Giving some of one’s wealth away to loved ones while they’re still alive, rather than leaving everything to be inherited, can be a fantastic idea. Indeed, spoiling the adult grandkids brings a great deal of joy and satisfaction. While giving away significant sums gradually over time can help improve one’s living situation, there are potential drawbacks to consider before making those generous annual gifts.
With the holiday season approaching, it’s not hard to imagine many young people expecting a great deal. And while there’s nothing wrong with generosity, especially at this time of year, one must ensure one fosters smart financial habits and appreciation rather than entitlement, dependency, or even demotivation from working hard for one’s money.
Indeed, gifting substantial sums of cash can really be a double-edged sword. It can help some young people achieve their goals a lot sooner. But at the same time, it can act as a “crutch” for some, an analogy that popular financial guru Dave Ramsey previously brought up when referring to financial gifts from parents.
In this piece, we’ll check in with an individual on Reddit whose grandfather used to gift $10,000 per year but has concerns that such gifts could take away from one’s financial literacy and maturity.
Undoubtedly, if you’re just going to get a fat financial cushion every year without having to work for it, you may study less hard in school, forego the part-time job, lose motivation to learn about things like budgeting and investing, or even become a so-called NEET (an acronym for a person who’s not in education, employment or training).
Key Points About This Article
- Gifting huge sums of cash to adult children every year can be a bad idea.
- Gifting stock, tuition payments, or a down payment are better ideas, in my opinion.
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Gifting cash intended for specific uses makes a lot of sense.
Undoubtedly, letting your hard-earned nest egg stand in the way of someone’s journey to becoming financially literate and independent is counterproductive. While one can communicate expectations to grandchildren regarding how they expect such gifts to be spent, it’s really hard to police how four or more gift recipients spend their gifts. They are gifts, after all.
Instead of gifting a fixed amount of cash every year, I think it’d be a better idea to give amounts based on need. If one grandchild is looking to further their education by pursuing a Master’s Degree or Ph.D, then gifting a lump sum to cover all or most of the tuition and board seems like a far better idea than just sprinkling in cash at fixed intervals. That way, one’s nest egg will give the grandkids a nice fishing rod with a lesson on how to fish for oneself; rather than just a fish, they’ll be gobbled up swiftly, leaving them asking for more.
Of course, not every adult child or grandchild wants to return to school in their mid-20s. In such cases, it may make sense to help gift sums of money intended to be contributed to a retirement account. If the money’s stashed away in a retirement portfolio, one won’t be tempted to spend every dollar that comes their way.
Perhaps gifting company shares is a great way to teach one’s grandkids about the value of investments and the growth that can be achieved in financial markets.
Finally, do check in with a financial advisor to make sure your gifting plan won’t hurt your own retirement plans. And, of course, they can also help you determine the amount and timing of one’s generous financial gifts.
The bottom line
I believe that Giving X amount of cash at fixed increments conditions a gift receiver to be less financially savvy. Better ways exist to encourage individuals to further their financial knowledge and maturity.
The last thing we want our financial gifts to do is to build dependence, laziness, or a sense of entitlement. By exploring different ways to gift cash to finance the purchase of responsible things (education, stocks for retirement, or down payment), one can ensure every dollar gives receivers a nice boost.
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