3 Alternatives to Cash Gifts for Graduation

June 7, 2023
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 ($6,500 in 2023 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.

One accessible option for young investors are stock slices, or fractional shares. Generally, when you buy stocks, you have to buy at least one share. But some stocks sell for hundreds of dollars or maybe just more than a young grad has to spend. Stock slices will allow them to buy a "slice" of stock that represents a partial share, for as little as $5.

Want to learn more about Stock Slices? Get more details here.

3. Lighten their student loan load

Federal loan forgiveness measures may be on the horizon, but for now 54% of those graduating with a bachelor's degree are graduating with debt, and the average debt among those borrowers is $29,100.2 And about a third of graduates with loans are still making payments when they're 35–45 years old, based on numbers from 2019.3 For many grads, all of that can be daunting. Instead of contributing a lump sum, however, you might match a new grad's 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 Ma, Jennifer and Matea Pender (2022), "Trends in College Pricing and Student Aid 2022," New York: College Board. Page 43.

3 The Fed - Chart: Survey of Consumer Finances, 1989 - 2019 (federalreserve.gov)

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when a nonretirement account is rebalanced, taxable events may be created that may affect your tax liability.

Schwab Stock Slices is not intended to be investment advice or a recommendation of any stock. Investing in stocks can be volatile and involves risk, including loss of principal. Consider your individual circumstances prior to investing.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.