Financially Savvy Grandparenting - PART 3

Welcome to another edition of Mr. Stillman's Opus, the podcast that just talks all about the financial world, trying to help you understand it a little bit better. Walter Storholt back with you this week, alongside Jon Stillman.

Hey, Jon, good to see you again. What's happening? So we are entering into part two of our series. Well, it's either part two or it's parts four through six. Well, or you could call it part three.

It's very confusing. Like in the Bible, where you have John, the Gospel of John, but then you have 1 John later on. How do you have 1 John after you already had John? And then you have 2 Corinthians.

That's only if you're running for office. Yes, we had part one with Molly several weeks ago, if you missed that, the first edition of Financially Savvy Grandparenting. That was a few weeks ago. Last week, we had the six tips for financially savvy grandparents, which was really part two of the series. Right, but we called it part one, I think, right? Yes, but we only got through the first three points of the six.

So now we have the back half. So part two, comma, sections four through six. Slash part three. Slash part three. All right, well, let's not waste any more time. What is number four, seven or three in our topics here? Depending on how you're breaking it down. First thing is don't confuse your grandchildren with really stupid bulleted lists and sub points.

No, well, quick review from last week, points one through three. So we talked about the Roth IRA. Don't overlook the power of a Roth IRA for young people, especially teenagers.

Some tips on helping save for college or helping fund college for your grandkids, and then creative ways to teach your grandchildren about saving and investing. That was last week. I will refer you to the previous podcast if you missed that. Part two, or one.

That's right, or one through three. This week, first point, point number four of six, understand that it's a different world today from the one you grew up in. And what I mean by that is I have a lot of clients who sort of are looking through the lens of, well, you know, when I was in school I worked 80 hours a week and I paid my own way through school. Well, I understand that, and there's value in that, but understand that it's not very realistic in today's world for somebody to truly work their way through school.

Yes, you could have a job at some in-state schools. Theoretically, you could work enough in the summer and during school, the school year itself, that you could work your way through school. But the demands on a college student today are certainly more than they were 40 years ago, 50 years ago. And also, more than that, the costs of college today are just way out of whack compared to what they were when previous generations went through school. So if you were in school in college in the 60s or 70s, you know, as a ratio of the money that you could actually earn, college was much cheaper.

Two things in our society have increased at a rate much faster than inflation. One of them is nursing home, cost, congratulations, you'll get to deal with those later yourself, but also college tuition would be the other one. I can really identify with that, even back in the mid 2000s when I was at UNC, as an example, I worked, I mean, I worked at one time like four to five jobs at a time, all freelance type jobs. But I mean, I was a workhorse all the way from freshman year through senior year of college. And it took that, scholarships and a couple of smaller grants to get me all the way through school.

I ended up being able to pay for school almost entirely on my own, especially sophomore through senior years, but it took work, scholarships and a little bit of grant money too. So the point there is don't browbeat the grandkids with how you did it in the 60s or whatever year, 70s. At the same time, though, understand that there are values from your generation that kids today, if you will, could really benefit from. And so some of the aspects of work ethic and things like that, that you learn and that you had to deal with, it's okay to allow your grandkids to have to work hard. And while it may not be realistic, especially depending on where they choose to go to school, it may not be realistic for them to quote unquote work their way through school. There's nothing wrong with not bailing them out every time they need help with something or they want to take a trip, they want to take a semester off and go to Scotland and find themselves. Well, it's okay if they want to pay for it, but let's not handicap them later in life by funding stuff like that for them. Another good point.

And work with their parents, your kids, to be sure that they're not handicapping their own kids. I think it also comes down to what you're studying. Because using me again, studying journalism and broadcasting, I'm not saying that that's not a rigorous course of study, but work experience was good for me. I could go out and get journalism or media type jobs to further my study in addition to getting paid. Whereas somebody who's maybe trying to become a doctor, do you want them trying to pay for school in those early years or do you want them doing what they're there at school to do? Focus on school.

Focus on study. Right. Exactly. Very good point.

Keep that in mind. So that's point number four of six. Number five would be understand how kids, especially children and teenagers, might perceive your complaints about the economy and the stock market as a whole. So, for instance, if you're 62 and you watch Fox News all day long and listen to Glenn Beck on the radio and all that's in your mind is newsy stuff where they're trying to scare you about everything.

