The role of a grandparent can take many forms, including helping to plan for your grandchildren’s financial future. While most young people today benefit from numerous opportunities and increasing access to technology, studies show that they may struggle with financial literacy. Only 24% of millennials demonstrate the ability to understand basic financial concepts. And, the average federal student loan debit is now $37,338 per borrower. This highlights the growing importance of educating young people on effective financial management.
But helping your grandchildren to become more financially independent doesn’t have to mean giving money away. It can also involve imparting valuable knowledge and experience to help give them a head start in their lives. Here are six ways you can help your grandchildren with their finances.
1. Kick-Start Good Financial Habits as Early as Possible
If you want to give your grandchildren the best possible start in their financial lives, consider teaching them good financial habits as early as you can. Instead of just giving them pocket money, you could use chores to allow them to earn it. You could also consider putting this money aside for them, helping them save up for a larger purchase.
You can also give your grandchildren a visual representation of their savings, even if they’re very young. Consider giving them a piggy bank or glass jar they can fill with quarters, dimes and dollars. Also, celebrate the physical act of saving. As they get older, you can open a traditional savings account on their behalf and help them to establish goals and develop strategies to reach them.
The Importance of Financial Literacy
Financial illiteracy was shown to cost each American around $1,600 in 2020. 4 in 7 Americans are thought to be in this category. But starting early with basic financial knowledge can help your grandkids develop fiscal responsibility and better understand how money works. In turn, this will help them avoid common financial mistakes, establish savings and stay out of debt.
Of course, helping financially doesn’t have to mean handing over money. If you don’t have the ability to give your grandchildren cash for savings or chores, you can still pass on advice and experience. Talk to your grandkids about your own financial journey, the mistakes you have made and what you’ve learned over the years. By sharing your knowledge, you can impact the way your grandchildren look at their own finances as they grow up and help them avoid similar mistakes.
If your grandkids are too young to share financial knowledge with and you’re not able to give financial gifts, you can still help your family financially simply by giving your time. As Ana Kresina, host of the Get Rich Slow Club podcast and Head of Community at Pearler, points out. “Many grandparents want to set their grandchildren up with a head start in life” she says. “Grandparents who live in close proximity to their grandkids can contribute by helping with childcare and looking after their grandchildren.”
2. Help Them To Begin Their Investment Journey
By introducing the concept of investing to your grandchildren as they mature, you are teaching them new ways to save – and grow – their money.
Explain how investing works, including financial vehicles such as stocks, bonds, and mutual funds. Show them historical data on how these investments have performed over time. Explain the risks and potential benefits of investing over the long term. Understanding the balance of risk and reward, and the different options available to them, helps young people make informed financial decisions as they grow. It can also aid them in securing a stronger financial future.
Financial Education Resources
If you need to brush up on some of these concepts, you can use the following resources:
The Securities and Exchange Commission
The education section of the SEC website is a very useful resource and written in plain English throughout. It’s designed to help investors – and newcomers – better understand the process of investing and the balance of risk and reward.
The Investopedia website is full of useful resources, from A-Z explanations of investment terms to full courses aimed at a wide range of topics. There’s even a free simulator tool that allows users to ‘play’ in the stock market without risking any money.
Independent Financial Advice
If you’re feeling overwhelmed with all of the information available online, consider taking independent financial advice on the best way for you to help your grandchildren. An advisor will help you to craft a customized financial plan. They can also give you information on insurance and estate planning should you need it.
You can also consider making investments on their behalf, particularly if they’re very young. “Even a small amount can go a long way, as children have time on their hands allowing for compound interest to take place,” says Ana Kresina. “This can help with a down payment on a property, fund university education or provide capital to start a business when the child grows up. The possibilities are endless.”
3. Talk Openly About Budgeting
A study conducted by T. Rowe Price found that 47% of caregivers have conversations about money with kids once a week or more. These conversations can lead to better developed financial habits in children.
