Raising Grandchildren A Financial Feat

By Lisa Smith AAA

Across the globe, an increasing number of grandparents are facing the challenge of becoming full-time caregivers for their grandchildren.

  • The U.S. Census Bureau reported that the number of children living with their grandparents rose from 4.5 million in 2000 to 6 million in 2006.
  • Statistics Canada reported that 65,135 children were living with their grandparents in 2006 (the latest year of available data), up from 56,790 in 2001.

In 2007, the United Nations sponsored the first-ever global summit on the role of grandparents as caregivers, demonstrating the global reach of this increasing phenomenon. Regardless of the country, raising grandchildren adds a significant financial burden at a time when most grandparents can least afford it. This article will give grandparents in this situation some ideas for dealing with raising a grandchild. (For related reading, see Kids Or Cash: The Modern Marriage Dilemma.)

Develop a Short-Term Plan
The need to raise grandchildren often comes as a surprise, but when the challenge arises, it is important to develop a plan to tackle your immediate needs. Consider the following items in your short-term planning:

Legal Relationships
Establishing a legal relationship with a grandchild is one of the first steps grandparents should take. Having a formal legal relationship often enables a caregiver to more easily apply for aid. It also provides the authority to make decisions in the event the child is injured and can help mitigate future custody concerns. An important point to keep in mind is that some schools require proof of your relationship to the child when the child enrolls.

Obtaining copies of the birth certificates for the child and the child's parents can help you prove your relationship with the child. Establishing your legal relationship with the child should be addressed as quickly as possible, particularly in situations involving an unfit parent who may seek custody. Low-cost legal assistance may be available; check with your local court or bar association.

A variety of potential relationships are available that you can establish:

  • Power of attorney can be granted if the child's parents are living and cooperative.
  • Legal custody can be granted by the court system.
  • Adoption can provide full legal rights.

Food
From free meals to meal subsidies, a variety of resources are available to help retirees who are on a tight budget. Food banks, subsidized lunches at school and government-sponsored welfare programs are all available to help you provide nutritious meals.

Daycare
The cost of daycare is high and rising, but governmental assistance might be available. Researching government-sponsored programs in your area could help you reduce or eliminate this expense.

Healthcare
In countries such as the United States, the lack of a socialized medical system puts a particularly heavy burden on grandparents, especially when they are living on a limited income and might have health problems of their own. The purchase of private health insurance for grandchildren can be simply unaffordable. If the grandparent is employed and adopts the child, employer-sponsored healthcare programs might be an option. Government-sponsored programs such Medicaid and Children's Health Insurance Program (CHIP), which is administered on a state-by-state basis, offer assistance. Some of these programs are based on the child's income, regardless of the caregiver's income. (For related reading, see Find Secure and Affordable Post-Work Health Insurance.)

Financial Assistance
A variety of government-sponsored programs are available to provide direct financial assistance. In the United States, grants are available under the Temporary Assistance for Needy Families (TANF) program. Social Security and Medicaid may also provide aid. In addition to the federal government, state and local governments might sponsor assistance programs.

Longer-Term Planning
After you have addressed the child's most immediate needs, it's time to turn your attention to longer-term concerns:

Budget
If you didn't have a budget in the past, now is the time to start. The leap in expenses that comes with raising a child is enough to put a serious strain on most wallets. Keeping careful track of those expenses will help you keep them under control. (For tips on establishing a budget that works, read Six Months To A Better Budget.)

Insurance
Proper insurance planning can provide financial resources for the child in the event of your death. A term life insurance policy can be purchased to provide a safety net until the child is old enough to enter the workforce. With a little planning, the policy can cover living expenses and the cost of higher education. (For more information on term and permanent life insurance, read Buying Life Insurance: Term Versus Permanent.)

Estate Planning
Now that you are caring for a child, you may want to revisit your estate plan. If you have assets that you want to give to the child or other relatives, expressing your wishes in writing will help ensure that your instructions are carried out. (For more, see Six Estate Planning Must-Haves.)

Retirement
If you aren't already retired when you take responsibility for your grandchild, it's easy to let the financial responsibilities associated with childcare interrupt your long-term savings plan. If you are already retired, caring for a child can drain the funds that you put aside for your golden years. In either case, you need to make funding your retirement one of your top priorities. Failing to focus on this important task can have disastrous consequences not only for you, but for the child too. (For some tips on managing your income before and after retirement, read Managing Income During Retirement.)

Taxes
In the United States, raising a child may help you qualify for a break on your income taxes. Be sure to check your eligibility the next time you file your taxes. The break isn't much, but every penny helps. (For information on tax credits, read Give Your Taxes Some Credit. Canadians with families should check out Giving Families A Break.)

Child's Education
If you have the financial resources, funding a child's college education can give the child a head start in life. (Read Choosing The Right Type Of 529 Plan to learn more.)

Ask For Help
If current trends continue, an increasing number of grandparents will find themselves responsible for raising grandchildren. If you find yourself in this situation, don't be afraid to ask for help. If you are having trouble going it alone, contact a financial services professional to discuss your long-term financial planning needs.

Facing the challenges of raising a grandchild is also an opportunity to share your knowledge with the child. If you start today, you can set your grandchild up for a lifetime of smart money management. To learn more, read Teaching Your Child To Be Financially Savvy and Opening Your Child's First Bank Account.

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