Being A Grandparent Financial Facilitator
BY RICHARD AND LINDA EYRE
Our column in last fall’s issue was on being an Independence-Giver to your grandkids (See it here). In that article, we focused on the dangers of entitlement attitudes in kids and suggested some ways to help them see the world more accurately and to encourage them to save and spend wisely. We now want to focus on four additional things that we grandparents may be able to do, particularly as our grandkids get older and as our circumstances allow, to help them (in concert and agreement with their parents) to become financially savvy and to understand the power of regular investing and compounding interest. Doing so in a carefully conceived way can facilitate their faster movement toward their educational and life goals.
Establishing a Matching Educational Trust Fund
Consider, with an estate planner you trust, setting up a fund in your will that will help with grandkids’ education when you are gone. Think about including some kind of “matching criteria” so that they have to come up with some of their tuition to trigger a match from the trust. Have it be for education generally, not university specifically. A trade school or apprenticeship should be as honored and supported as an Ivy League college.
If you currently have college-age grandkids (it’s as important to help wisely while you are alive as when you are dead), work with their parents in providing some of the same kind of matching help
Helping on First Home Purchase
Another thing a lot of us would like to help with financially is the purchase of the first home for our grandchildren. Oftentimes, kids just finishing their education and starting their careers have enough income to make monthly mortgage payments on a reasonable home but lack the liquidity to make the required down payment. In fact, they may be paying a monthly rent amount that is as much as a mortgage payment would be if they were able to come up with the down payment necessary to buy a home. If parents can help with the down payment, they should be the first option, but you could be the second.
We have found that the best approach to this is not a loan or a gift but simply to take a small equity position in your grandchild’s first home. If with your help, they can get an 80% loan, you would make the down payment and thus become a 20% equity partner in their starter home. They would make mortgage payments and have the advantage of leverage so that whatever profit was made when the house was sold would go 80% to them and 20% to you. This way they owe you no payments or interest and simply pay off your equity when they sell. Like any financial agreement within families, this should be carefully documented and signed by you and by them.
Setting Up a Family Foundation and Doing “Expeditions”
Setting up a Family Foundation, even if there is not a great deal of money in it, can be a powerful way to get children involved in looking for and meeting needs, particularly in poor communities or developing countries. As grandkids get involved it can help teach the principle of “Where much is given, much is expected.”
Many non-profit humanitarian organizations organize family “expeditions” where family members can travel to remote locations and help to build schools or clinics and have a hands-on experience of helping those in need. In our own family, these expeditions, funded in part by our family foundation, have opened our children’s eyes to third-world needs and helped them feel empowered to do a little to help. One byproduct, of course, is greater appreciation and gratitude (and responsibility) for what they have.
Matching Contributions in Custodial Roth IRAs
With a parent as custodian, a child of any age can have a Roth IRA where money grows tax-free toward retirement. (A grandchild 18 or older can open his or her own Roth.) And with a Roth, funds that have been put in can be taken out as desired without penalty. Consider offering a “savings match” to any grandchild who wants to put some of their “earned money” into a Roth. They can put in up to half of any earnings they can justify with a W-2 or an earnings record of some kind—up to 6,000 per year. Strike a deal where anything they put in up to 3,000 will be matched by you, dollar for dollar. Create your own rules and agreement, perhaps requiring that the money be used only for investment (defined as things that can be reasonably expected to, over time, “payout more than you paid in.”—so stocks or a home purchase or even tuition would qualify, but not a car which would depreciate rather than appreciate.)
This approach can ultimately make a big financial difference in a grandchild’s life by increasing the total amounts invested in the early years of compounding so it can grow for a much longer period.
Most of us grandparents do not have vast resources with which we can assist our grandchildren at every turn or with every need. And we would probably be unwise to do so even if we could. But whether we have a lot or a little, it is important to be deliberate and clear in our own minds about what our goals are and how we can help our grandkids materially and financially in ways that avoid entitlement and that are wise enough to increase rather than diminish their independence and sense of self-reliance—and that do not step on parents’ toes in the process.
Read more from Richard and Linda Eyre
ABOUT THE AUTHORS: RICHARD AND LINDA EYRE
GRAND is pleased to welcome New York Times #1 Bestselling Authors Richard and Linda Eyre as regular columnists. The Eyres’ parenting and life-balance books have reached millions and been translated into a dozen languages. As fellow baby boomers, their passion and their writing focus has now shifted to the joy of grandparenting. Linda’s latest book is Grandmothering, and Richard’s is Being a Proactive Grandfather, each of which is reviewed in this issue.