Many grandparents spend cash on their grandkids - whether by chipping in on tuition bills, purchasing special treats or simply buying holiday gifts and helping with day-to-day expenses. Overall, 84 percent of seniors (parents of the Boomer generation) say creating a financially secure life for themselves and their family is an important goal and 61 percent say they place the same amount of importance on substantially helping their children or grandchildren pay for college1.
As a grandparent, it can be hard to find a balance between supporting (and spoiling) your grandkids while ensuring you don't run short on funds to reach your own financial and retirement goals. Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial, shares the following tips for grandparents.
1. Know what you can afford. No matter how much you enjoy splurging on your grandkids, your financial security should remain your first priority. There are many unknowns in retirement, including your longevity, fluctuation of the markets and the impact of inflation on purchasing power. Spend and gift within your means to maintain your own financial health in the future.
2.Determine if you're giving or loaning. If you're giving a gift, understand current federal tax rules, which are based on the calendar year. In 2012, you can give up to $13,000 to each grandchild (or any person) before the federal gift tax is applied. And make certain the recipient knows it's a gift for their own tax purposes, and so there is no uncertainty about whether or not they need to pay you back. If you are loaning money to a grandchild, be very specific about the terms and repayment, and consider having a written document that both parties sign and date. This can help safeguard your financial situation and ensure both of you are on the same page - now and in the future.
3.Talk about it. Fewer than two-thirds of seniors say they regularly discuss money and finances with their family. If you would like to help support your grandchildren or save for their future goals like college or a down payment on a home, be sure to communicate this with their parents. This can help your adult children do a better job with their own financial planning. For example, if the parents of your grandchild know how much you are expecting to contribute to their child's education, they may be able to decrease the amount allocated to a 529 Plan and invest more toward other goals, such as their own retirement.
4.Establish boundaries.Even if you want to help your grandchildren financially, depending on their situation, it may not be appropriate to do so, or to repeatedly provide support.Everyone appreciates help, but if your grandchild needs to learn financial independence, there can be value inletting them live within their own means. Keep in mind the smart - and sometimes tough - financial lessons you learned as you made your own way as a young adult, and the pride that came with successfully overcoming challenges.
If you want to provide financial support to a family member, but haven't incorporated it into your overall financial plan, consider consulting a financial professional. He or she can help you evaluate your financial needs and goals and create a strategy. A clear and realistic understanding of your own financial picture can help you identify how much you can comfortably give, as well as the most tax-efficient and effective way to go about it.
1 The Money Across Generations IISM study was commissioned by Ameriprise Financial, Inc. and conducted by telephone by GfK in December 2011 among 1,006 affluent baby boomers (those with $100,000 or more in investable assets); 300 parents of baby boomers; and 300 children of baby boomers at least 18 years old. The margin of error is +/- three percentage points for the affluent boomers segment and +/- six percentage points for the parents and children of boomers segments.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.