Grand Kids

Both sets of grandparents bought traditional
presents as well, but it was those gifts of
time and thoughtfulness that were most
memorable. And that's worth keeping in
mind this holiday season, when gift-giving
by grandparents, well-intentioned and
generous as it may be, can cause tensions
on both sides of the generation gap.

Spirit of giving.

In a recent survey by AARP Financial, 79%
of the grandparents said that their grandkids
don't understand the value of a dollar. (And
they often say the same about their adult
children. "We did too much for our grand-
children, and their parents didn't appreciate
it," one unhappy grandmother complained
to me.)

But grandparents can also be part of the
problem. In the AARP survey, the typical
grandparent had a median income of
$46,000 and spent $600 a year on the
grandchildren; grandparents with incomes
of $75,000 or more spent more than twice
that amount. Nearly 60% worry about
spoiling their grandchildren -- and not
without reason. As one parent told me,
"I'm trying to teach my 13-year-old
daughter that she can only spend what
she has, but my in-laws always seem
to sneak money to her."

Yet grandparents do have a need to indulge
their grandchildren. In the AARP study,
more than 80% said they give because
it makes them happy.

Buying guides.

So how do you treat the grandkids without
going overboard? And how do you
encourage your adult children not to
take your generosity for granted?

First, discuss big purchases with your
children. They may not want Johnny
to have a new video-game system,
but would welcome a new computer.
One grandmother limits gifts to $25.
"The kids happily make their purchases
or save the money, and in return I have
their love, attention and time together."

Think college savings.

This is a hat trick for all three generations:
Mom, Dad and the kids get help with tuition,
and grandparents get a multitude of tax
breaks. You can open state 529 college-
savings accounts for your grandchildren,
and in more than half of the states and the
District of Columbia you'll qualify for a state tax deduction.

Plus, you can move money out of your
estate -- contributing up to $60,000 (or
$120,000 from both of you) at one time
for each child and averaging the gift over
five years -- while avoiding the gift tax
and keeping control of the money. You
can switch beneficiaries or get your money
back by paying income tax and a 10%
penalty on the earnings. And the federal
financial-aid application doesn't ask about
grandparent-owned accounts.

Finally, think investing.

McDonald's gift certificates may make a
great stocking stuffer, but how about giving
kids stock in the company? Using a discount
broker such as ShareBuilder
(www.sharebuilder.com), which has a $4
fee, keeps costs low for small purchases.
Or consider a mutual fund with a low
minimum investment, such as Hodges
fund ($250 minimum) or Homestead
Value ($500). Custodial accounts aren't
as attractive now that kiddie-tax rules have
been tightened. But they're fine for small
gifts or as a teaching tool.

Cultivating a common interest with
grandkids is a great way to turn them
into investors -- or lifelong Steelers fans.