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Making your gifts to grandkids work harder

It’s tempting to grandparent like the Tooth Fairy, with surprise money and small gifts, but it’s far smarter and more beneficial to give kids a lesson with their loot.

A tough truth for grandparents (and aunts, uncles and stepfamily): The little one probably won’t remember the building set you gave them when they turned six. But if you’re willing to get involved in giving not just money but also lessons in making financial decisions, those memories could last a lifetime.

Here are six smart financial gifts that can help you teach your grandchildren how to manage money:

  1. 1. Start with the concept of now and later.

    Grandchild saving for now and later by putting coins into jars

    If you’re the type of fun grandparent who sends cards with cash inside and slips dollar bills into pockets—great! But you’ll do more if you introduce the idea of splitting those dollars into categories for use today, tomorrow and in the future.


    You can make this lesson visible for smaller kids (say, under 12) by taping labels on the outside of empty jars, labeled with goals like “save for the future” or “give to charity.” Then give kids cash, whether that’s quarters, singles or fives, that can be divided. Help children separate their cash into each of the jars.


    For older kids (above 12), you can transition from jars to spreadsheets, where you are working with money in a bank or even a brokerage account. At that point, you can also show the impact of interest earnings or investment growth.


    When kids see money allocated to different goals, they will learn to spend under their means, as well as experience the joy and importance of helping others and saving for the future.

  2. 2. Start a 529 plan.

    Grandchild with backpack walking to school

    You probably know you can help your grandchildren save for college with a 529 plan, a tax-advantaged savings account that can be used to pay for tuition, fees and room and board. But did you know the laws recently changed so you can pay for qualified education expenses for younger students, too? These accounts can serve as great teaching tools as well. Grandchildren can watch how accounts grow and even help choose the plans to allocate your money. Saving any amount toward education is an impactful gift.


    One strategy grandparents might want to consider is to make five years’ worth of contributions in one year. Any earnings can grow free of federal and state income tax, and some states offer an income tax deduction, reduction or credit for money you contribute.

  3. 3. Match their charitable giving.

    Grandparents help their granddaughter plant a tree

    Your grandchildren may find giving to a cause they care about as rewarding as you do. Start by talking about the issues they find meaningful. Your child loves animals? Explain they can donate money to help reunite lost pets, protect coral reefs for clownfish or thwart elephant poachers in Africa. Once they choose a recipient, sweeten the deal by offering to match what they donate.


    Grandparents can continue this giving journey by helping research the impact of the donation. Visit a local nonprofit together and talk to the director about the effect of their programs, or find videos online to watch together showing other charities at work.

  4. 4. Introduce them to investing basics.

    Grandmother shows granddaughter investment basics on iPad

    Buying a single share of Apple stock in 1980 would have cost you $22 and would be worth thousands today. But if you had given up and sold when the stock was 27 cents a share, you would have nothing today except 27 cents. That’s a lesson in risk, patience and time, and kids should learn about the stock market and these concepts as early as possible so it’s demystified.


    Help them by purchasing a set number of shares in a kid-friendly (yet fiscally sound) company or mutual fund. If possible, look for a dividend reinvestment plan (DRIP), in which dividends are automatically used to purchase additional shares each quarter with low or no transaction costs.


    Show them the investment’s symbol and how they can look up its value online. This gives both of you the chance to talk about and see how financial markets work, why investing is so important and how money can grow over time. If they’re diligent about putting money into their “invest jar,” they’ll soon be buying their own shares, too.


    When your grandchildren are teenagers with part-time jobs and taxable income, you can go one step further and work with them to open a Roth IRA. They’re certainly not thinking about retirement investing before they get their first job, but as far as long-term impact, this could be huge. Offer to match their contributions, then make it a real-life opportunity to study asset allocation, fees and returns.

  5. 5. Plan a family vacation together.

    A grandfather teaching his grandkids learn how to ride their new bikes

    Are you planning a multigenerational vacation this year? You’re in good company. More than 57% of people aged 53 and up say the number one reason they plan a vacation is to spend time with family and friends, according to AARP.1


    Getting children involved in vacation planning teaches them about budgeting, price comparisons, discounts and rewards programs. Have your young traveler sit with you as you book online. Even something as simple as showing them that it’s cheaper to fly on a weekday, for example, can help them understand that prices may fluctuate.

  6. 6. Have the car talk.

    Father sitting in a new car with his pre-teen son pretending to drive

    In teen speak, nothing says, “I love you,” more than a car, but it can also be more: an opportunity to show teens what it takes to own and maintain something of value that needs ongoing care.


    If you’d like to give your grandchildren a car, talk with their parents first. With the teen, discuss exactly how much owning a car costs, including gas, oil changes, car insurance and regular tune-ups. Do they have enough money to pay some of these costs on their own?


    Teens will be more likely to take care of something they’re invested in personally. Choose some ways for them to feel a sense of ownership right away, such as having them save up an emergency fund equal to their insurance deductible or asking them to pay the sales tax up front or in installments. Even if they can’t cover all associated car expenses, is there a way they can help contribute to part of the costs?

With a little planning, your gifts to grandchildren can work hard to shape their future, both financially and through the lessons learned. If you’re planning to give your grandchildren money, make sure your gift makes a difference in their lives.

Considering some of the options above? TIAA may have the solution: