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Grandchildren and Money

Parents may have the "birds and the bees" talk with their children, but grandparents can be useful by having money talks with their grandchildren.

Teaching the the basics of saving, investing and debt plus instilling good financial habits can be a lifelong gift.

"You don't need to be an expert and you don't need to be a model citizen or saver," says Pam Krueger, founder of Wealthramp.

"You just need to open up the discussions." She notes that schools rarely teach children how to be financially literate and develop smart financial behaviors.

Here are a few ways to talk with your grandchildren about money:

Spending and Earning

Teaching your grandchildren about money can start when the children are between five and 10. A good topic to begin with: the value of a dollar.

It's really helpful to let young children know how much things such as a bicycle or skateboard cost.

Terry Savage, author of "The Savage Truth on Money," suggests talking about where money really comes from: earnings.

"We used to always say 'Money doesn't grow on trees,' you know. But now children think it just comes out of an ATM," jokingly says Ms. Krueger. "You put your card in and you just get some money. So, one of the things grandparents can be starting to impress on young children is this concept that 'your mommy and daddy worked really hard for their money."

Saving, Investing and Taxes

Once your grandchildren are tweens, you might talk with them about the importance of saving money for college.

If you can afford to put money into a tax-sheltered 529 college savings plan for your grandson or granddaughter, explain in general terms why you are doing it (college can be expensive!) and how you are doing it (no need to cite actual dollar amounts).

Ms. Savage is a fan of grandparents saving for their grandchildren's future college education in 529 plans starting at a baby's birth and then annually as a birthday gift.



Ms. Krueger suggests offering a stock market primer once grandchildren are age 10-12. She is a fan of the website Stockpile.com which allows children (with adult supervision) start investing with as little as $5 by buying fractional shares of over 1,000 stocks and exchange-traded funds online.

"The child can choose the stock. And maybe it's McDonald's because they like to eat there or maybe it's Nike, because those are the cool shoes," Ms. Krueger says.

Some major financial services firms, like Schwab, offer similar methods of buying fractional shares of stocks.

Once children are well into their teens, Ms. Savage says, grandparents might want to introduce them to the topic of taxes. It may be a foreign concept for them.

"I taught my son about taxes when he was twelve or thirteen," Ms. Savage says. "I said to him, 'You know, if I make a hundred dollars, the first thirty dollars are going to the government. So, I only have seventy dollars left." Her son is now an investment professional.

Ms. Savage also recalls giving a speech in Chicago and bringing her twin granddaughters — then roughly ages eight or nine — up to the stage. "I said to one of my twins: 'Tell me what you know about money.' And she said: 'Taxes are too high!' And, of course, the audience cracked up."

Managing Debt

Grandparents can also talk with their teen grandchildren about credit cards.

"One of the biggest lessons to impart is understanding what borrowing is, and interest is, and how much it really costs to buy something on credit if you do not pay off the credit card at the end of the month," says Ms. Krueger.

With the average credit card interest rate now roughly 18%, a credit card lesson can be hugely valuable.

Teens and young adults in their 20s sometimes think they only need to make the "minimum payment" on their credit card statement. Of course, that just means racking up more interest over time on the unpaid balance.

Says Ms. Krueger: "Maybe it really does take a village to raise a money-savvy child. And grandparents can really jump in and help. They have a lot of experience to offer.