Investment or a toy? You can give both
We have three preschool grandchildren, and they get tons of stuff for Christmas every year. Weíre in really good shape financially and would like to do something for their future this year instead of giving a toy that might get thrown in the corner. Do you have any suggestions?
Iíd do both. You donít want to be those grandparents who only hand envelopes at Christmas to four-year-olds. No, they need things to play with. Theyíre kids and they should be allowed to act like kids and be happy at Christmas. The good news is you can do both without spending an arm and a leg.
In addition to a few special toys, perhaps you could work with their parents to launch Educational Savings Accounts for them. This would get their college funds started, and itís what we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 contributed in their name per year.
The beauty of the ESA with the mutual fund inside is that itís growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Just make sure that together you donít over fund the ESAs and cause yourselves tax problems.
Merry Christmas, Valerie.
My wife and I are building a home, and we found a great entertainment centre we both love. It costs $6,000, and the dealer said he would give us 10 per cent off if we take out a store credit card. We have the cash to buy the piece, but we were wondering if it would be a good idea to get the card and use it for the entertainment centre and Christmas gifts, then pay it off immediately.
I hate to burst your bubble, but Iím pretty sceptical about this idea. I know it sounds good on the surface, but the problem is the vast majority of people donít have the discipline to follow through on a plan like this. Another issue is a lot of places like this hit you with a fee when you pay off the card, the thing runs over, then you get another fee, and so on.
Iíd just call the manager out of his office and let him know that unless he discounts the entertainment centre $600 Iím going to his competitor. No, thereís no way Iíd take out a stupid credit card at this place whether I had the cash on hand or not.
Tyler, you need to learn right now itís a bad idea to play with snakes. Stop screwing around with debt products, okay? Everyone thinks theyíre the exception to the rule or theyíre somehow winning or getting rich by doing stuff like this, but it doesnít work. Theyíre trying to hook you, man!
Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 12 million listeners each week on 575 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.
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