What Recent Grads Need to Do With Their Cash

NEW YORK (MainStreet) — Graduates who receive monetary gifts to celebrate their achievements will be tempted to spend the cold, hard cash, but investing it or paying down debt yields greater returns in the long run.

A recent survey conducted by RetailMeNot, an Austin-based digital coupon company, showed that 50% of respondents believe that the best gift for graduates is money. Americans spend $4.7 billion on gifts for graduates with a little over half giving cash and a third offering gift cards, according to a recent National Retail Federation graduation spending survey.

Giving a reloadable prepaid card can help users track their spending and protects them against loss, theft or fraud, said Brett Adams, head of U.S. prepaid products at MasterCard in Purchase, N.Y. The added benefits are that the recipient can also choose to load other cash gifts or even direct deposit their new paycheck onto the card.

"Graduation for many is a rite of passage," he said. "The people surveyed spent an average of just over $50 per recipient, which won't have graduates living easy, but if leveraged properly can help build fiscal responsibility."

The best lesson that new graduates can learn is that it is never too early to start saving since the largest asset individuals have is time, said Charles Sizemore, a CFA based in Dallas and a portfolio manager on Covestor, the online investing marketplace.

"Even middling returns can compound into a small fortune if you start early enough, he said. "Don't blow that money you get for graduation."

Instead of spending $499 for a new iPad Air, a recent graduate could forgo the iPad and invest the funds.

Over a 30-year time horizon, that $499 would grow to $3,798 if it was invested at a 7% annualized return, Sizemore said. Even if the markets generate "ho-hum" returns over the next 30 years that are below their long-term averages at a 5% annualized return, that $499 would still more than quadruple to $2,156, he said.