Grandparents and Finances

Grandparents are playing a bigger financial role in the lives of their grandchildren. “The economic strain is prompting more grandparents to pitch in and pay for everything from toys to insurance to college tuition,” says Brenda Schmitt, ISU Extension Family Finance Specialist.


For some grandparents this is a financial mistake that could put their own financial future in jeopardy. Promising too much to grandchildren, not saving enough for their own possible health-care needs and paying off their grandchildren's loans are some of the mistakes I see well-meaning grandparents are making. Before lending the support, it is important to do the math and figure out what you can actually afford to give. One of the biggest gifts a grandparent can give to their children is being able to afford his or her own care.


Among the biggest mistakes grandparents make is helping pay off their grandchildren's debt. It not only shrinks the grandparents' balance sheet but it can also enable the grandchildren to make poor debt decisions down the road and ultimately prevent them from becoming financially healthy adults. While helping a grandchild with a school loan, within reason, may be appropriate, grandparents should think twice before helping pay off anybody's credit-card bill. The key is to reward good choices, not bad ones.

Grandparents who want to help the next generation, but who may not be able to permanently part with their cash, may consider an informal loan agreement with their grandchild. Grandparents can either put a basic loan agreement in writing or do it simply with a handshake.


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