- Almost two-thirds of people plan to give financial gifts this year
- A third of people will give a gift card
- Cheques are dying out as just 3% are gifting them
- Pros and cons of each financial gift explained
Laura Suter, director of personal finance at AJ Bell, comments:
“Almost two-thirds of people will give a financial present this year, whether that’s cash, bank transfer, Premium Bonds or gift cards. For tricky-to-buy-for teenagers, an awkward aunt or teachers at school, financial gifts can be a good and quick way to give a gift.
“Gift cards are the top financial gift this year as the cashless society grows and cash gifts dwindle, with a third of people planning to gift them. As more people live their lives online, increasingly it makes sense to give digital gift cards rather than cold, hard cash. Now gift cards can be used to buy a book on a Kindle, a digital-only computer game or get credits on online gaming, as well as the more traditional use in physical and online shops.
“While it won’t win any prizes for sentiment, one in seven people plan to directly transfer money into a loved one’s bank account. It may not seem quite as thoughtful but scores high on the practicality scales, with no chance it can get lost in a pile of wrapping paper like cash, or go unused like a gift card. And with the cost of living crisis having eaten into people’s budgets this year it’s a much-needed gift for many.
“Despite being one of the nation’s favourite ways to save, not many people plan to gift Premium Bonds this year, with just 3% planning to. While these saving accounts have the potential to make the recipient a millionaire, they may take some time to explain to younger members of the family, who would likely prefer some cash in their back pocket or bank account.
“Before buying that gift card or stashing a £20 note in a Christmas card, there may be better options for gifting money. Putting money into a savings or investment account, or buying Premium Bonds, might be a better way to give a longer-lasting gift that doesn’t get lost down the back of the sofa.”
The pros and cons of different gifts
Gift card:
“A bit of a halfway house between a present and cash, which lets the person you’re giving it to decide on their own gift. Some people like the fact that because it’s tied to a particular shop people have to buy something nice with the money, whereas with cash they could just put it towards the weekly food shop or energy bill. However, lots of gift cards go unused or get lost. In theory, the gift card should be replaceable if you lose it and the buyer still has the receipt – but that involves an awkward conversation with the gift giver that many don’t want to have. Also, if the retailer goes bust you’re likely to have a very limited time period to use the gift card before you lose the money altogether. All-in-all they are pretty inflexible and not an ideal gift.”
Cash:
“In an increasingly-digital world cash feels a bit old school – particularly for younger people. It offers flexibility, so children can choose to spend it or save it, but it can’t be used online without first transferring it to a bank account – which could be a hassle for some people. It can also be easily lost along with wrapping paper at Christmas.”
Cheque:
“The main appeal with cheques is probably the nostalgia factor. It also has an advantage over cash in that a cheque can be rewritten if lost. But it comes with huge hassle factor – many of the youth of today probably don’t know what a cheque is or how to pay it in. While some banks let you pay it in via the app, others will make you go in branch – which might mean it never gets paid in.”
Premium Bonds:
“There’s a lot going for Premium Bonds: you can save as little as £25; they are Government-backed, so couldn’t be safer; and you have the added bonus that they might make your child or grandkid a millionaire. But, while the expected prize fund has improved recently, you’ll still often earn less than a cash savings account and the bonds you buy could win nothing. With inflation still high that means the spending power of your gift will be eroded year on year, particularly if the recipient doesn’t cash the money in for a long time.”
Cash savings account:
“If you want to put money in a cash savings account for a child, you’ll likely need the child’s parents to open the account for you (assuming that’s not you). You should hunt around for the best rate possible, and then make a note to check back on the rate in a year or two, as banks have a nasty habit of slashing the interest on offer and relying on people not moving their money. Cash rates have risen recently, so you can get a decent return. But for longer-term savings inflation can eat into your spending power and you might be better off investing. That means if the child is young and a has a long time until they’ll need the money, you should think about investing.”
Junior Stocks and Shares ISA:
“It’s probably not going to get yelps of excitement when a child opens the gift, but investing is the ideal long-term place for money, making it a good option for people who are gifting money to younger children. And the pot can build up over the years to be an exciting amount once children turn 18. For example, someone who saved £25 a month from birth to the age of 18 would generate a pot worth £8,000, assuming growth of 4% a year. But the downside is that the money can’t be accessed until the child is 18. Similarly, when they reach 18 they take control of the money, which means they could cash it in and go on a spending spree – despite your protests.”
Junior SIPP:
“It will surprise many to know that even non-taxpayers can get pension tax relief, so you can put up to £2,880 into a pension each year for a child and it will be topped up by the Government to £3,600. If you paid in the maximum each year until they reached 18, and then didn’t make any further contributions, they would have a pension worth almost £410,000 by the age of 55, assuming 4% annual growth. The fact that the pension is locked up for so long means you can be sure they aren’t going to raid the money but clearly the downside is that this is a very long-term investment, that the child won’t be able to benefit from until they are at minimum pension age. Currently that’s 55 but will increase to 57 in 2028 and could easily rise further, so it’s impossible to predict what it would be for someone who is a child today.”
Data collected from a nationally representative survey of 2,000 UK adults carried out online by Opinium for AJ Bell in December 2023
