Splurging On Grandkids
Grandparents Aren’t Always Aiming The Money Where It’d Best Be Used
Being able to spend money on your grandchildren is truly one of life’s great pleasures, according to a new survey by the American Association of Retired Persons (AARP). Grandparents at all income levels typically spent 1.3% of annual income on their grandkids, and that many folks would spend more if they had more. Fun as it is, it may not be easy money. Family complications (ungrateful kids who never send thank-you notes or parents who don’t agree with the way the gifts are spent) are just a part of it. Most of the gifting grands expressed concern that their grandchildren didn’t understand the value of a dollar. There’s also the possibility the grandparents aren’t aiming the money where it will be best used. Sometimes it’s good to take some of those dollars and direct them to something they’ll really need - like a college education or the down payment on a first house. Here’s how to have some fun while helping the kids the smart way:
- It’s great to be the grandparent who steps in and supplies all. And everybody of every age loves a birthday card with money in it. But use a portion of what you can afford for these visible gifts, and keep some aside for a bigger gift down the road.
- Talk to the parents before setting up any accounts or handing over dramatic gifts. Saving money in your grandchild’s name can affect the family’s tax situation. They may have their own preferences for how money is saved. Don’t use your money to force your kids to behave in any specific way relative to their children.
- Young children should have three piggy banks: one for everyday spending and splurges, one for their longer-term goals (the Xbox or iPod), and one for charity. Pouring coins into each category when the kids are little gives them some instant gratification and might reinforce the differences between those three categories.
- Consider a 529 college savings account. It can be started with small amounts of money when a child is born. With regular monthly contributions (or even just nice checks on birthdays and holidays) you can build a significant amount of money. Put in $1,000 when baby is born, add $50 a month, and at an earnings rate of 8% she can have $28,200 to spend on college when she’s ready.
- Start a family investment club. If your grandchildren are teens and have the interest in learning about investing, you can set up a family investment club, even if you have to seed the club’s account with your own cash for a while. The grandkids can learn how to choose stocks or mutual funds by investing the club’s money. Each “meeting” can include a simple lesson that different family members present.
- Help with that first house, if you can afford to. Helping with a home purchase is a gift that is not likely to be squandered. Helping to buy a home also can free up some of the young person’s income to fund retirement and the education of his or her own children.
