Question:
Is it a good idea to give someone an investment as a gift?

Answer:
During the season of giving, I am often fascinated by what I learn about myself and others by seeing how we react to gifts. If I had to be honest, I would have to admit that I have never been truly capable of trusting people who actually like receiving socks for Christmas. In life?s long line of cruel jokes, which includes David Hasselhoff?s singing career and Johan Stemmet?s wardrobe, the prospect of brightly wrapped podiatric underwear has a place of high standing.

But is the idea of giving an investment as a gift much different?

Giving an investment as a gift is often thought of as a forward-looking idea that shows our loved ones that we care about their futures. The financial arguments support this.

We can donate up to R100 000 per year to anyone we want, tax free. We are able to give however much we choose to our spouse ? again, tax free. And whatever we give will not fall into our estates and should help us to escape the estate duty liability on the asset. So, provided I don?t need the money for myself (the first point that a financial planner should confirm), giving an investment as a gift is a great idea, right? Well, let?s examine this a bit further.

From the onset, it is important for us to understand that the idea of an investment as a gift is distinctly different based on whether you?re on the giving or receiving end. This is the first obstacle we encounter.

Presumably, the giver of an investment has admirable and noble ideas around this. I say presumably because this is not always the intention. Often, it is merely a tax planning exercise, in which case we should not fool ourselves ? in such an instance, this is not a gift to anyone but ourselves.

The ideas of helping your children to one day get the education they deserve, settle their bonds early or see your spouse becoming financially independent at an earlier age, on the other hand, are all wonderful. This is what we think when we give an investment.

What we think when we receive an investment is often a more pointed 'how much is it worth and can I go cash it in this afternoon?' An investment that can be cashed in on the day it is given is not often an investment at all. It is cash, which kind of misses the point.

So why does the receiver of an investment react like this? The problem is that our survival instincts have forced us to become reliant on the concept of time discounting. This means that whatever I can have today is more important to me than what I might have tomorrow. This makes it kind of sock-like if I receive a gift that is more the promise of something to come (like a monthly R50 investment contribution) than something I can use for my own pleasure today. Back in the day, I remember the root causes of unhappy children in the school playground being exams, bullies and post office savings books as birthday presents. The same psychology applies today.

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