Many seniors want to provide financial help for their grandchildren. And isn’t spoiling young grandchildren with an overabundance of gifts one of the benefits of being a grandparent? But once they reach their teens, what approach should you take to temper their material demands and teach them how to make correct financial decisions?
If you find that your grandchildren don’t know how to balance a checkbook nor understand the concept of interest charged on credit card debt, try not to get too frustrated. Less than one half of high school graduates have had a course in economics, which leaves many of them without the knowledge needed to become informed consumers, investors, and voters (http://www.ncee.net/summit/2002SummitExecutiveSummary.pdf) . The good news, however, is that teens are becoming more aware of the importance of preparing for the future.
According to the Investment Company Institute, the number of minors who hold Roth IRAs has practically doubled in the past year to nearly 903,000 (The Wall Street Journal, October 9, 2002). The flexibility of Roths makes them especially beneficial for working teens since contributions can be withdrawn for college expenses, and up to $10,000 can be used for first-time homebuyers.
But what if your grandchildren aren’t interested in saving for retirement that may be 40 or 50 years away? You can make the contributions to your grandchildren’s Roths as long as they don’t exceed the child’s actual earned income or the $3000 maximum allowed contribution (Grows in increments to $5,000 in 2008) . Show your grandchildren how their money will be invested and review the mutual fund’s reports. Over time they’ll see their accounts grow and sooner or later start to appreciate the benefits of investing.
In case your grandchild has no earned income, you might want to consider hiring him or her to work in the family business or do real work around your home, for example, painting or mowing the lawn. Be sure to keep records of when the work was done, just in case the IRS asks.
Get your grandchildren involved in their financial futures and teach them about long-term savings and how the markets work. If you want help in establishing a Roth IRA (or converting your own IRA to tax free status), return the enclosed coupon.