Imagine handing over a beautifully wrapped Christmas present to an excited child. Picture the delight on their face as they wrestle off the ribbon, rip off the paper only to reveal… an empty box
At this time of year lots of financial experts do the rounds telling us to spend less on presents and invest in our loved one’s futures instead.
I’ve already received emails suggesting investing in gold on behalf of family and friends rather than buying them jewellery, or saving money for a child’s university years rather than giving them presents they’ll likely discard by new year.
But even though many of us know that saving or investing for loved ones is a prudent thing to do, it is hard to do in practice.
It is hard to give up the joy on someone’s face as they open a gift you’ve bought them.
I am not seriously suggesting we all gift empty boxes containing scraps of paper saying ‘Happy Christmas! I’ve set up a pension for you!’ But even so, there are few young people who would act as grateful on hearing you’ve invested for them as upon handing them a wrapped gift.
It is also hard to give up something tangible for something abstract.
There is an old experiment that psychologists do to measure children’s self-restraint.
They tell young participants they can either have a marshmallow now, or two in an hour – and see which one they choose.
Many children struggle to find the self-restraint to opt for two later. But at least in this experiment they can comprehend and visualise what they will gain in the long term for the short-term sacrifice.
Gifting investments for the future does not have this advantage. It is the equivalent of giving up one marshmallow now for an unspecified number of marshmallows to be received in an uncertain amount of time later on.
So I’ve been thinking: what if we made the trade off more equal, by giving up something concrete for something else just as tangible?
I tried it out, and the results are stark. Instead of giving someone a games console this Christmas, you could pay for their rent and living costs for a month at university – or a luxury holiday in retirement.
This is calculated on the cost of a Nintendo Switch (cost around £299 with one game), and investing for a 13-year-old for 10 years in a Junior Isa (which would make around £440 at 4%),or in a pension to age 68 (which has the added benefit of tax relief from the government and would make around £3,230).
Similarly, you could buy a four-year-old a Juno My Baby Elephant (one of the most popular gifts for young children this year) for £89.99 – or give them £1,384 to spend in retirement if you put the cost in a pension instead.
I’m not saying we shouldn’t give presents at all – where would be the fun in that. But just holding a little back for later can make a huge difference to your recipient’s future. Fifty pounds becomes £100 when invested for 18 years (assuming returns above inflation of 4%). Imagine how this would build up if you did it every year.
You may not necessarily be around for them to thank you, but you can be sure they will be grateful for your foresight. Maybe true selflessness comes from giving up their gratitude.
And with the Scroogiest column I’ve ever written out of the way, it only remains for me to wish a merry Christmas to you all.
Post The editor, Moneywise, 8 Devonshire Square, Office 03W112, London EC2M 4PL