Dear Penny: I Don’t Have Much Money. How Do I Invest in My Granddaughter?

Dear J.,

You’re a smitten new grandma. So it’s not surprising that you want to give the world to your family’s sweet new addition.

I’m a childless personal finance columnist. So it’s not surprising that I’m going to tell you that with credit card debt and not much money saved, you can’t afford to do that.

But I’m also realistic. I know that babies have a way of making people forget their own needs and invest everything they have in the promise they see in those adorable apple cheeks.

So I know the odds of you discarding this advice are high, but I’m going to give it anyway: Secure your own future before you invest in your granddaughter’s. Don’t do this for yourself. Think of this as an investment in her.

When your savings are sparse, one small, unexpected expected expense can throw your life into disarray. Credit card debt only increases the risks. You’re also not preparing for the very big and expected expense that is your own retirement. 

Who do you turn to in times of need? For many people, family is the starting place. That’s why so many adults are part of the “sandwich generation.” They’re raising kids of their own while also helping out their aging parents.

Of course, it’s a wonderful thing to have your parents around and to be able to help them out. But let’s not kid ourselves: It’s a financial strain for many. 

Every dollar that a parent spends on their own parent is a dollar they aren’t investing in their child’s future. So I think everyone will benefit if you focus on your own finances first. (And in the meantime, babysit! The value of your experienced and trusted caregiving cannot be overstated. Her parents need the help, I’m certain, and you and the baby will get the gift of each other’s time.) 

But I’m not saying you can’t spend a cent on your granddaughter until you’re debt-free with six figures in the bank. (Like you’d listen to that!)

Instead, start small while you’re getting your own house together.Maybe you earmark $100 or so in your budget for your granddaughter on her birthday and holidays. Try setting a goal for where you want your savings to be at the end of 2020, and tell yourself that if you hit that target, you’ll give yourself permission to begin a nest egg for her. 

Assuming you want to invest in her education, a 529 savings plan is often the best way. If your son or daughter opens one on her behalf, you can contribute to it. Otherwise, you could open one and name your granddaughter as the beneficiary.

The money you invest will grow tax-free. As long as the money is used for costs the IRS considers qualified educational purposes, like college tuition, supplies, and room and board, withdrawals are tax-free as well. (While 529 plans have traditionally been used for college savings, you can now withdraw up to $10,000 tax-free for K-12 private school tuition.)

Many brokerages will let you open one with a minimum deposit of as little as $15 or $25. You could let other family members know about the account in case they’d also like to gift small amounts for special occasions.

If you want to set aside money for more than just your granddaughter’s education, you could opt for a good, old-fashioned high-yield savings account. You don’t say anything about the finances of your granddaughter’s parents. But kids have a way of costing more than their parents ever expected. 

So if you think her parents might struggle to pay for expenses like child care, diapers or health care, a no-frills savings account could be a valuable lifeline.

While you asked how to invest money for your granddaughter’s future, I hope you realize that money isn’t the only thing you have to give — or even the most valuable. The time you spend with her is priceless —  both for the bond you two form and the support that lends, by extension, to her parents.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about saving money to [email protected].

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