One of the biggest challenges when it comes to holiday gift giving isn’t affording the gifts but rather figuring out how to give in a way that is meaningful. At the same time, successful families often feel concerned, even downright terrified, about raising entitled children who don’t appreciate the value of a dollar. We’re going to outline a process that solves both problems at the same time – gives meaningfully and allows you to teach your children an invaluable lesson about financial responsibility – the legacy of charity.
Step One: Finding a Worthy Charity
As the holidays are a time of giving, we are often approached by charities in our community or at work. It’s a valuable lesson to teach kids that not all charities are created equal. It’s the same mindset that applies to spending: not all investments are worthwhile, and not all the things you want to buy are going to be worth spending on.
Ask them questions such as:
- What do you like about this charity as opposed to others?
- How financially sound and viable do you feel this charity is as a company?
- What do you see your donation being used for? Why does that matter to you?
- What do you see as the pros and cons of investing your money in this cause?
You’d be very surprised at what you hear back and these questions are a great jumping off point for a larger conversation about compassion, humility, and helping others.
By teaching children how to evaluate a donation responsibly, you are instilling them with a mental discipline when it comes to money.
Step Two: Do the Research
Work together on a giving strategy that identifies a list of charities, and then narrow it down to a few top choices. Research these choices using sources such as GuideStar. They’ll learn how to evaluate an investment and also become aware of the fact that fraud does exist and you have to do your homework.
Step Three: Create a Financial Strategy for the Gift
Have a family meeting and discuss how you plan to go about giving to the charity. Possible creative ways to do so include:
- Encouraging children to direct part of their allowance towards the gift
- Offering to match up to a certain amount
- Discussing how to fundraise through members of the community
- Giving your child a sum of money to be donated to the charity in his/her name
In addition to discussing ways to raise the funds, you should also cover how you’ll handle the money once it is gathered. Create a financial plan together. What kinds of bank accounts would you use? Which vehicle is the best one? Make it into a more in depth discussion about finance and how the system works.
Step Four: Establish a Donor Advised Fund (DAF)
Taxes are one aspect of finance that for sure are never going away. Use this exercise as an opportunity to teach your kids how to manage them smartly.
A Donor Advised Fund allows you to set aside funds that are directed to a charity for a tax break to the donor. The gift grows tax free and upon distribution are awarded to the charity.
Not only are there significant tax advantages, a DAF also allows your family to feel a stronger connection with the charity. It’s a very good strategy to use if your family feels strongly about a cause and wants to make it part of their legacy.
Finally, a wonderful benefit of these funds is that, unlike family foundations, you don’t need to commit tens of thousands of dollars. Many DAFs can be opened with a $5,000-$10,000 donation (or even less in some cases). You also do not have to disburse the funds all at once, allowing for a lasting legacy of family giving. Make sure you consult with a financial advisor for more information.
Working together as a family to give to charity is a great way to instill values and fortify your legacy. In addition, it can serve as an example of financial responsibility and awareness. Anyone with questions about how to give your children the valuable gift of financial literacy by enacting a DAF or other strategy this holiday season can contact us.
Prism Planning Partners, LLC dba Prism Planning Partners is an SEC registered investment advisor. Prism Planning Partners is not related to nor endorsed or sponsored by GuideStar. The link to GuideStar’s web site has been provided for informational purposes only. When you access their site you are leaving our web site and assume total responsibility and risk for your use of the site you are linking to. We make no representation as to the completeness or accuracy of information provided at that site. This article is for informational purposes only and does not constitute an offer to sell, a solicitation or offer to buy, or recommendation of any security or product.