Warren Buffett Loves to Give This Gift for Christmas -- and You Should, Too

Warren Buffett is one of the most successful investors who ever lived, so it shouldn't be surprising that he is rather generous when it comes to gift giving. For example, Buffett is a signer of the Giving Pledge and plans to give away virtually all of his wealth to charitable organizations -- in fact, he donates billions per year and has done so for a long time.

He is also reportedly a generous gift-giver when the holiday season rolls around. For many years, Buffett's typical Christmas gift to family members was $10,000 in hundred-dollar bills. However, Buffett reportedly made a change a few years ago and started giving stock instead. In short, Buffett's relatives would reportedly rush home and quickly spend the cash, which is quite the opposite of how Buffett intended the gift -- so he started giving shares of stock in his favorite businesses.

Buffett would tell the recipient that they could either keep the shares or sell them, but this helped make his intentions clearer. Plus, his relatives were essentially getting a free stock tip from one of the greatest investors of all time, and according to Buffett's former daughter-in-law, she would buy even more shares of whatever stock he gave.

Of course, not everyone is Warren Buffett and can give a five-figure sum to everyone on their shopping list. But if you often give cash or gift cards as holiday gifts, there are ways you can use those dollars to help your loved ones build their financial future instead.

Giving stock for the holidays

Giving stock to other people is quick and easy in most cases, and the procedure depends if they are a minor or an adult.

If you're giving stock to a minor, you can open a custodial account to invest on their behalf. Most major brokers offer these, and you'll see them referred to as UGMA or UTMA accounts. The minor will take control of the account once they turn 18 or 21, depending on the state they live in.

If you're giving stock to an adult, they'll need to have (or open) a brokerage account. Many brokerage platforms have easy-to-use features to gift shares of stock you already own, or you can simply call your broker to get the process started.

College savings

If you have any younger people on your gift list, making a contribution to a 529 savings plan on their behalf (or starting one if they don't have one yet) can also be a great way to give the gift of investing.

A 529 savings plan works in much the same way as the typical 401(k) plan. You contribute money with a named beneficiary, and there is usually a menu of various investment options. Some might be specific funds, while others will be labeled as "aggressive growth" or another investment style. While in the account, assets in a 529 plan can grow and compound on a tax-deferred basis, and any withdrawals for qualifying educational expenses are tax free, regardless of how much the investments have grown.

This could even be a way to get a tax break for your gift giving. 529 plans are run by individual states, and while contributions can never be deducted on your federal taxes, many states allow 529 contributions to be deducted on state tax returns in the year they were made.

The gift that keeps giving

Not only is giving stock or other investments a more productive use of your money than buying toys, games, or other items your friends and relatives might use a few times, but it can also help encourage smart financial habits. If you gift stock to a friend and they need to open a brokerage account to accept it, they may start to build a portfolio. If you start a 529 savings plan for your niece or nephew, it could encourage their parents to start putting money in it.

This year, you may want to consider using some of your holiday gift-giving budget to help set up the people you care about for future financial success. You might be surprised by how much they enjoy their gifts.