Many grandparents desire to help their grandchildren financially, however the weak economy and job market has put many grandchildren in a situation where they need more than their grandparents can realistically give. According to a recent report in The Wall Street Journal, grandparents who are making financial gifts to grandchildren while living off their savings must seriously consider how the reduction of their investment principal will affect their future earnings.
Grandparents should consider speaking with a financial planner to determine how much they can comfortably give before putting their retirement plan in jeopardy. Rather than giving cash, some financial advisors suggest giving grandchildren stock to teach them about investments and financial planning. Especially if you intend to pass along such assets anyhow, gifting them during life keeps them out of your estate and therefore not subject to tax upon your death.
There are also many ways that grandparents can provide the financial assistance their grandchildren need without sacrificing their future earnings. One such way is to make loans rather than give gifts. Not only does a loan give your grandchildren the immediate assistance they need, but by incorporating strict repayment terms, you are also teaching your grandchildren valuable lessons about financial planning.