By openly addressing finances and budgeting with your grandchildren, you can create a space for them to learn about responsible money management from an early age. Engaging in honest discussions about money can help equip children with the tools they need to navigate complex financial landscapes as they get older. It also helps them have a better chance at avoiding negative financial behaviors.
Create an environment where your grandchildren feel comfortable discussing financial matters without fear of judgment. This is particularly important as your grandkids get older. So, try to foster an open dialogue that encourages them to ask questions, seek advice and share their financial concerns.
You might want to talk about your own financial journey, including both successes and challenges. This transparency will not only encourage your grandkids to talk to you, but impart valuable lessons about financial decision-making, resilience and learning from mistakes. Your personal stories may resonate deeply with them and provide valuable insights that go beyond textbooks or any advice they can find online.
4. Give Them an Incentive to Earn
Inspire your grandchildren’s financial journey by offering them opportunities to earn money through practical tasks. Engage them in activities like car washing or doing the dishes and compensate their efforts with monetary rewards. This dynamic not only imparts the significance of work ethic, but also the potential rewards of dedication and determination. This helps set a solid foundation for their future.
Family Finance Coach Andy Hill from Marriage Kids and Money says that one of the most important ways for kids to have a bright financial future is to earn and grow a healthy income for themselves. Particularly, as they approach working life.
“Starting young can give children a massive advantage” he explains, “they have time to let the lessons sink in and develop into a habit.”
Consider ways you can offer opportunities for your grandchildren to earn money, rather than just giving it to them. Particularly, if those incentives mean you get to spend more time with them.
5. Provide Financial Gifts, if Possible
Consider giving your grandchildren financial gifts on special occasions, such as birthdays or holidays. While some might regard this as impersonal, it can help to improve the development of their money management skills and the way they think about finances. When giving them the gift, accompany it with advice or understanding around how money can be used, and how it may benefit them in the future. This might mean saving for a larger purchase, like a car, or putting the money towards a college education. Emphasize the importance of financial allocation, striking a balance between spending and saving.
Investment or Savings Account Options
If you’d prefer not to give them cash, consider paying into an investment or savings account. These inclide a Series I savings bond or a Custodial Roth IRA.
If you want to help your grandkids go to college, specialized saving vehicles might be particularly helpful, Andy Hill explains. “Grandparents can support the generational wealth and happiness of their grandkids by opening a 529 College Savings Account on their grandkid’s behalf. This way, they have a better shot at graduating debt free.”
A 529 College Savings Account allows you to gift money to your grandchildren tax-free, with certain conditions. You can give up to $75,000 (or $150,000 per couple) in one year, provided it’s treated as if you made the gift in equal amounts over a five-year period. Alternatively, you and your spouse can give $15,000 per year, per child, without having to pay gift tax. Your grandchildren can then use this money to pay off some of their student loans (up to $10,000 over their lifetime). Or, they can put it towards qualified expenses related to apprenticeships.
However you choose to provide financial gifts, always seek independent financial advice before making any decisions. Also, you should consider talking to your own children to see how any gifts may affect their own financial plans.
6. Consider Leaving Them Financial Support for Years To Come
Nobody likes to think about estate planning, but it’s important to understand how your assets will be distributed after you die, and who will benefit from them. When writing your will, carefully consider what you want to leave to your grandchildren and the best way for this gift to be organized. You might want to establish a trust, set up a fund or leave valuable assets, such as real estate or jewelry.
This kind of gift can dramatically impact your grandchildren’s lives, helping them to establish financial security and access new monetary opportunities, like investing or starting their own business. The type of gift you give is as important as its value, so spend some time thinking about what you want to leave them, and how that gift will be accessed – particularly if they’re young.
Guiding your grandchildren toward financial independence goes beyond monetary assistance. It involves sharing your priceless life experience to furnish them with a head start on their journey. Your role in shaping their financial destiny is not just a gift – it’s a legacy of empowerment and prosperity.
If you’ve found ways to help your grandchildren financially, we’d love to hear about your experience and what you learned. Share your insights in the comments below!