Generous to a Fault
Today’s grandparents provide financial assistance for grandchildren – sometimes to the detriment of their own financial security. Many grandparents help to fund things like mortgage and rent payments, health care, day care, education and everyday living expenses.
A 2011 AARP survey indicates that grandparents would rather make sacrifices themselves than let their own financial situation affect their grandchildren. Grandparents must have a realistic handle on their own current and future financial needs.
Gifts to Grandchildren
Many grandparents are serving as a financial safety net for their children and grandchildren. A 2012 MetLife study shows that the majority (62%) of grandparents have provided financial support or monetary gifts for grandchildren within the past five years. Of those:
- Forty-three percent report they are providing more financial support due to the economic downturn.
- The average amount given for all grandchildren was over $8,289.
- More than half gave up to $5,000.
- The top average dollar amount spent per grandparent was $23,068 for investments.
- The top average dollar amount spent per grandparent was $8,276 for education.
- The top average dollar amount spent per grandparent was $6,742 for a down payment on a grandchild’s home.
Cash was the most common type of financial support. Basic needs led the list with 43% give for clothing, 33% for general support, and 29% for education, such as pre-school through high school private schools, tutoring, college tuition, and graduate school.
One-third (34%) are giving financial support to grandchildren even though they believe it is having a negative effect on their own financial security!
Retirement Security First
It can be tremendously gratifying to “invest” in your kids and grandkids. Just make sure your own finances are in order before you offer financial support. Grandparents need to ask if adult children and grandchildren will be able to afford to help them in the future when their needs will be greatest.
You will be much happier in your most senior years if you know you have provided for yourself, rather than relying on for friends and family for care and financial support. Here are some of the steps to follow:
- Establish your household budget for now and the future.
- Keep your own retirement income needs on track with a balance between long-term growth potential and short-term income requirements.
- Consider your personal risk tolerance and investment objectives.
- Get long-term care insurance. Only 15% of grandparents have it.
- If you can meet your own income needs for the duration of your retirement, ONLY THEN should you and factor in any grandchildren expenses.
- Make sure that your financial gifts do not impact your Medicaid eligibility.
Make sure you aren’t putting your own retirement security in jeopardy. Pay yourself first, then the grandkids. Grandparents can best protect the generations that follow by securing their own financial future.