For lasting gift, consider stock, savings bond for grandchildren

STAYING AHEAD

December 22, 1991|By JANE BRYANT QUINN | JANE BRYANT QUINN,1991, Washington Post Writers Group

New York -- Calling all grandparents, at Christmas. One thing you can do for your grandchildren is to give them money gifts. Parents have to deliver Lego blocks, Barbie dolls and rock albums. But grandparents can provide funds every year that will serve the children long after their Barbie dolls are dust.

If not money, then something else of lasting value. Each Christmas for 12 years, when I was a child, my grandmother gave me a plain silver teaspoon with my initials on it. Spoons didn't excite me much at 8. But when I grew up, I treasured them. I remember my grandmother every time I get them out.

But money gifts are more common, and none is as popular as a U.S. Series EE Savings Bond. Owning a bond personally can be pretty impressive to a child. If his or her name is on the certificate, it might imprint the excellent idea that it's smart to save.

You can buy bonds at most banks and S&Ls, for as little $25.

Their interest rate isn't much -- a variable rate now at 6.38 percent, with a 6 percent floor. But the tax on the interest can be deferred.

If the child's parents are middle income, they might save on taxes if you put the bonds in a parent's name instead of the child's. As long as the family income doesn't rise too high (no more than $62,900 for couples this year and $41,950 for singles, indexed to inflation), the bonds can be used for tuition entirely tax-free. As the parents' incomes rise, the tuition tax break gradually phases out.

Here are some other gifts to consider:

* Start a passbook savings account. Some banks and S&Ls no longer provide passbooks. But if they do, it's fun for children to take the passbook to the bank and have the interest entered. That shows them how money, left alone, can grow. As children get older, this account is ready-made for their baby-sitting money or the cash gifts they get on birthdays.

Be sure that your bank doesn't charge a prohibitive monthly fee on small accounts. Many banks waive these fees for children.

Note that a bank account "in trust for" the child is not a gift. The money remains entirely yours and goes to the child only at your death.

* One share of stock. This links the children to the world of investing. They can follow their stock in the newspaper and learn valuable lessons about market volatility and long-term growth.

A share in the Walt Disney Co. is an especially nice gift, because the stock certificates come imprinted with Disney characters. Even better, shareholders get discounts on the rides at Disney theme parks.

Alternatively, look for a company that the child will identify with: a toy company, the company that made the family's home computer, an airline company for children who love planes, the company that the parent works for.

You need to have an active brokerage account or a friend in the business to buy just one share of stock. Normally, firms won't process such a small order.

* Shares in a mutual fund. This, too, is an investment that children can follow in the newspaper. Normally, mutual funds require minimum initial investments of at least $1,000 to $3,000, after which you can start depositing smaller sums. But if you agree to make regular, automatic investments, many good funds let you start with just $25 or $50 a month.

For the names and characteristics of mutual funds that charge no sales commissions, overt or hidden, send $3 for the 100 No-Load Mutual Fund Directory, directly to 1501 Broadway, Suite 1809, New York, N.Y. 10035. The best type of mutual fund for a young child is one that invests primarily in stocks. Over 10

or 15 years, good stock-owning funds will grow the most.

* A crisp $20 or $50 bill. But a cash gift says "spend me." If you want to attune the child's mind to saving money, bank accounts, bonds, stocks or mutual funds are by far the better choice.

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