Grandparents love to spoil their grandkids. They don’t just shower them with treats and gifts, but also they provide money to help pay for school expenses, extracurricular activities and more. All in all, it adds up to big bucks. A survey by TD Ameritrade found that grandparents are spending $2,383 a year to benefit their grandkids.
There’s no doubt that most grandchildren appreciate this generosity. But parents might not necessarily agree with the way grandparents are spoiling their kids. And grandparents could be putting their own finances at risk by overindulging grandchildren. That doesn’t mean, though, that the spoiling should stop entirely. Grandparents just have to learn to show love without any negative financial effects.
What to Avoid When Spoiling Grandchildren
There are plenty of things grandparents need to keep in mind so they don’t go overboard when spoiling grandchildren. However, the primary thing to avoid is stepping on the toes of their grandchildren’s parents. “The most important thing grandparents need to do is separate their altruism from trying to assert control,” said David Haas, founder of Cereus Financial Advisors in Franklin Lakes, New Jersey.
For example, it’s not OK to pay to send your grandchildren to an expensive camp if the parents don’t want them to go to that camp. “You are using your money to exert control and this will only cause resentment and strife,” Haas said.
How You Can Spoil Your Grandchildren
Wanting to indulge grandkids isn’t a bad thing. “Grandparents do typically want to spoil their grandchildren and, if they can, why shouldn’t they?” said Karl Hicks, a certified financial planner with Leonard Financial Group in Riverside, California. “I do, however, think it’s important to temper this with thinking about the child, the parents and how spoiling them may affect their future attitudes about money.”
Establish Ground Rules for Spoiling
Spoiling grandchildren can work out well for everyone involved if some ground rules are established first. “A really good way to start right is to ask your children — the parents of the grandchildren — what they would like to see in terms of ‘spoiling,'” said Kristi Sullivan, founder of Sullivan Financial Planning in Denver. “It might be one toy or [a] cute outfit for birthdays and a small donation to the college fund. Communication is key and so easy.”
Set a Dollar Limit on Gifts for Grandchildren
When Clark Randall, founder of financial services firm Financial Enlightenment, became a grandfather a little more than a year ago, he decided to create a gifting strategy for his grandchild. “I wanted to make sure what I did would not spoil the child but also would not hamstring me as I approached my retirement years,” he said. “I decided that I would put a dollar amount on the material gifts that I gave like I’ve done with each of my children through the years.”
If you want to spoil your grandchildren, Capital South Wealth Management co-founder James Bayard recommends spoiling them equally. “For instance, if a couple has two adult children, they should not give a monetary gift to the first grandchild that would be a burden if they had to give the same amount to several grandchildren down the line,” he said. “It’s unfortunate, but I have seen jealousy hurt relationships when grandparents, with the best intention, stretched on a gift to one grandchild and could not make a similar gift to a grandchild born later.”
The frequency of gifts to grandchildren should be equal as well, he said. Grandparents should decide from the get-go on what occasions — birthdays, holidays, achievements — they want to give something to their grandchildren.
Spoil Grandchildren With Your Time
A great way to spoil grandchildren is by spending time with them, said Brooke Napiwocki, a certified financial planner at Crescendo Wealth Management in Grafton, Wisconsin. It will give you an opportunity to share your values with them — which is a gift they can treasure for a lifetime. Plus, it won’t hurt your finances.
If you want to spend money on gifts for grandchildren, Hicks recommends that you splurge on experiences rather than material things. “Some of the best memories I have of my grandparents are when they took me places like fishing, horseback riding or to an amusement park,” he said. “Additionally, if you are giving the parents some time alone, they are probably less likely to be opposed to, or upset by, this type of spoiling.”
Contribute to a College Savings Account
“The right way to spoil grandchildren is by gifting in a way that allows the grandparent to maintain control over how the gift is used and distributed,” said Taylor Whitt, a financial advisor with Truxton Trust in Nashville, Tennessee. “This can be accomplished with a 529 account.”
