Seven years ago, when we both were working, my husband Hayden and I bought an expensive home in a pricey neighborhood, known for its excellent schools. We have two children, a six- and a four-year-old. After our younger child was born we decided I would stay home full time, so even though Hayden has a good job, we pretty much live from paycheck to paycheck.
Here is our situation: there is a wonderful summer camp program in our town that we’d like our kids to attend, but it is quite expensive. Unlike my parents who struggle financially, Hayden’s parents are quite well off. They have always lived simply and frugally, never splurging on expensive vacations or other big ticket items. In fact, I tease Hayden that they probably have the first nickel they ever earned!
I want to ask them if they will pay for our kids’ summer camp program, but Hayden is uncomfortable asking them because finances are not something he and his parents ever talk about. I remind him that he’s an only child and will inherit his parents’ money eventually anyway, so I don’t really understand why he won’t ask them to help us out now.
You’re interested in a segment of the economy that has gained a lot of interest from economists, investment brokers, and marketers. In fact, it even has its own name: the grandparent economy. Grandparent spending has outpaced the growth rate for consumers overall, growing at an average of 7.6 percent per year since 2000. A major category of spending for grandparents is for their grandchildren’s education, spending $32 billion on tuition and other expenses annually.
In addition, grandparents are giving their grandchildren over $5.5 billion each year in gifts, stocks, bonds and mutual funds (Study by Peter Francese, sponsored by Grandparents.com.) In related research, AARP has found that more than 50 percent of grandparents help out in some way with the grandkids’ education, while 45 percent assist with their living expenses.
So, yes, grandparent generosity is huge, but it comes with two red flags. First, many grandparents have worked hard all their lives, faithfully saved, often making great sacrifices to ensure they were adequately prepared for their retirements. Their monetary philosophy of “if you don’t have the cash in hand, don’t purchase it” (home mortgages excluded), is different from the “buy now on credit and worry about it later” philosophy they often attribute to their grown children. Many grandparents are frustrated, annoyed, and resentful that their grown children have been what they, the grandparents, consider to be financially reckless and short-sighted, resulting in their grown children often relying on them to float them or bail them out.
But – and this is the second red flag – grandparents don’t want their grandchildren to suffer, miss out, or be deprived because of their parents’ irresponsibility, so they make financial contributions, often jeopardizing their own retirement savings and portfolios. A recent study funded by Met Life advises that “Grandparents should consider their own futures when planning gifts and support for adult children and grandchildren. If grandparents jeopardize their own financial security in retirement by giving too much to their families, they may someday be financially dependent upon these loved ones, which isn’t such a gift in the long run.”
These two red flags are somewhat tempered in that this same study found that “The vast majority (81%) of grandparents prefer to provide smaller gifts throughout their lifetime as needed for their adult children and grandchildren, although 19% do say it’s more important to leave a larger sum of money as a legacy when they die.”
Back to your question: would your in-laws be willing to pay for their grandchildren’s summer camp program? Perhaps, but they may worry that if they pay for it this year they will be expected to pay for it every year and they may not want that kind of pressure – they may not want to be put in the position of having to disappoint their grandchildren in future years if they are feeling they are not in a position to help.
Would they feel more comfortable contributing to an education savings plan that you and your husband set up for your children? The research above suggests yes, because most grandparents place a high value on education. By contributing towards their grandchildren’s education they would have the comfort of giving varying amounts, depending on their own financial situation. In this way, your parents could contribute, too, if only a small amount now and then, but they would be able to feel good about doing whatever they can.
So, one suggestion is that Hayden asks his parents for some advice (“because they’ve always made solid, financial decisions”) about setting up a savings account for the grandchildren’s college education. He could then ask if they would be comfortable contributing to it in lieu of birthday and holiday presents. With this conversation Hayden is opening the door for his parents to give their ideas and comments – some of which you may not appreciate hearing, e.g., “We’ve always thought you over-extended yourselves financially.”
Or, they may say they’d like to talk with their financial planner and see what they can do to help fund their grandchildren’s education fund. Or, they may find the conversation uncomfortable and say they’d rather not discuss financial matters at all. The point is that Hayden is providing an opportunity for a discussion in which his parents can choose to participate, or not.
My advice is that you not ask your in-laws to pay for the expensive summer camp program for your children. This program is nice to have, but by no means is it in a category of say, a serious medical challenge when you would “beg, borrow or steal” to get money for whatever your child needed. You can, no doubt, find a cheaper program you can afford, and if not, so be it. You will have to plan summer activities for your children that are fun and within your budget. You may be able to team up with some other at-home parents and involve them and their children in some group events and activities.
Ask Dr. Gramma Karen is published every other Tuesday.
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