Dec 22, 2008 @ 08:56 pm
They're the worst possible gift you can give a grandchild, niece, nephew, or any other young person in your life despite they're ongoing popularity. You'd never know how bad they are from the high praise they receive.
Kiplinger's calls them "the gift you buy for a newborn niece or nephew." Bankrate.com says they're "the gift that keeps on giving." The U.S. Treasury calls them the "gift for any occasion."
I guess that's a big part of why 55 million Americans now own them. That's more than one in six Americans.
I'm talking about U.S. Savings Bonds. Over the years, they have become the ultimate "fall-back" gift for the tough people to shop for. Kids, infants, teens…savings bonds always seem to be a decent fit. But they're no longer the gift that keeps on giving.
First of all, their yields are pitiful. The EE Bonds, the most common, yield a paltry 1.3%. The yield is low and going lower. The EE bonds will reset at an even lower rate in April. The I Bonds, which are indexed to inflation, aren't much better. The I Bonds only yield 0.7% on top of inflation (as tracked by the Labor Department's Consumer Price Index). Older I Bonds had fixed yields of inflation plus 2% or more.
The long-term outlook for them is even worse. The U.S. government is currently $10 trillion in debt and could easily double that in the next five years if the economy doesn't recover. A U.S. Savings Bond is basically a loan to an otherwise bankrupt U.S. government.
Finally, there are just so many better options. Remember, the majority of savings bond recipients have 15 years or longer before they'll probably need to cash out. That's why I'm urging everyone I know to give better financial gifts; ones which will offer true prosperity to the young ones in our lives.
The Gift of Real Prosperity
When you think about it, most of us don't have the luxury of a 15 or 20 year time horizon when it comes to investing. We've got to turn over a lot of stones to find investments which offer capital appreciation, high levels of current income, or both.
But young people are in a much, much better position. And with the market collapsing this year, we've got the potential to give away a truly life-changing fortune within the next few years.
For instance, my nephew is almost two years old. He's not getting any toys from me this year. He's in for a big box of disappointment over the short-term, but he'll be getting a lot more in the long-term. I'm buying him stocks in these three sectors which, even if only one pans out, will be worth a lot more than any savings bond in 15 years.
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