That's their job. It keeps you hooked on the media. If you develop that mindset and you're constantly walking around talking about how politicians are ruining our system and the market's rigged against you and we're going to have a big market crash, everything's overvalued. All of those points may be very important to you as somebody who is retired or close to retiring. But understand if you're constantly sharing that message or harping on that message with younger generations, how that is going to affect their view of investing in the market. If you're 18 or 12 or 8, these fluctuations in the market have absolutely nothing to do with whether or not you should be investing. If you can get money into the market at those very early ages, you're going to do very, very well in the long run.

And so, you also need to have some perspective on the fact that of that $630,000 that you have in your 401K, you may have only actually contributed $125,000 of that over the years. And the rest of that is growth. That's a pretty powerful tool for growing your money over time. And kids learn a lot just by watching and listening to those that are around them.

So, even if you're trying to be careful in exactly what you say, if you're letting them even read body language or just offhand side comments, that can be impactful. And so, all I'm saying is if you're having discussions with your friends and your peers about the market, that's one thing, because they're at your stage of life, and that discussion is more relevant. If we're talking to younger generations, we don't want to say anything that's going to turn them off from the idea of investing in the market, for a couple of reasons. One, that's a very powerful way, as we've just established, for them to grow their wealth over time. But two, we need those younger generations investing in the market as the baby boomer generation is taking money out. Because with all these baby boomers retiring and taking their money out of the market, you better hope that there are other people putting new money into it to sort of offset that. So by tainting the next generation, we're shooting ourselves in the foot, basically. The whole Ponzi scheme is going to fall down all around you. But it's a very wise point.

All right, so two good points here. We're on to our final tip for savvy grandparents. So this would be gift money with purpose. Don't just give money for the sake of giving money. But as often as you can, anytime you're giving money to your grandkids, earmark it for something. So whether it's your college fund or your car fund or whatever it is, try to put a name on it, because that's going to encourage them to save it for a longer period of time, instead of just, all right, well, I got $50 from grandma, and then it's gone the next week. If there's something in mind that you want them to buy. A lot of grandparents don't want to go out and shop, necessarily, for their grandkids for Christmas or birthday or whatever. So it's like, here's $50, go buy something you like.

Well, that's how you earmark it fine. But if you're doing something where maybe you're giving a significant sum of money, and significant relative to that age, if you're giving $100 to an 8-year-old, that's significant, earmark it for something. So as an example, my grandfather gave us, all of the grandkids, he gave us $100 every Christmas and $100 every birthday from the time that we were kids. And so I was just, I don't know why, I was naturally a tightwad, but I never spent that money on anything. It just piled up in a credit union account that my dad set up for me. And it was, I wouldn't even think of that $100 every birthday and Christmas as $100 that I had to spend.

It just automatically, it was understood, it was going into the credit union account. And that was part of my down payment on my first house, while all of my cousins spent that money on trips, and it was spent two weeks after they got it. And so if there had been some kind of mission statement given to that money, like, this is your car fund, or this is your future house fund, I think some of my cousins would still have some of that money, or would have used it for a greater purpose than just frittering it away on things that 12-year-olds spend money on.

So write something in the memo line of the check that you give them. And don't be afraid to have the discussions about, you know what, let's save this for the long haul, for something down the road. And in fact, some of the stocks that my grandfather gifted me over the years, I actually used to have the capital to start this business. And so that was years and years of things that he'd gifted me. And again, he didn't have to give me the mission statement for it, because I'm sort of naturally wired that way.

That's not the case for most people. So gift with purpose. Very cool. That's a very nice summation of some really cool things you can do as a grandparent to be a savvy financial grandparent. Pretty cool. Give us a quick recap of the six, Jon, and we'll close her up.

From last week. Roth IRAs, don't underestimate the potential of a Roth for younger people. Some tips on helping with college savings, how to help without actually hurting their chances of getting financial aid down the road. Some creative ways to teach your kids about saving and investing. We talked about your grandmother, what do we call her?

Yep, Noni. Noni, we talked about Noni and the way that she taught you, in a creative way, how to appreciate stocks and investing. This week, again, understand it's a different world from the one you grew up in. Understand how complaining about the market might taint the views of investing for younger folks. And then, when you're gifting money, gift with purpose.

Well there you have it, the tips for financially savvy grandparenting. I think the saga is finally over. Yeah, I think we've covered it. Next week we'll move on to a new topic. I'm sure we'll revive it at some point, but not in the near future. We'll have a 2017 savvy grandparenting item that we can talk about. Thanks for joining us on Mr. Stillman's Opus. We'll talk to you again on the next podcast.