Saving for your Grandchildren
Hi everyone, and welcome back to Melissa Making Cents!
As a CERTIFIED FINANCIAL PLANNER™ and financial coach, I know that aspects of financial planning and saving can be challenging. It's easy to see how saving money and not living past your means could be difficult, but it's a lot harder to see how saving for someone else in your family could be harmful. We all want to do what's best for ourselves and our family, and even though we always try to have the best of intentions, some of our actions can have unintended consequences and create hardships for others in the future.
Melissa Cox's Mother and Daughter spending time together at the Farmer's Market
Grandparents are the best of the best! They always want to help, and they form long-lasting bonds with our youth! It's not unusual for grandparents to want to contribute to their grandchildren's financial success either through saving, investing, or putting aside money for college. There are do's and don'ts when it comes to saving money for your grandchildren. There are also pitfalls along the way that can be easy to step into if you're not careful.
Grandparents saving for their grandchildren can be a benefit and a curse.
To get it all out in the open (and avoid sounding like a total downer), it's not necessarily one way or the other! Grandparents saving for their grandchildren has some great benefits AND can have harmful side-effects. Grandparents saving for their grandchildren can give the grandchildren a head-start! There's no shortage of ways to get behind in this day and age, and having a head-start is a great thing.
It can also benefit a child to be involved in the process of saving money! Don't just stow cash away; use the process of saving money as an educational tool to teach your child or grandchild about the in's and out's of saving. When I was a child, my grandmother took me to the bank every month. My grandmother would hand saved money to me, and I would pass it to the bank teller to deposit into the account my grandmother had set up for me. This was my grandmother's way of teaching me about the importance and the process of saving money (I also got a lollipop! What kid doesn't love that?)
Suppose you're interested in teaching your child or grandchild about the importance of savings and want to familiarize them with the process. In that case, I'd highly recommend doing so in a way similar to what my grandmother did for me. Saving money is a great value to add to your loved one's repertoire at an early age! The best part about taking your child or grandchild to the bank to deposit money into a savings account is that it's one of those early memories that they'll remember and carry with them for the rest of their lives! As I said above, there can also be unintended negative consequences to grandparents saving for their grandchildren. Always be sure to include your grandchild's parents on any plans you have to create a savings or fund for your grandchild.
Grandparents need to communicate to the child's family what they're doing.
Unfortunately, grandparents saving money for their grandchildren isn't always the great experience we'd like it to be. Without proper communication between the grandparent and the parent, all sorts of chaos can ensue. While it's a fantastic thought and good-natured to quietly put away money without making a big fuss about it, it can also unintentionally destabilize your family's financial plan. That's why it's always best to have open communication about any money you're stowing away for your loved ones or their children.
Saving money can give different perceptions
Another reason it's vital to communicate that you're intending on saving money for your grandchild is the way that it could be perceived by your family. While grand gestures are a fantastic expression of love in our heads, they can also come across in a negative light. The parent of your grandchild could feel like you're trying to buy their child's love or that you're trying to outdo them, which could create rifts in your family dynamic. Outside of that, it could take away from the feeling of parental control. Even though you may be saving money with the best of intentions, the parent could feel like you don't trust them to be a parent or be responsible enough to save money for their own child if you're doing so quietly.
When you're saving from the perspective of a loving grandparent, it can be challenging to see why someone would react negatively to your gift, but emotions are a complicated thing, and your child or child's spouse's feelings shouldn't be overlooked. Always assume that your grandchild's parents know best and that they have everything under control. Doing so will help you avoid hurting your child's, your child's spouse, or your grandchild's feelings or financial stability.
Interfering with Government Benefits
People with disabilities are limited to the amount of assets they can hold to stay entitled to government benefits. This means that having too much could quickly become a bad thing and detrimental to your (or your grandchild's) overall financial health. When it comes to disabilities and asset limitations, I highly recommend talking to a financial professional that specializes in this type of planning. The thing is - disability benefits can be very tricky, and they're critical to get right.
Whether you know it or not, your grandchild could be on a government assistance program. With these programs, money is often allocated to children who need it based on their condition and financial situation. If you're saving money for or giving money to your grandchild, it could affect their eligibility for programs like these and hurt the child's family in the process. It may seem far fetched to believe that your grandchild could be drawing government benefits without your knowledge. Still, parents and grandchildren may choose to conceal a child's disability for many personal reasons. Similarly, saving money for your grandchild could also disqualify them from government benefits in the future, should they ever need assistance.
