My three boys are lucky because they have two sets of active grandparents who love and nurture them—and give them gifts. I’ve worried since the boys’ toddler days about the mounds of presents under the Christmas tree. Would they be spoiled rotten?
Financial planners attest that money matters can strain relations between generations when it comes to the grandchildren. From little things, such as buying candy after parents said ‘no,’ to giving extravagant gifts, such as a new pony or preschool tuition, financial choices grandparents make can cause friction. Spouses may not share the same values about money, and when the older generation’s financial habits and perspectives get thrown into the mix, sparks can fly. “As grandparents you’re in a very unique position,” says Steve Economides, who runs the website Money Smart Family with his wife, Annette. “You’re not the parent, but you have influence, and you have to wield that influence very carefully.”
Here are some key areas to consider as you and your adult children—or whoever is the guardian of your grandchildren—navigate money and grandkids:
How and When to Talk Money
Spouses are often encouraged to make “money dates” to discuss personal finances. Why not establish regular check-ins with your grandchildren’s parents about upcoming giving seasons, babysitting needs and financial plans?
As seasons of life change, the players in these conversations may evolve. To start, parents and grandparents may meet while toddlers are napping or after bedtime, working through a planned agenda. Make a list of topics ahead of the meeting or call, so you can avoid off-the-cuff discussions, which may lead to heated opinions. As children grow, consider including them as the conversation changes to include savings account goals, plans for buying a car, college savings or other topics. “We knew of a wealthier lady who gave scholarships for her college-age grandchildren,” Economides says, “but they would have to apply each year and come and talk to her and make sure they were meeting expectations to keep that scholarship.”
If possible, have conversations about gifts and expectations when your grandchildren are still young—before problematic patterns get established. Have a dialogue about parent preferences, such as whether they like gift cards or spending limits. And, while structured and scheduled conversations may heed the best results, remember that you can talk about money and gifts whenever you see an acceptable opportunity.
Small vs. Large Purchases
A first step might be to simply establish what “small” and “large” mean for your family. “Small,” as in a candy bar, or “small,” as in a baseball bat, which can range up to $500? It might help to establish a rule of thumb, such as any item over $50 requires a conversation.
Every parent will differ when it comes to their comfort level with everyday gifts and seasonal or birthday gifts. Some may be fine if you take your grandson on a trip to the store for a new pair of sneakers without consulting them first, but others may be outraged. Discuss upfront which end of the spectrum your grandchild’s parents are on.
Consider More Than the Dollar Amount
When it comes to gifts, the value of the purchase isn’t always the point of conflict. Some parents feel strongly about the types of products their children receive. They may want to limit plastic exposure for toddlers or prefer sustainable goods. They may want to delay electronics of all types.
These issues relate to larger topics about lifestyle and value, which Elaine King, a financial planner who specializes in families and money, says are critical. Regardless of a family’s income level, she recommends giving goal-oriented and values-based gifts. “Any monetary outflows should align with values and goals,” she says. “Giving money just for money’s sake is a disservice, because, as you know, the world is not like that.”
● Consider gifts that don’t take up space. Economides and his wife have a large-scale home, but their adult children don’t. So they like to give things that don’t take up a lot of room. “We call them ‘disappearing gifts,’” he says. Think of gifts of food, such as popcorn tins, or memberships to a zoo or children’s museum. “It’s something they can use all year long,” he says.
● Support grandchildren’s interests. There’s no need to reinvent the wheel. “If a child is taking piano lessons, offer to give the child those lessons for a year,” Economides says. “Parents have already made a choice.” Helping support that choice fosters a good relationship with the parents, and the grandchild gets the benefit of learning more about something they’re already interested in. King suggests supplementing music or art lessons with other related gifts, such as tickets to a special exhibit or classical music concert. “Enhance what the parents are doing,” she says.
● Listen for clues. Keep your antennas out and pick up clues about what would make the perfect gift. Parents are in the best position to pass on tidbits to grandparents about what a child might truly appreciate, want or need. “It’s about constantly checking in with the parents and not overwhelming your kids,” Economides says.
