Consider these practical ways you can help your grandkids this Christmas and beyond.
1. Provide a solid foundation
A good education goes a long way in helping young people build successful and happy lives.1 So helping with money for your grandkids’ school and university fees is a great start. If you can’t contribute financially though, you can help by teaching them sound budgeting and saving habits from a young age.
2. Give them a hand getting on the property ladder
Rising house prices make getting on the property ladder difficult for many young people. As a grandparent, if you can afford it, you can consider gifting a deposit. A good deposit will reduce the amount your grandchildren need to borrow and reduce the amount of interest paid over the life of their home loan. But bear in mind if you receive Centrelink payments―particularly if you’re 60 or older―you’ll need to consider that a gift of this kind may impact your benefits.
You could also use the equity in your home and act as a guarantor to help them qualify for a home loan. But you should know that if your grandchild fails to repay the debt your home could be put at risk—so think about this option carefully.
Rather than contributing money or going guarantor, you can share stories about buying your first home, and help them avoid the tricks and traps you had to overcome.
3. Build savings with shares and bonds
Investments in bonds and shares may help your money grow more quickly than in a savings account. It may be a stretch but, as an example, if you put $200 a week into an insurance bond, you could have $137,417 in 10 years to help fund your grandkids’ education or give them a head start on the property ladder.2 Of course you don’t have to provide such a large amount to be of help—saving less over a longer period of time may also be an option for you.
4. Help pay for financial advice
Your grandkids may not be thinking about a financial adviser at this stage in their life. But that doesn’t mean you can’t get them on to a good thing. Research has revealed that people who have a financial adviser save an additional $1,590 a year (after advice costs) compared to those without a financial adviser, as they learn better savings behaviour and develop greater financial discipline.3
5. Plan to leave something behind
When the time comes, you could leave something for each of your grandchildren by ensuring you have valid estate planning instructions in place. A current will can ease the burden on your loved ones at a difficult time and ensure your assets go to your chosen beneficiaries.
Where should you start?
Caring for your grandchildren can involve a substantial financial commitment and although you want what’s best for them, you don’t want to leave yourself short. You need to consider your own circumstances before deciding if and how you can help them. It’s a good idea to seek financial and legal advice so you fully understand the risks and benefits.
1 AMP.NATSEM Income and Wealth Report: The cost of raising children in Australia, Issue 33, May 2013.
2 Invested in AMP Growth Bond. Insurance Bond assumptions (high growth)—3% pa income, 5.5% pa growth, 50% franking, 1% management fee, 125% test met each year, value shown above is after 10 years and is net of all tax including CGT.
AMP Chief Economist Shane Oliver helps you decide.