5 things to do now to help your grandkids

This article will ...  List some options for picking up the tab on various costs involved in raising children. Describe financial instruments that could potentially make a difference for your grandchild down the road. Point out steps you can take to help your grandchildren as they reach adulthood.

Is there anything better than the pure joy that fills your heart when your grandson or granddaughter makes eye contact and smiles at you?

Well, perhaps, yes: The ability to leave most of the hard work in raising them to your son or daughter.

But in the same way that you can enjoy your grandchildren in a different way than you were able to enjoy your children, you can also support them in a different way. You have options instead of obligations, which can make providing that support more enjoyable.

So, if you’d like to pitch in financially to help your grandkids — which, let’s be honest, is also a way of helping your children — consider these options:

• Pay for things that are a stretch for the parents.
• Promote investing.
• Provide life insurance.
• Help with college costs.
• Give a boost in adulthood.

Pay for things that are a stretch for the parents

Children are expensive to raise. The national average cost to raise a child born in 2015 from birth through age 17 is $310,605, according to a Brookings Institution analysis.¹ For many people, providing anything beyond necessities can be a stretch.

Perhaps you remember what it was like? After you paid the hospital bills and doctors' bills, bought strollers and car seats and high-chairs and playpens, clothed and fed them, and stayed at home to raise them or paid for day care, it was hard to find the money for the extras. Things that would enhance your children’s lives sometimes fell lower in the budget priorities.

As a grandparent, you may have reached a level of financial stability that lets you give money to others. So, if your grandchild shows interest, and if it’s okay with their parents, you might consider paying for all or part of your grandchild’s art lessons, music lessons, sports equipment, or summer camp. You could also help with medical expenses for a special-needs child, braces, tutoring, or private school tuition.

Promote investing

Consider giving your grandchildren an early investment education by letting them use gifted funds to gain hands-on experience purchasing stocks and bonds.

To do this, since kids aren’t allowed to buy securities, you can open a custodial account in their name. It remains under your control, but the gains in the account will be taxed at the child’s tax rate. Once he or she becomes an adult, the assets are transferred to him or her. (Related: Custodial accounts and Coverdells: How to use them)

Or you can bolster an investment effort underway by the parents.

Take the case of Chartered Financial Analyst Bill Staton, a financial professional at Novare Capital Management in Charlotte, North Carolina. He and his wife set up an initial program to help their four children save.

“While they lived at home, we opened a stock custodial account for each [child] and gave some money for a quick start,” Staton explained in an interview. “We let them pick the companies in which they wanted to invest. Once started, we had a deal: For every dollar they contributed to buy more shares, we’d match dollar for dollar—whether they earned the money or it was a gift.”

And the grandparents joined in as well.

“The grandparents loved this program, so naturally they contributed money just as we did,” Staton said. The program’s biggest success was that it almost paid for their oldest daughter’s college education.

In addition to the money these investments may earn as the child grows up, the opportunity for them to learn investing lessons along the way will pay off throughout their adult lives.

Provide life insurance

Children don’t necessarily need life insurance, as no one relies on them for support and their chances of dying are low. However, buying your grandchild a whole life policy can pay off in his or her future.

You can lock in the child’s insurability when they are young and healthy. The premiums will be relatively low, and you could consider adding to the policy guaranteed insurability riders or guaranteed purchase options that will allow your grandchild to buy additional insurance later regardless of health. In short, you’ll be giving them the gift of a guarantee that they can protect their future family. (Learn more: The logic of life insurance for children )

Because whole life policies accumulate cash value over the years as premiums are paid, your grandchild can have a source of money available to borrow for any future need or want, such as college or a trip to Europe, without qualification. This feature is one reason why whole life policies cost more than term policies.

The loan does not have to be repaid, but interest does accumulate on the borrowed money. Outstanding policy loans reduce the death benefit and cash value, and increase the odds that the policy will lapse, which may trigger income tax on the earnings. (Learn more: Treat cash value with care)

If your goal is to provide for your grandchild’s future needs, discuss with a financial professional whether whole life insurance is the best way to achieve your goals. Other options, which may be less expensive and provide more flexibility, include trusts and custodial accounts. A financial professional can offer advice on those possibilities as well.

Help with college costs

College offers an unparalleled way to increase lifetime earnings, but it can be a challenge for parents to afford. And student loans can limit options after graduation. Helping with college costs can be a great way to alleviate stress for everyone involved.

Grandparents can help with these costs in many ways. They could:

• Contribute to a 529 plan.
• Pay tuition directly.
• Pay for travel to and from home for summer vacations and holidays.
• Provide professional connections to help with internships.
• Help with study abroad expenses.
• Help with graduate school, medical school, law school, or PhD expenses or application fees.

To minimize the impact of your gift on any financial aid your grandchild might be eligible for, it is wise to sit down with a financial professional who has expertise in this area. (Related: Possible college gifting moves for your grandchildren )

Give a boost in adulthood

Even when your grandchildren are no longer children, they might still benefit from any financial help you can provide. You don’t want to give in a way that allows them to be irresponsible with their own money or behavior, but if your grandchild is doing his or her best, you might consider offering a boost with a down payment on a home, an engagement or wedding ring, wedding or honeymoon expenses, or seed money to start a business. (Related: How younger adults can build wealth)

For the last option, you could discuss with your grandchild the possibility of you becoming an investor in the business instead of just providing a gift. Requiring repayment of a loan or asking for equity in the business might incentivize your grandchild to treat the money as if it were their own.

Don’t promise away your future

Wanting to promise your grandchild that you’ll contribute a certain dollar amount to their development or their future each year is a wonderful sentiment. But it’s a specific commitment you should consider carefully and, perhaps, avoid.

You don’t know what could happen with your finances or your health in later years. Rather than setting yourself up to potentially break a promise — or try to fulfill it when you can no longer afford to — you may want to set expectations early on: Perhaps you can establish that your gift might not be the same amount every year, and that there’s no guarantee it will come at all.

To account for such uncertainty, consider including your grandkids in your estate plan. That way, you’ll make sure you can provide for yourself during your lifetime, then provide for your grandchildren with any funds you don’t use. (Learn more: Wills and the basics of estate planning )

Conclusion

Paying for experiences that parents might not be able to afford, starting an investment account, buying a life insurance policy, helping with college costs, and giving a boost in adulthood can all be rewarding ways to help your grandchildren.

But perhaps the most important gift you can give them is your spirit of generosity.

Let your grandchild choose a volunteer activity to do with you, like taking groceries to a local food pantry or helping a neighbor with yard work. These acts of mutuality can foster an emotional bond with your grandchild while helping the community.

Here’s another idea: When you give your grandchild a birthday gift, give them $25 to keep and $25 to donate, or give them two of the same toy and have them decide where to donate the second. Then accompany them to make the donation—maybe to a children’s hospital or a holiday toy drive.

Teaching your grandkids to carry on your tradition of giving could be the greatest gift of all.

Learn more from MassMutual...

How to help your grandchildren handle money

Gifting life insurance for kids: 3 reasons

Money and children: Teaching by age groups

This article was first published in December 2018. It has been updated.

________________________________