We have three preschool grandchildren, and they get tons of stuff for Christmas every year. We're in really good shape financially and would like to do something for their future this year instead of giving a toy that might get thrown in the corner. Do you have any suggestions?
I'd do both. You don't want to be those grandparents who only hand envelopes at Christmas to 4-year-olds. No, they need things to play with. They're kids and they should be allowed to act like kids and be happy at Christmas. The good news is you can do both without spending an arm and a leg.
In addition to a few special toys, perhaps you could work with their parents to launch Educational Savings Accounts (ESAs) for them. This would get their college funds started, and it's what we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 contributed in their name per year.
The beauty of the ESA with the mutual fund inside is that it's growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Just make sure that together you don't over fund the ESAs and cause yourselves tax problems.