529 Financial Planning & Retirement Planning

One of the great joys of being a grandparent is spoiling your grandkids — with everything from an extra hour of TV, a cookie before dinner, or a trip to the toy store “just because.” If you have the financial means, you might be splurging on your grandchildren in bigger ways, too, by funding back-to-school shopping sprees, family vacations, or college tuition. (You’re in good grandparenting company if you do: A recent study by Grandparents.com and Focalyst, a boomer and mature consumer research company, revealed that grandparents spend an eye-popping $50 billion annually on their grandchildren!)

When these gifts are given willingly and received with gratitude, it’s a wonderful thing. But when your financial contributions are received with a sense of entitlement, or become a burden to you, well, that’s a different story. I can’t tell you how many of my clients say that their adult children treat them like ATMs, and expect them to readily pay for things such as private-school tuition that, in many cases, the parents themselves can afford. This puts my clients in a difficult situation. On the one hand, they want to help. On the other hand, they don’t want to be taken advantage of. Too often, they end up giving… out of guilt. But there are ways to manage the Bank of Grandma and Grandpa. I encourage my clients to do the following:

Set Expectations Early

Have a formal conversation with your children about what level of financial help, if any, they can expect from you. When my grandchildren were 3 and 1, my husband and I sat down with our kids and told them that it would be our joy and our privilege to fund Madison and J.T.’s college educations, and we set up 529 plans for them.

I recommend that you find a time to have a frank, face-to-face discussion with your kids to explain what you’re willing or able to contribute. Maybe you’ll write a yearly check on the grandchild’s birthday. Maybe you’ll cover private-school tuition. Or maybe you’re not in the financial position to be so generous. Whatever your situation or intent, make sure your children know where you’re coming from.

Don’t Be Afraid to Say No

If you’ve already set a pattern of generosity and are starting to feel like that aforementioned ATM, it’s never too late to set limits. I tell my clients that they have to learn to say no, and when they do their kids will start to respect them more.

Be Age-Appropriate

When Madison was 3, I took her to the Ice Capades. For a brief moment, I considered using a ticket broker to secure the best seats in the house. Then I realized that Madison was way too young to care about what row we were seated in. Considering that she barely remembers the event, I made the right call. Now, if she were a 15-year-old Olympic-hopeful ice skater, that kind of splurge might have been worth it. The lesson here: Spend your grandparenting funds wisely, not wildly.

Consider Spending Below Your Means

My grandson wants a computer for his birthday, and I’ve told his mother that I’ll contribute to its purchase. Now, I could buy J.T. a computer myself. But I don’t want him to think that he can get a several-hundred-dollar present from me each birthday. Spending below your means is a good way to set expectations with your grandchildren, so they don’t look at you as the Bank of Grandma and Grandpa, either. After all, you don’t want every encounter you have with your grandchildren to involve something expensive.

In fact, whether you can afford to be generous or are on a tight budget, showering your grandchildren with gifts is not a good idea — even if it’s subconscious. We all want to build memories with our grandchildren, but that need not involve money. Make a point to do fun, free things such as going on a picnic or visiting a playground. And if you are going to spend money, consider splurging on things that will build memories, such as taking the grandchildren on a trip rather than simply writing a check.

Of course, if your children are struggling financially and you’re well-off, your instinct — and desire — might be to write that tuition check, or buy that computer. When it comes to managing the money you spend on your grandchildren, there’s no right answer. Not every family will have the same issues or results. But one thing is true for every family: The topic needs to be talked about — in an open, honest way.