Education Savings Accounts

My sister is pregnant with her and her husband's first baby. Her baby shower is tomorrow, so my wife and I are driving up to Sacramento for the baby shower tomorrow afternoon. Never having had a baby before, my sister naturally started a baby gift registry at a department store or two and registered for all sorts of cute but impractical baby paraphernalia. In an effort to be the practical counterpoint to my sister's impractical albeit enthusiastic baby shopping list, I have decided to start and fund an Education Savings Account (ESA — What is an education savings account?) for my soon-to-be-nephew for my sister's shower gift. I believe that I will have to wait until my new nephew gets his social security number to start the account (somebody please correct me if I am wrong about this), but I am glad to be the voice of reason amongst so much estrogen-laden baby enthusiasm.

I realize that it is a relatively boring gift for a baby shower, but an ESA will be one of those gifts that is only highly appreciated after the fact. Plus it will make future gift giving incredibly easy, as we can just make an additional contribution to the account for birthdays, holidays, etc. I will be starting the account via Sharebuilder.com due to the $0 minimum balance requirement and the ease of setting up automatic investments in case my sister decides to make regular contributions to the account. I will probably just start the account with some money put into an S&P 500 Index ETF (e.g., SPY), since with eighteen years to grow the account will be able to weather the ups and downs of periodic market fluctuations without any trouble. And the initial investment should multiply considerably in the span of 18 years, given regular contributions, dividend reinvestment, and appreciation. This seems a much smarter idea to me than wasting (er...excuse me...ahem...*cough*..."spending"...) money on baby jumpsuits that will be outgrown in a matter of months.

Any thoughts from the peanut gallery? Boring new uncle or practical older role model? You be the judge!