Among the vivid memories I have of my grandfather is staring up at the ticker tape at the Bache & Co. brokerage firm in Philadelphia, where he’d go to “watch” his tiny portfolio of (usually underperforming) stocks. Sitting there with my Pop-Pop was my first exposure to the market and the idea that someday I might be able to own pieces of big companies, too.
Grandparents can give invaluable money lessons to their grandchildren. “There are messages and values they hear and accept from grandparents in a way they don’t from parents,” says Joline Godfrey, founder of Independent Means, a financial-education firm.
But never undermine the children’s parents in your quest to do a familial good deed. Beth Kobliner, author of the best-selling Make Your Kid a Money Genius (Even if You’re Not), says she hears complaints about grandparents breaking family money rules. It’s better to discuss with the parents the values, knowledge and money history they want to share. Then offer up your pearls of financial wisdom, such as:
Start a Homegrown 401(k)
Children may get frustrated that it can take so long for a small allowance to grow into a large pot. Help foster the savings habit by matching savings deposits dollar for dollar. Or, offer incentives for other behaviors you and their parents want to encourage (exercise, reading, cleaning). Paying your grandchildren to do jobs you’d pay strangers to do is a great option as long as you demand they do them well.
Teach Mental Accounting
Adults are more successful in achieving financial goals when they create separate savings pools for particular aims. Start that practice early with grandchildren. For example, divide a $15 gift into three envelopes, labeled “Saving,” “Spending” and “Giving.” Or — as the kids get older — break it into four chunks and add in “Investing.”
You can buy single shares through companies like GiveaShare.com or open an account at, for instance, TD Ameritrade or Ally Invest, which have no minimum balance requirement. Or you can gift shares you already own. One caveat: Grandkids sometimes become emotionally attached to stocks that beloved grandparents give them. Make sure they know you want them to sell when the time is right.
Give Cash, Not Gift Cards
Research shows that cash feels more valuable than plastic. Big bills, by the way, carry more weight than small ones. Your grandkids will think twice about breaking a valuable $20 bill.
Or Write a Check
Then take the child to a bank or credit union, open a checking account and show how to deposit the check or cash. (My children had their first debit cards at 12.) Do this only with the parents’ permission, though, as you are also committing them to the arrangement.
— With additional reporting by Kelly Hultgren