Don’t use gifts or money to buy your grandchildren’s affection or to try to out-give another set of grandparents, aunts or uncles. The short-term squeals of delight can give way to long-term resentment among the other family members observing that type of behavior.
Share Your Experience With Money
Be mindful that you’re a financial role model just as much as your grandchildren’s parents. Your grandchildren will watch how you handle money—every time you dine out together, every time you stop by a drugstore. They’ll overhear what you say about the IRS during tax season or when it’s time to pay property taxes. Talk freely about any money mistakes you made when you were starting out, and remember that conversations about how your savings grew over time can have a powerful effect on a teenager working their first job.
Give the Gift of Savings
Rather than another stuffed animal or Christmas sweater, consider giving money that has the potential to grow over time. You have many options, including:
● 529 college savings plans. These accounts allow you to save money for your grandkids’ education expenses. Give annually or at birthdays or during the winter holiday season. The earlier you open an account, the longer the contributions can grow. Not only will you be saving money for their education, but you may also be able to lower your tax burden. (For more details, read this.)
● Savings accounts. Open an interest-bearing savings account or a custodial savings account where you can deposit money for them over time. Work with your grandchild to check the balance of their high yield savings account each month, ask them what they’re saving toward and commend them for planning ahead.
Discuss Payment and Parameters for Babysitting
Child care costs a bundle, and you may be one of those grandparents who will happily give mom and dad a break. But just as parents may want to set limits for gifts, grandparents may want to set rules about how much time they spend babysitting.
If you want to charge for your time, discuss the going rate ahead of time and ensure that the parents value your time. Protect downtime by establishing firm timeframes for when you’re available and be honest about the time and energy caring for the grandchildren requires. That way you’ll avoid any growing bitterness.
Leaving Money to Grandkids
If you’re in a position to leave assets or money to your grandchildren, think now about the best way to give that legacy.
● Many high-net-worth grandparents make gifts to grandchildren or set up a family trust to reduce the size of their estate and avoid federal estate tax. For 2022, the estate tax exclusion is $12.06 million for individuals or $24.12 million for a married couple. These exclusions will help you to give any amount up to those ceilings without paying estate taxes.
● Keep in mind that the 2022 gift tax exclusion is $16,000, meaning you’d have to file an IRS gift tax return to document the gift. (No taxes are due until you meet the lifetime gift tax exclusion, also $12.06 million in 2022.)
Consider sharing plans ahead of your death with your adult children and grandchildren so that news of any inheritance during the reading of a will is not a surprise. And think about the fallout if you favor one grandchild over another. “Giving equal amounts to each grandchild is a safe route,” says King. ”Never give more to one or the other. It can create conflict beyond the grave.” At the same time, she says that “equal” doesn’t always mean the same type of cash gift. One grandchild may become an entrepreneur who may appreciate an influx of cash to launch a new business, while another becomes an activist who would appreciate the cash gift going to their favored cause.
Smart Giving Toward College Tuition or Healthcare
Beyond a 529 plan or extra spending money at college, grandparents may find themselves in a position to contribute to college tuition. King recommends paying the school directly to avoid having to file a gift tax return for any gifts over $16,000 in value.
The same concept applies to gifts toward any grandchild’s medical bills. Rather than writing a check to the parents or grandchild, paying the medical facility or hospital directly will help you to avoid gift tax implications.
Learn as You Go
When my in-laws surprised our boys with a trampoline at their home, I worried it was too much. (And did it have a safety screen?) When my parents gave each 10-year-old a trip to Washington, D.C., I worried the boys would expect a jaunt to New York City when they turned 16. Over the years, I’ve learned to relax and appreciate the gifts that these older and wiser couples want to give our kids and contribute to our family. They model great financial habits for the boys, and we do our part to foster a sense of gratitude and a strong work ethic in our sons. Time will tell if we’re successful!
Together, parents and grandparents can land on a set of financial values you all want to instill in the grandchildren. Turns out, communicating about these things is one of the best gifts parents and grandparents can give each other.
Jennifer Chappell Smith has more than 25 years’ experience writing about lifestyle, personal finance and more. She and her husband live in San Antonio, TX, where they’re raising three boys, ages 14, 12 and 11.