Some of my favorite conversations with clients center on the ways people can use their resources to make a difference in other peoples’ lives, especially those of their children and their grandchildren. Many of my clients want to share some of their wealth, values and time with the next generation. I am going to share three ways that you could “meddle” in the financial lives of your grown children, along with some tips to make the experience successful.
1. Invest in education
One way to alleviate the financial burden of the rising cost of college is to contribute to a college fund for the benefit of your grandchildren. This is a gift to both generations as it may allow your children more financial flexibility and also allow your grandchildren to graduate from college with less reliance on college loans.
There are a couple of things that you will want to consider as you start this process. For starters, should the investment account be in your name or in your child’s name (for the benefit of your grandchild)? If you do keep the account in your name, be sure to let your child know how much you are contributing so that they have a sense of comfort in their own planning. The ambiguity of simply telling them “college is taken care of” can create anxiety.
Contributing to the down payment for a first home is a great source of satisfaction for many parents. When making this gift, it is important to discuss it several months in advance of the planned purchase. Mortgage underwriters may want the funds to be in the borrower’s possession before the loan is approved. Different types of mortgages may have different restrictions, so communication and research are key to this process. For example, a Federal Housing Administration (FHA) loan may accept up to 100 percent of the down payment as a gift; other lenders may not be as flexible.
Another situation arises when the oldest child receives $5,000 for a house in a small town, while the younger child could use $15,000 for a condo in a growing city. Again, how well does your family communicate and discuss these matters?
3. Create shared experiences on family vacations
One of the most memorable ways to share your wealth, values and time is to take a family vacation. You don’t have to go to Aruba or London, though wouldn’t that make for some great holiday card photos! Helping out with airfare, lodging or other transportation is a wonderful way to tell your kids and grandkids how much it means to spend time together.
It’s important to let your family share some of the expenses, such as buying groceries, a meal out in a restaurant, or their incidentals for tours, souvenirs, etc… They get the satisfaction of contributing to the trip in some way.
Your bottom line
No matter why you want to give, always examine your own financial situation before making gifts to your adult children and grandchildren. In May 2011, a Harris poll found that 26 percent of adults have taken on additional debt to help their adult children; others delayed vacations and even, retirement, when doing so. Often, the best gift we can give our children is to ensure them of our own financial independence.
Call your financial advisor to make sure all the numbers work, and then meddle away!
For More on Finance and Family From genConnect:
- U.S. Recession Has Cost You $7,300; What Have You Cut Back On?
- Retirement: Are You Worried About Not Having Enough Money?
- Cash for College? Don’t Write Off Financial Aid
- Parents’ Day: Celebrate Mom & Dad in Today’s Family
- What’s More Difficult to Talk About Than Sex? Money! By Dr. Barbara Okun
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