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In his early 20s, Chris Chen’s nephew dreamed of becoming a professional photographer. But to pursue that dream, he needed equipment that cost over $5,000. His nephew worked hard to save $1,500; then, his maternal grandmother provided an additional $750.

Chen, a certified financial planner in Newton, Massachusetts, covered the rest. “It helped him understand the value of money,” Chen said of his nephew, who now earns his living as a photographer.

Grandparents — and other family members — often have the best intentions when it comes to helping their grandchildren financially, but experts say they don’t always know how best to do so, and can accidentally hurt their own finances along the way.

Financial advisers recommend following these steps whenever you’re giving grandchildren a financial gift, whether big or small.

Protect your own finances

“The first question is, ‘Can you afford to help your grandchildren, and how much?’” said Lorraine Ell, CEO and co-founder at Better Money Decisions, a national wealth management firm.

Checking your own retirement funds and overall financial security can help ensure that you’re in a position to give, she said.

Grandparents, Ell said, are often pulled to “over give” out of love, but doing so in moderation instead can ensure your generosity is affordable.

Katie Lindquist, a CFP in Madison, Wisconsin, and owner of Lindenwood Financial, cautions against co-signing loans for grandchildren, which can put your own credit on the line.

“There are other ways to help, such as giving part of a down payment, that can help them without actually co-signing on the loan,” she said.

Talk to the parents first

Before giving a financial gift to a grandchild, Lindquist recommends discussing the idea with their parents.

“Make sure everyone is clear on the plan. You can figure out what accounts they already have and what their needs are,” she said.

If you’re giving cash, she adds, you might want to ask the parents to help the child keep it safe, or direct the money to a specific savings account or purchase.

Still, Lindquist adds, it’s worth recognizing that once you give the gift, “you can’t control what they spend it on.”

Trent Porter, a CFP and CEO at Priority Financial Partners in Durango, Colorado, said in some cases, parents might not want their children receiving money. The fear is that “Grandparents can become a piggy bank,” he said, where they end up enabling overspending.

It’s also essential to treat all grandchildren fairly, he adds, even if unique needs require differing forms of financial help, such as contributing to a wedding for one and a travel abroad opportunity for another.

Talk to grandchildren, too

At the same time, it’s worth setting clear expectations with your grandchildren, Porter said. “Be as specific as you can reasonably be: ‘We will give you X number of dollars for tuition,’ instead of, ‘If you need help, here is a blank check,’” he said.

When you’re giving money, it’s also a good time to talk about financial topics such as budgeting and saving, Porter added. “Communicating about those things gives them a huge advantage because most kids leave high school and have no idea,” he said.

Susan Greenhalgh, a financial coach in the Providence, Rhode Island, area and president of Mind Your Money, which provides financial coaching and workshops, said grandchildren are watching and observing your behavior closely, and modeling healthy financial behavior can be beneficial to them.

“Every conversation you have about money in their presence will become their money mindset, so you want to be careful about how you’re showing up for them,” she said.

Giving to charity can also be part of that conversation, she said. “One grandparent I know wrote a note to his grandchildren every year at the holidays saying he would make a donation in their name to a favorite charity. It’s a beautiful thing to pass on,” Greenhalgh said.

Consider 529 or Roth contributions

In some cases, contributing money into a specific account allows grandparents to retain more control over how and when it’s spent.

Chen recommends funding a 529 college savings account because then grandparents know the money is earmarked for education.

It’s also worth noting that you can give up to $18,000 a year per person in cash or other gifts in 2024 without triggering the IRS gift tax.

A Roth IRA is another option for older grandchildren who earn money, Lindquist said. One of her clients, a pair of grandparents, told their grandson that they would match any contributions he made to his Roth IRA account up to $500. (Grandparents can contribute directly as long as the total amount saved doesn’t exceed the child’s taxable income.)

This approach offered the added benefit of teaching their grandson to save a portion of his wages, she said, which is especially useful to start now, with so many decades ahead of him before retirement.

That kind of life lesson is a financial gift, too.

This column was provided to the Associated Press by the personal finance website NerdWallet.

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