Many grandparents spend money on their grandkids, whether by chipping in on big expenses like tuition bills and travel expenses or covering smaller costs like meals and holiday gifts. The inclination to be generous is understandable, and many seniors say it brings them joy to support (or even occasionally spoil) their grandchildren.
But lavishing them with gifts shouldn’t come at the expense of your own financial security. If you’re seeking to find the balance between supporting your grandchildren and ensuring that your own finances stay in healthy shape, here are four tips to keep it all in check:
- 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, the fluctuation of markets and the impact of inflation on purchasing power (a factor that’s particularly pronounced at the moment, with inflation rates at their highest in 40 years). Spend and give within your means to maintain your own financial health in the future.
- 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 2022, you can give up to $16,000 to each family member before the federal gift tax is applied. If you are married, both you and your spouse may gift $16,000 (for a total of $32,000). 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.
- Talk about it. Many people tend to shy away from discussions about 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.
- 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 in letting 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 and stay on track with your own goals.
Chris Thompson, CFP ®, CRPC ®, Associate Manager and Vice President is a Financial Advisor with Ameriprise Financial Services, LLC. in Jacksonville, FL. He specializes in financial planning and asset management strategies and has been in practice for 29 years. For more information, please contact Chris Thompson at 904-708-3817 or firstname.lastname@example.org or visit ameripriseadvisors.com/chris.thompson.
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