The holiday season is full of giving and receiving gifts. Tech toys and event tickets are fun but I tend to prefer more practical gifts – things like clothes, books, gift cards, household goods, and the like. There’s another great gift you should have considered this year – one that will teach the recipient valuable financial lessons, in fact. It’s also a gift that won’t end up on eBay next month or sold in next summer’s garage sale. And that gift is the gift of stock.
Many would scoff at the idea of giving stock as a gift. And admittedly, it sounds boring on the surface. But don’t write this one off as a total dud, particularly if you’re giving it to a teenager, college student, or really anyone on your list who could use a financial education (don’t we all?). You may find that it meets the criteria of the old cliche – “the gift that keeps on giving.” Now, their initial reaction may not be the same as unwrapping a PS4 or Xbox One, but in the long-term, there are great benefits to adding a gift of stock to their stocking.
The most obvious benefit is that the stock can be cashed in at any time for real money. As soon as you give the stock as a gift, the owner has equity – a small ownership in the company. And as the stock price grows, the value of the cash proceeds grows with it. With a few click of a button using an online stock brokerage, that ownership can be exchanged for cold hard cash.
More importantly, however, the stock gift will provide an opportunity for a valuable financial lesson. For instance, tracking the stock price alone will give the new stock owner an appreciation for the system most people use to fund their retirements. And when the time comes to sell the stock, they not only get the cash proceeds from this sale, but they will likely create a taxable event to learn even more from. Nobody gets excited about owing additional taxes but even if a tax professional prepares their tax return, they will be able to see how selling that stock affected them financially, and likely in a small, low-risk way.
The financial lessons will be even more powerful if you purchase the stock of a company that they care about. Maybe that’s a tech company that produces products they use, a favorite restaurant, or clothing brand they like. Tying the gift to their everyday interests could galvanize their interest. That exact scenario happened to me in college.
When I was a college sophomore studying business administration, I received a gift of one share of Netflix stock. It was the first stock I had ever owned and it was worth around $30 at the time. Clearly, that’s not a major investment and it gave me no immediate benefit while in stock form. However, it piqued my interest about finance. It’s one thing to learn about investing from a textbooks but a completely different thing to experience it with ownership of an actual stock.
I held on to that share of stock for almost a decade before selling it. But I sold it for around $220, just before Netflix stock dipped as the company announced they were splitting their online streaming and mail-order services into two separate services, effectively cutting customers benefits in half. I received just under $220 from the sale of the stock after I paid a brokerage fee.
It all started with a gift of stock – a great lesson you can give someone for the gift-giving occasion.