kitchen. Gifts like these encourage eating at home, and hopefully help your graduate cut back on expensive restaurant dinners.
A visit to a financial advisor to learn money management basics can also make a nice gift. Some financial advisors will see the children of clients for free, since there is always the potential they will become clients in their own right.
In a survey by RetailMeNot, the digital coupon site, 42 percent of graduates wish they had been told about the importance of saving money; 37 percent would have liked to have been told not to spend beyond their means; and 30 percent wished they had been warned to be wary of credit cards.
Katharine Rowan, a student at the University of Wisconsin-Platteville, said a friend of hers received a graduation gift that was both fun and instructive: a credit card from her favorite store. The idea, Rowan said, is for her friend to learn to shop sales, use coupons—and pay the bill on time.
“I think her parents are going to help but not that much because they want her to learn how to properly use a credit card,” Rowan said. And she can stay well dressed in the process.
—By Kelley Holland, Special to CNBC