Though it doesn't sound like it could be - inheriting money could be detrimental to your grandchild's financial plan. If they're on assistance and inheriting money puts them over their amount of assets that they're limited to, then they risk losing a steady source of monthly income.
Whether or not the money you'll be saving for your grandchild would outweigh a government program is between you and your family and requires organization and communication to determine. A financial planner could also help you and your loved ones to determine the best course of action when it comes to saving and planning for your family's financial future and success.
Save the Smart Way for College!
There are tons of ways to save for your grandchild's future. The best way to find out what method is best for you and your family is by talking to a CERTIFIED FINANCIAL PLANNER™, like myself! Doing so can save your family tons of heartache and worry.
If you're interested in saving for your grandchild's college fund, I often suggest considering a 529 plan. (Please consult a financial professional to make sure this is the best option for your family) A 529 isn't counted as an asset on the FAFSA form. That means that the money in a 529 plan won't count against your grandchild's eligibility for financial aid or grants. There are two types of 529 plans. The first is a 529 Education Savings plan, the second is a 529 Prepaid tuition plan. The main difference between the two is that a prepaid tuition plan allows you to prepay for years of tuition at a frozen rate, and a savings plan will enable you to save through various investments. College savings plans also allow you more general flexibility, like what the plan is used for or if it's used in or out of state. Other great attributes about 529 plans are that they can be set up in a grandparent's name, and the beneficiary of the plan can change.
You have to be smart with how you use a 529 plan, however. If money is directly contributed to your grandchild's college, it could hurt them by increasing their Expected Family Contribution and lowering their "financial need." Like many other aspects of planning for your grandchild's financial success, planning for college means coordinating with your grandchild's parents. Communicating with parents and planning with a financial planner will drastically raise your grandchild's financial success chances when planning for college.
Savings Accounts are wonderful tools for saving!
An interesting reason that I've heard for people not depositing cash into savings accounts is that they don't know how! It shouldn't be any secret, nor should you be embarrassed if you don't know how or if you're confused about the process of depositing cash to a savings account. It's actually really easy! Either in your bank or through your bank's drive-through, you can ask for a deposit slip. You fill out the slip, hand them your money (or send it through the tube), they give you a receipt, and voila! Hey... if you are lucky they might still provide lollipops!
So long as savings accounts are monitored and communicated with parents, they're excellent tools for long term financial success. Regularly making contributions to your savings account helps you see its growth over time. As I said above, my grandmother teaching me how to save and take me to the bank is a lifelong memory that taught me the importance of saving and depositing money. If you're a parent or a grandparent, take the time to sit down with your child or grandchild and go over their savings account statement. Show them the interest that their balance grew and understand where their money is and what their balance is. It's great to see their eyes light up when they see their balance growing.
Bottom Line… Grandparent Help is Awesome! But it Needs to be Incorporated into the Family's Financial Plan.
It's a great thought and a generous gift that you're wanting to help your grandchild save money. The bottom line is this: you need to talk to your grandchild's parents and clearly communicate that you're saving money, how you're saving money, and what the money's intended purpose is. You don't want to save money only for it to be unappreciated or, worse, detrimental to the long term financial success of your grandchild or their family.
Being a parent or grandparent is a tremendous responsibility that allows you to guide your child or grandchild through their beginning stages of life and development. Make sure that you're doing the right thing for them. First, determine what you're saving for and then select the best way to do it; I once again suggest working with or talking to a financial planner to make sure you're saving money the best way possible.
Communication about finances is key
Operate under the assumption that you don't know everything about your grandchild's life. Presume that your grandchild's parents have built a financial plan for your grandchild's future, that they're capable, and that they have everything under control. Then communicate with them that you want to help, not because they need it, but because you're a loving member of the family that wants to contribute to their child's overall success.
Clean communication will save you from accidentally stepping on anyone's toes or inadvertently hurting the feelings of your loved ones. It will also help you avoid and stepping into any financial pitfalls should your grandchild be drawing government assistance or disability unbeknownst to you. After you make sure that you, your grandchild's parents, and your grandchild are all on the same page, I highly recommend talking with a financial planner to work out details. Financial planners or Financial Advisor Representatives can also help you find negative ramifications before they happen to you.
Are you interested in saving money or creating a college fund for your child or grandchild? If you need guidance in finding the best possible way to save for your family's youth, please call or email to schedule an appointment with me. I'll work with you to create a financial plan that's optimized for you.
Until next time...this is Melissa Making Cents!
Melissa Anne Cox CERTIFIED FINANCIAL PLANNER™ is also a College Planning and Student Loan Advisor and Financial Coach in Dallas, Texas.