Grandma and Grandpa Time to Have the Money Talk

It’s Time to Teach your Grandchildren Financial Lessons

With a lifetime of experience, most grandparents are happy to share their wisdom with their grandchildren, offering advice on things like school, marriage, gardening, sports and more. A new study, however, finds grandparents may be missing a significant opportunity to make a positive impact on their grandchildren’s financial futures by simply talking to them about money.One reason for this is grandparents don’t think their grandchildren want to hear from them about money matters. But that’s not true, according to the study commissioned by leading financial services firm, TIAA-CREF.
“Young adults are surprisingly open to talking with their grandparents about money, regardless of the generation gap,” said Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab, who collaborated with TIAA-CREF on the study. “When it comes to saving for college, most young adults feel unprepared, and grandparents aren’t fully aware of how they can help.”
Under Your Influence: You Have More Impact on Your Grandkids Than You Think
One of the most important ways grandparents can positively impact their grandchildren’s saving and spending habits has nothing to do with writing a check. The study found only 8 percent of grandparents ages 50 and older say they’re likely to start a conversation with their grandchildren about money and saving for college. But on the flip side, 85 percent of young adults ages 18 to 24 are open to discussing the subject with their grandparents.
Seventy-three percent of young adults also say their grandparents actually do influence their saving and spending habits. But only three in 10 grandparents think this is the case.
This disconnect suggests grandparents may be missing out on a big opportunity to positively influence their grandchildren’s financial success. “Conversations about money over time could help young adults more than their grandparents realize,” Coughlin said.
Money Memories: Your Grandkids Want to Hear from You
With 97 percent of young adults concerned about saving for their future, grandparents can make a positive difference by sharing how their financial decisions – for better or worse – have impacted their lives.
In fact, past experiences is the No. 1 topic grandchildren would like to talk about with their grandparents. This presents a great opportunity for grandparents to discuss their financial choices through their own personal stories.
Coughlin suggests starting these conversations early in childhood. “When you empower children to understand financial decisions, they develop a life-long sense of confidence and trust in themselves, helping them become successful adults,” he said.
Fiscally Falling Behind: Young Adults Are Unprepared for College
For children under 18, the most immediate financial concern facing them is often whether they’ll be able to afford college. More than 30 percent of young adults surveyed indicated they have nothing saved for college. And only 29 percent report grandparents have helped or are helping with their educational expenses.
This is despite the skyrocketing price a four-year degree — a dollar figure that half of grandparents underestimate. The study found about half of grandparents think it costs less than $75,000. But the fact is that a moderate, in-state public college education now costs around $100,000. And a moderate private four-year college education averages around $164,000, according to the College Board.
“We found grandparents are willing to help their grandchildren financially, but they want some assurance that their grandchildren have ‘skin in the game,’” Coughlin said. “Grandparents need to know their grandchildren are serious about achieving future success through advanced education by using their own money to help pay for at least part of it.”
It’s Never Too Early to Talk Money: Here’s How
To start a conversation about money and saving for college, consider adjusting your approach, based on the age of your grandchild. TIAA-CREF recently introduced a variety of tools and resources to help break the ice, including conversation tips and worksheets, templates for electronic incentives and reward certificates.
For example, explain to your grandkids under eight that you’ve been alive longer than their parents and that the price of many everyday items like ketchup has increased over time. Then introduce the idea of value by teaching them the difference between coins and bills and assigning a dollar value to some of their favorite toys. You also can talk about the importance of saving some of the bills for college, as good paying jobs – that allow them to buy more of their favorite toys – require training and education.
For children eight to 12 years old, consider teaching the difference between needs and wants. Show them how to set financial goals for themselves, like saving up to buy a pair of new sneakers or saving a dollar from their allowance each week for college. Additionally, consider “hiring” your grandkids for projects around your home or business, and offer them an hourly wage.
For children over 12, encourage them to take on a part-time job during the summer and save a certain amount from each paycheck for advanced education. Then, offer to match your grandchildren’s savings so they clearly see the value within the context of what living expenses will be when they get older, and the importance of a job that can accommodate.
Saving Makes Good “Cents”: The 123s of 529s
The study found that even those grandparents who want to help their grandchildren save for college are unaware of one of the best and most affordable ways to do so. In fact, more than two-thirds say they are unaware of 529 college savings plans.
529 college savings plans offer three main benefits:
1) They serve as an investment account and allow any earnings on contributions to grow tax-deferred.
2) Withdrawals, if used to pay for qualified higher education expenses, are federal income tax-free.
3) Some states offer additional tax benefits, such as an income tax deduction or tax credit for state residents on plan contributions.
“In addition to grandparents sharing their own financial experiences, 529 college savings plans are an easy and affordable way for grandparents to help their grandchildren save for college,” said Doug Chittenden, TIAA-CREF executive vice president of Individual Business. “Grandparents may lack awareness of 529s because they didn’t have to think about starting a college fund with their own kids.”
For more information, go to www.AARPCollegeSavings.com.
 
About the Study
The nationwide dual-approach survey was fielded online among 1,000 grandparents age 50 and older with at least one grandchild age 18 to 24, and a second survey was fielded online among 1,003 adults age 18 to 24.