3 Alternatives to Cash Gifts for Graduation

June 1, 2022
Schwab strategists share three ways to help improve the financial standing of your recent grad.

With graduation season upon us, you may be thinking of rewarding your new grad with a fancy keepsake or even a check—but why not consider something more purposeful?

"Cash, gift cards, or personal items are certainly fine gifts," says Susan Bober, a Schwab wealth strategist based in Indianapolis, "but if you really want to help your grad get off to a good start, you might consider these gift alternatives that have the potential to last."

1. Help establish a Roth IRA

A jump-start on retirement savings can help pave the way for financial well-being down the road. "A Roth IRA, in particular, is a great way to go because the money can grow tax-deferred during their working years, and withdrawals in retirement could be tax-free,"1 says Chris Kawashima, CFP®, a senior research analyst at the Schwab Center for Financial Research.

Note that your contribution toward a Roth IRA will be limited to your grad's total earned income or the annual maximum ($6,000 in 2022 for individuals younger than 50)—whichever is less.

2. Help them buy stock

Introducing young people to the inner workings of the stock market is a lesson in financial literacy. "Helping them invest a cash gift allows you to teach them important concepts, such as research, diversification, and rebalancing, to maintain their ideal asset allocation," Susan says.

3. Lighten their student loan load

Federal loan forgiveness measures may be on the horizon, but for now the average undergraduate loan debt is $32,300, according to the Department of Education.2 Instead of contributing a lump sum, however, you might match their student loan payments for a specified period. "That way, they're still on the hook for practicing good money habits like paying their bills on time," Susan says.

Monetary gifts aside, one of the best things you can give a new grad is the benefit of insight. "Imparting some of your own hard-earned wisdom—including your mistakes—can help them make smarter financial decisions in their own lives," Chris says.

To qualify for tax-free withdrawals of earnings, account holder must be 59½ or older and have owned the account for at least five years.

2 National Center for Education Statistics (2021). Loans for Undergraduate Students. Condition of Education. U.S. Department of Education, Institute of Education Sciences. Retrieved January 21, 2022, from https://nces.ed.gov/programs/coe/indicator/cub.

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