Funds in a 529 college savings plan are withdrawn tax-free to pay for qualified college costs and for elementary and secondary school tuition (up to $10,000 per year). More than half of states offer tax deductions or credits for contributions to 529 plans. It’s important, though, to coordinate with your grandchildren’s parents because distributions from a 529 plan can impact eligibility for federal student aid, Whitt said.
Encourage Grandkids to Make Saving a Habit
A great way to spoil grandkids and encourage good financial habits is to give them an incentive to save money for the future. Grandparents can do this by offering to match a portion or all of the amount a grandchild sets aside in savings, said Mark Wilson, founder of MILE Wealth in Irvine, California. “For example, if the kid is saving for a car, the grandparent can give half of what the kid saves for the car,” he said.
Open a Roth IRA Account
If grandchildren have earned income, grandparents can help them open a Roth IRA account and match their contributions to the account to give them an incentive to save. “If the child saves $1,000, then the grandparent might add $1,000,” Wilson said. “Free money for the kid, good habits forming and a long-term savings plan that the parents and grandparents should love.”
Pay for Extracurricular Activities
The cost of extracurricular activities for kids can add up quickly. So offering to help pay for these activities can be a much-appreciated form of spoiling grandkids and one that Blue Ocean Global Wealth CEO Marguerita Cheng recommends. “I have some grandparents who helped pay for their grandchildren’s piano or violin lessons,” Cheng said of her financial planning clients. Just be sure to discuss with your grandchildren’s parents first about the level of support you’re willing to provide and what they’re willing to accept.
Help Pay Private School Tuition
Paying for grandchildren’s elementary or secondary school tuition can be a way to benefit them without directly spoiling them, said Thomas Rindahl, a financial advisor with TruWest Wealth Management Services in Scottsdale, Arizona. Even if you can’t afford to pay a grandchild’s private school tuition, you might be able to help by making a donation to a school program the child is involved in, such as band, he said. In Arizona where Rindahl is, gifts to schools or school programs can qualify for a state tax credit — which makes it a win-win.
Help Pay College Tuition
Another helpful way to spoil grandchildren is to help pay for their college tuition. If you give money directly to grandchildren to pay college bills, it would be considered a gift for tax purposes. “Grandparents can each give each child up to the annual gift tax exclusion — $15,000 in 2019 — without filing a gift tax return,” Haas said. You can actually give more under the lifetime exclusion of $11.4 million in 2019, but you will have to report it on your federal income tax return, he said.
Give Stocks as a Gift
Grandparents can introduce grandchildren to the concept of investing by giving them stocks. You can make it fun by buying a share of a company that your grandkid is a fan of and giving the actual stock certificate. “There are some really cool stock certificates out there,” said Devin Pope, a partner with Albion Financial Group. “The child may be into video games, and the grandparent can buy them shares of Activision and frame it on their wall. This way the kids have something to open and cool artwork on their wall.”
Give Savings Bonds
You could spoil your grandkids by reviving a gift tradition that was common when you were young. “There is always the option of the savings bonds that we all grew up with,” Rindahl said. Paper savings bonds are no longer available, but you can buy electronic gift bonds through TreasuryDirect.gov.
Encourage Charitable Giving
Rather than shower your grandchildren with gifts or cash, teach them the value of giving to others. You can do this by helping your grandchildren choose a cause they want to support and making a donation in an amount that you normally would spend on a gift for them, said Gustavo Vega, co-founder of WealthEngage in Miami. “It is a good way to teach about selecting worthy causes,” he said.
Create a Donor-Advised Fund
You can create a long-term tradition of giving to charity with your grandchildren by setting up a donor-advised fund. You can set up a donor-advised fund through an investment firm such as Charles Schwab or Fidelity and contribute to the fund to get a tax deduction. Then, ask your grandchildren to research and pick the charities they want to support through the fund.
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