Graduation season leaves many wondering what to get the newly minted grad. I have a suggestion: Give them the money they need to start an IRA. It's the gift that keeps on giving.

This idea comes from a chapter in my latest book “Hey! What's My Number?” It also stems from the frustration I felt every year my parents surprised their grandkids with a savings bond. The idea was to teach the kids how to save and invest. Now, we all know those savings bonds don't yield much when it comes to long-term investing. In fact, because they're worth more to me from a sentimental standpoint than from any measure of pecuniary value, I've never cashed in the savings bonds I received as a kid.

Upon granting their grandkids the usual savings bond gift, I'd tell my parents if they wanted to teach the kids to save and invest, give them shares in a long-term growth mutual fund. It wasn't until I started writing “Hey! What's My Number?” that I realized the true value of my comment. All my kids have had jobs as teenagers. In every case, I “encouraged” (as only a father can) them to max out on their IRA contribution. I don't know what's in store for them career-wise, but I do know giving them a head start on saving for retirement will benefit them in ways they may be too young to appreciate right now. But, in 50 years, they'll know the wisdom of their old man. Maybe they'll even use it to help their own grandkids.

How easy is it to make today's high school graduates millionaires? Let's say you contract them to do work for you (whether it's chores around the house or filing in your office, it doesn't matter; the point is they're earning income). They might complain about, what appears to them to be, indentured servitude, but the meager money you pay them can go right into an IRA. Let us further assume you pay them $2,000 a year for the first 18 years after their graduation (alternatively, they can work for someone else and earn at least $2,000 a year and you can gift them the $2,000). They then put this $2,000 in a long-term growth fund. After 18 years, they stop investing (for whatever reason—they buy a bigger house, they want to save for the own children's college education, etc…). By then, they don't need you anyway since they are (hopefully) employed by a company with a 401(k) plan and they're saving for their retirement automatically with every paycheck.

That $36,000 investment will grow to nearly $1.2 million by the time they retire at age 70 (assuming an 8 percent annual return). That's a pretty hefty start for a retirement nest egg. And it all began with a modest high school graduation gift of an IRA. It truly is the gift that keeps on giving.

Instant Insights /

A graduation gift that keeps on giving

More From HR Executive

Related Stories

Recommended For You