WSJ: Helping Out Grandkids Can Put Retirement at Risk

Grandparents are increasingly playing a bigger financial role in the lives of their grandchildren, but it’s at the expense of their own future financial security, the Wall Street Journal reports.

The trend of grandparents providing added assistance can be attributed to the strain the economic recession is putting on children and grandchildren, and it’s causing the older generation to pitch in to help pay for anything from toys to college education, says the WSJ.

Despite the well-meaning intentions behind such financial assistance, it could negatively affect both the grandparents and the grandchildren, however.

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“Promising too much to grandchildren, not saving enough for their own possible health-care needs and paying off their grandchildren’s loans are some of the mistakes well-meaning grandparents are making, say financial advisers,” reads the article.

Most grandparents today belong to the baby boomer generation and are between the ages of 45 and 64, says the WSJ, citing a recent MetLife Mature Market Institute study. A lot of the time, they’re still working and have more financial resources than ever before; in fact, in the past ten years, the inflation-adjusted income for households age 55 or older has risen to 34% of the nation’s total, up from 28%, while the income of younger households, ages 25 to 44, fell to 36% down from 43%, according to MetLife data.

These changes in wealth distribution have prompted many grandparents to help out their children by financially assisting their grandkids, but as financial advisors told the WSJ, older people need to figure out how much they can afford to help and how it will affect them in the future.

Taking on a grandchild’s debt can be a disservice to both parties involved, the WSJ continues, as it shrinks the grandparent’s balance sheet and could also enable poor financial decisions down the road by the grandchild and prevent them from being a “financially healthy” adult.

While it’s appropriate to help out with school loans, paying off credit card debt could serve to reinforce bad behavior rather than reward smart choices, financial planners say.

Read the full article here.

Written by Alyssa Gerace

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  • Has there ever been a time when this was not a potential problem?  While this is not new, perhaps the current economic mess has brought the issues back into focus. 

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