Dear Mrs. Riches:
I'm a widow in my late 60s who is very comfortably set up for retirement, with extra to spare. My grown children are having babies of their own now, and I would like to pass along some of my wealth to my grandkids while I'm still around to enjoy the benefits. I don't, however, want to create a generation of entitlement or somehow undermine the contributions of my grandkids' parents or their other sets of grandparents (who can afford much less than I can). Is there a way to help without helping too much?
-- Proud but Practical Grandma
Dear Proud Grandma:
How wise of you to think so carefully about how others will experience your generosity. Gifts of money, especially large ones, do have a way of stirring up emotion: on the positive side, appreciation, gratitude, and elation; on the negative side, resentment, jealousy, complacency, and greed. To determine the best way to go with a monetary gift, you will have to think about several things:
1. Personalities. Some people feel that any type of gift is an assault on their pride. If you have one of these among your brood, tread carefully. You'll want to consider gifts that have a longer-term benefit for your grandkids (like college savings) rather than a splashy gift that will affect their lives right now.
Likewise, do you have any family members who suffer from the "gimmes," as in, you give them $10,000, and they think that $20,000 would actually be a much nicer amount, pretty please? Steel yourself against manipulation, "helpful suggestions," or wish lists. While considering your family's feelings is considerate, the choice concerning amount and method of delivery is ultimately yours.
2. Fairness. Don't fuel feelings of jealousy or competition by giving your grandchildren unequal amounts or dispersing their funds at different times. While this may sound like a no-brainer, sometimes grandparents try to thoughtfully redress inequities -- for example, if one family brings home lower salaries than another -- and end up in the center of a family feud. Because family economic situations may change, and because your children may be very sensitive about "who Grandma loves most," equal giving to the grandkids is a wise idea. You can always help one of your struggling family members later in a separate and more private fashion.
3. Balance. You mention that you don't want to encourage entitlement, but you also seem like a very generous grandma, indeed. So how do you decide how to strike just the right balance? To a certain extent, this amount will be dictated by how much you can reasonably afford to give. If money is no object, try to assess what amount will allow your grandchildren to work readily for a personal goal (attend college, buy a home, or start a business), without buying them the whole enchilada and denying them any personal investment.
Here are some ideas to consider:
529 Plans. Fund your grandchild's college education with a 529 plan. You may get a deduction on your state tax return, and you'll maintain control over the money. No worries that little Johnny will buy himself a Ferrari with your well-intentioned gift.
If your grandchild doesn't go to college, the money can be transferred to other kids' college accounts, or you can withdraw the cash for him to use for another purpose. Be prepared to pay a penalty in this event.
Roth IRAs. When kids are older, propose a matching plan when they get summer jobs. Match any contributions that they (or their parents) make to a Roth IRA. They can contribute only a set amount of money (in 2006, the limit is $4,000, but this increases as years go on), but their sweat equity will make them appreciate your gift all the more.
Of course, you may also want to offer gifts now that you can enjoy right along with your grandkids. Do make sure that any big purchases are cleared first with your grandchildren's parents. An inflatable moonbounce may be a hit with the grandkids, but could send their weary parents over the edge. Safer options include gift certificates for lessons, offering to pay for camp, open travel vouchers, and the like.
For more guidance regarding college savings for your grandkids, check out our nifty College Savings Center.
Dear Mrs. Riches:
My husband and I are retired and living on a fixed income. Our grandkids (ages 3, 7, and 9) live across the country, but our budget doesn't permit as many visits as we'd like, especially with the high cost of air travel these days. Sending gifts all the time, especially the types of newfangled video games they like, is costly, too. How can we stay in our grandchildren's lives without breaking the bank?
-- Grandma J
Dear Grandma J:
Keeping in touch shouldn't have to cost an arm and a leg. If your grandchildren are anything like my children, they swoon over getting any kind of mail. So try these low-cost alternatives to U.S. Airways and Sony's PlayStation:
- Start a postcard collection by sending interesting postcards from your area or places you visit.
- Record yourself reading bedtime stories and send the cassette or video tapes. Your grandkids can enjoy your rendition of Where the Wild Things Are for years to come.
- Enclose a sheet of stickers in with your letter -- always a treat!
- Email short notes and photographs once a week to stay in touch.
- Get creative with your letters. Send a riddle or joke in each one (your local library will have joke books filled with suitable funnies), start a story that your grandson can finish and send to you, or make up a secret code your granddaughter can crack.
- Send home-baked cookies. Everyone loves care packages!
- Send your grandkids homemade stationery and stamped, preaddressed envelopes so they can easily write back.
- The Internet is chock-full of kid websites that offer free coloring pages, printable mazes, and word puzzles. Print some of these out to send to your grandchild along with a nice note.
Want more advice from Mrs. Riches? Try:
Fool contributor Elizabeth Brokamp is a licensed professional counselor who regularly talks money with her honey, Robert Brokamp, editor of The Motley Fool's Rule Your Retirement newsletter. To get your money and relationship questions answered, send her an email .