Grandparents
Bearing Checkbooks
Earlier this year,
Frank Fertelmes gave his car to his 21-year-old grandson to get back-and-forth
to college.
Mr. Fertelmes's
daughter could no longer drive her son to school each day with her family's one
car, as she had just started a new job after being unemployed for over a year.
Mr. Fertelmes' son-in-law couldn't help out either, as he is still on medical
leave after a serious car accident.
The 81-year-old
Stratford, Conn., native also pays for the occasional car repair and
maintenance. And he likes to slip his grandson, who goes to school full time
and takes any part-time work he can get mowing lawns and doing other handiwork,
the occasional $20 for lunch or gas money.
"The downturn
put a strain on his parents, and he needs my help," Mr. Fertelmes says.
Grandparents, like
Mr. Fertelmes, are increasingly playing a bigger financial role in the lives of
their grandchildren.
The economic strain
on their children and grandchildren, due in part to higher unemployment, is
prompting more grandparents to pitch in and pay for everything from toys to
insurance to college tuition.
Yet some grandparents
are making financial mistakes 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 well-meaning grandparents are making, say financial advisers.
"Grandparents
can sometimes give too much support," says Oliver Pursche, a Suffern,
N.Y., financial adviser.
Grandparents today
are younger and have more financial resources than ever before. The majority of
grandparents are working age baby boomers between the ages of 45 and 64,
according to a recent study by the MetLife Mature Market Institute. In the past
decade, the inflation-adjusted income for households age 55 and older has risen
to 34% of the nation's total, up from 28%. Yet during that same period, income
of households ages 25 to 44 fell to 36% of the total from 43%, according to
MetLife. In turn, some grandparents feel compelled to help their progeny whose
income has fallen behind.
However, Mr. Pursche
has seen several grandparents make the basic mistake of lending support before
they "do the math" and figure out what they can actually afford to
give.
Lazetta Rainey
Braxton says grandparents can make the mistake of not planning to cover the
expenses of catastrophic events, such as significant medical and long-term care
costs. The Chicago-based certified financial planner says while it may be
difficult for some grandparents, especially those who are young and healthy
now, to throttle back support for their grandchildren, they may need to do so
to ensure they have enough money saved for possible health-care expenses later
in life.
"One of the
biggest gifts a grandparent can give is being able to afford his or her own
care," she says.
Among the biggest
mistakes William Martin sees grandparents make is helping pay off their
grandchildren's debt. The State College, Pa., certified financial planner says
this can be dangerous because 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, he says,
grandparents should think twice before helping pay off junior's credit-card
bill, for example. "The key is to [reward] good choices, not bad
ones," says Mr. Martin.
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, says Ted Halpern, a Rockville, Md., financial
adviser. Grandparents can either put a basic loan agreement in writing or do it
simply with a handshake.
One of his clients
who lent her grandchild money for a home down payment created a written
agreement that included the loan amount, interest rate and monthly payment. The
interest rate on the loan was less then what the grandchild would have paid at
a bank, and the loan came with an "unwritten" understanding that the
repayment term could be extended if needed.
For grandparents who
can't give money, Michael Lynch, a Shelton, Conn.-based certified financial
planner, recommends they give support in other ways such as volunteering with
their grandchild or encouraging them to pursue an education.
"Sharing your
values is an important gift," says Mr. Lynch.
George Lagarde
ReverseMortgageLV.com
GLagarde@AllWestern.com
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