Is Grandma Spending Too Much on the Grandkids?

Grandparents love to help out, but sometimes their overspending on their grandchildren puts their own financial health in jeopardy

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While many Americans are still in belt-tightening mode, there’s one group that continues to open their purse strings: grandparents.

According to a recent AARP study, 89% of grandparents acknowledge that they spoil their grandchildren. And nearly all — a whopping 96% of grandparents age 55 or older — say they’ve spent at least some money on their grandkids, for varying reasons and amounts. Next to watching TV or movies together at home, shopping is the most popular activity for both grandma and grandpa when it comes to spending time with their grandchildren.

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What grandchild would complain about that? I still remember fondly the gifts my own grandparents showered on me growing up. Even when I was older and in college (and also broke), my grandma would tuck $20 bills in her letters, just so I’d have “a little breathing room.” I loved spending time with my grandmother, regardless of the cash or material gifts, but I was certainly grateful for the money — and I know she liked helping out.

As the recent survey confirms, grandparents want to help and they usually find tremendous satisfaction in giving money and gifts to their family members. In some cases, their spending isn’t exactly discretionary. Many grandparents are contributing cash for necessities: more than one-third report helping out with basic day-to-day expenses, and 23% are spending money on medical and dental insurance for their grandchildren. But many others are choosing to spoil and splurge on their grandchildren just because they like to. Either way, this kind of spending may come at the detriment of their own financial health.

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The current economy makes it harder for grandparents — many of whom are retirees — than when I was growing up, and the dollars left in their retirement accounts may be a bit more precious. But even though unexpected expenses like rising health care costs may already be straining grandparents’ budgets, more than half of those surveyed in the AARP study said that the economy has not affected how much they lavish on grandkids. The ones who did indicate that they were reining in their overall budget admitted they’ve cut back in other areas in order to maintain their spending on grandchildren.

Whether grandma and grandpa are helping because they love to or because they feel they have to, it can jeopardize their financial health. So, what should families do to make sure everyone’s needs are met?

As always, the first thing to do is have an open and honest discussion communicating your care and concern. Grandparents’ desire to help is laudable, but they may not always be making the connection between their occasional (or frequent) spending on their family members and their dwindling retirement savings. If you have a retired parent who is spending too much on your children, be careful not to ruin their enjoyment — but do let them know that you respect their need to meet their financial responsibilities and their retirement goals as well.

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Here are some other issues to keep in mind as you approach them with your concerns:

  • Let them know how much you appreciate the gifts — or the necessary assistance — but gently inquire if this is built into their budget. You can politely mention that the overall spending seems excessive and express your concern for their financial well-being.
  • If you can do without the financial assistance, suggest they simply cut back on the amount or frequency of spending. Assure them that your children will be equally happy with smaller gifts or more modest shopping excursions.
  • Reinforce that your children love spending time with their grandparents as much as they like spending money (a fact you can remind your children of as well). Sometimes grandparents (and parents) forget that it’s the thought that counts, and get caught up in expectations that can be corrected. You may even discuss the type of financial values you’re hoping to instill in your children and request that grandparents help by finding alternatives to spending money or giving gifts.
  • If you do need the financial help, have a clear understanding of what you may need and for how long, so your parents can adjust their finances accordingly.

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Realistically, grandparents will be grandparents — it’s all part of being grand! They’ll keep on spending because, as the data shows, they like it. But as their child, it’s also O.K. for you to tell your parents that you care about their financial health as well as the happiness that splurging on their grandkids brings.

De Baca is vice president of wealth strategies at Ameriprise Financial.

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