According to a recent survey, grandparents do not consider themselves financial supporters for their grandchildren, however over 90% of them contribute in one way or another and provide financial relief to their kids and grand kids.
These contributions include gifts, cash, tuition and school payments, help putting together the down payment for a house, assistance with day-to-day expenses and, and unpaid childcare.
Many grandparents feel more financially stable than their kids, so they don’t feel like they are stretching too thin while helping out financially. With that, there are wise ways that grandparents can contribute financially, without putting their own financial well being and security at risk. Also, while buying fun toys and other treats is exciting, these wise ways help a grandparent contribute to the long term stability of the grandchild’s future.
It is common for parents and grandparents to want to help their children achieve life goals with lump sum cash gifts, such as a down payment. It is important to note that the kids will be asked about the source of the down payment funds when applying for a mortgage, and as such, it could interfere with their ability to qualify.
What we recommend grandparents (or parents) do instead, is putting money in their own RRSP (if within the age range), taking the tax return, gifting that to their children to put in their own RRSP. Then, children or grandchildren can use the Homebuyer’s plan to help fund a down payment. This strategy leaves the whole family much further along in savings and reduces the tax bill.
Another way to support your children and grandchildren is to purchase insurance policies on their lives, while remaining the owner.
Policies like Critical Illness or Permanent Life Insurance are a great way to insure children while they are younger and offer growth options within the policy. These funds can be used for their education or future pursuits.
Read more about various insurance policies in our article.
Time spent with grandchildren is priceless to a grandparent, but it definitely has value to all parties involved. It also offers the chance to be of service by training and teaching core values and family history and beliefs from a unique perspective.
Sociologists use term “intensive grand-parenting” when referring to grandparents who commit to providing regular childcare to their grandchildren, often accompanied by other tasks. With the growing costs of childcare, the practice of intensive grand-parenting is becoming more common and acceptable.
It is important to note that if your parents are looking to contribute their time and provide care to your children, you may want to consider paying them some sort of compensation, especially if they are sacrificing their work hours, retiring early or foregoing other opportunities to generate income.
RESP or TFSA
One popular method for grandparents to give to their grandchildren is to fund their RESP. When you put funds into an RESP, you are eligible for free grant money to enhance your savings. Another option is a TFSA, which is tax efficient for grandparents who want to invest on behalf of their grandchildren and watch the gift grow. This is also an excellent way to get young family members interested and involved in managing money.
Besides gifting, there are many great ways grandparents can contribute to the well-being of their kids and grand kids. If your parents are interested in helping, we recommend you chat with them about the options in this article, so the entire family can benefit in the best ways possible from their initiative. For tips on how to make the best of difficult conversations with your family, check out our article.