From medical billing and investing to consumer banking and retirement saving, scrappy startups have managed flip just about every traditional financial service on its head. The latest innovation out of Silicon Valley is a company called SparkGift, which aims to make it as easy to gift someone shares of Apple or Tesla as it is to pick up a gift card.
The company, founded by Peggy Mangot, began beta testing in March. Mangot, a former Visa product manager, spent four years at Google working primarily on Google Wallet, the company’s mobile payments app.
Developing an easy-to-use platform for stock gifting was born out of a personal frustration, Mangot says: “We have all these occasions where we have this opportunity to give gifts to family and friends, and the only real options are things or gift cards. I’d rather give an investment, but it’s almost impossible to do easily.”
SparkGift allows gift givers to buy fractional shares for as little as $20 (the typical gift amount so far has been between $75 and $90, Mangot says). Fractional shares are pretty much what they sound like — less than one full share of a company. Rather than purchasing one whole share of Apple for $110, for example, you could spend $20 and buy roughly one-fifth of a share, something not all brokerages allow investors to do. The company gives gift-givers access to over 6,000 stocks and index funds. They hope to start offering access to 529 savings plans in the future.
Over time, family and friends can easily contribute funds to a kid’s SparkGift account through a registry parents set up on the site, which lets other potential gift-givers know which stocks or funds their child prefers.
In its current form, the site works best for those who know which stock or fund they want to gift. You can select from the top six most popular stocks and index funds (Tesla (TSLA) tops the list of stocks; index fund investors favor Vanguard’s Total Market Index Fund (VTSMX), and search by name. But you’ll have to do any stock performance comparison using other tools. Mangot says they plan to roll out more investor education tools in the future but the mission now is to keep things as stripped down and simplified as possible.
“This could be a cool tool to make investing less scary,” she says. “The only way to really learn is to actually participate. We provide a way to do that with a small amount of money initially.”
More than half of stocks purchased through the site have been given to minors, 30% of whom are newborns (0-3 months). Depending on the state, minors can assume control over their accounts at age 18 or 21. “Over time, we want to build a relationship with this customer… and potentially we will either be their investment advisor or we will help them find other financial services,” Mangot says.
How it works:
Gift-givers pick the investment they want to buy and how much they want to purchase. The cash is delivered via a festive e-card to the recipient, who is then prompted to open an account with SparkGift (you select either an individual account or a custodial account, which is owned by a minor but managed by a parent). The cash is essentially a gift certificate at this point. In order to purchase the stock with the funds, the recipient has to open an account through SparkGift with online brokerage firm Folio Institutional, which powers SparkGift’s trades. All of this happens through SparkGift’s friendly interface, which reduces the intimidation factor.
What it costs:
There are fees involved, a flat rate of $2.95 per transaction, plus 3% of each amount gifted (these apply to the gift-giver only, not the recipient). However, the company is offering to waive the 3% fee through the end of 2015. By contrast, many discount brokerages require a minimum balance of $500 and charge between $4.95 to $9.99 per trade.
Teaching kids about investing
Of course, you don't have to purchase stocks for a kid to teach them about investing. Sophia Bera, certified financial planner and founder of Gen Y Planning, says parents shouldn’t focus on teaching their kids how to pick individual stocks. “I think it's more important to help your kids decide what type of account to put their money rather than which investments to put it in,” such as a Roth IRA or a 529 college savings plan, she says. “However, if as the parent you have investments, then you might want to share that with them. Talk about how the stock market goes up and down. Show them your investment portfolio.”
That’s how David Bianchi, author of “Blue Chip Kids: What Every Child and Parent Should Know About Money, Investing, and the Stock Market,” started easing his son into the market. His son was 12 when Bianchi set up an eTrade account, deposited $10,000 and let him choose a few stocks to invest in (McDonalds, Coca-Cola and Disney were his picks). In Bianchi’s case, his son was a little too enthusiastic about his new hobby. He began sneaking peeks at his account so often during class that Bianchi was called in for a meeting with school administrators. Bianchi eventually set up an investing club at his son’s school where members learn basic investing strategies but don’t trade with real money.
You certainly don’t want to teach your child how to day trade. “But the biggest mistake parents make is they don't think kids will be interested because they’re young or they’re not smart enough to understand it. Kids will be interested if you present it in a way that’s fun,” Bianchi says.
SparkGift’s biggest challenge so far has been to make sure parents take the initiative to accept the stock gift on their child’s behalf and set up an account. If the gift isn’t accepted, the money doesn’t get invested. “It’s very easy to do, but sometimes people say ‘oh, that’s so great,’ and then they get busy and forget,” Mangot says.
Bera recommends a classic Roth IRA or 529 plan to parents looking to get their children into the market. There are pros and cons to each. You can open a custodial Roth IRA, which a parent controls, but the child has to be earning an income of some kind and minimum deposits start around $500. A 529 plan allows teens to withdraw funds tax-free for college expenses. Friends and family can make direct contributions to these accounts by coordinating with the child’s parents, or through tools like GradSave or Upromise.
“Some parents even offer to match the amount of money that their teens put away for the future,” Bera says. “I think this is a great incentive to encourage kids and teens to set aside money for the future."
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