My husband and I have been pretty good at saving money over the years, which means that we have enough of a cushion to start passing along some of it to our children and grandchildren while we’re alive, rather than leaving it behind as their inheritance. If we live another 20 years, give or take, as the actuarial tables say we might, our offspring in 2040 might have less need for the extra money than they do today, when they’re young. We’re living by the slightly morbid axiom my mother would invoke whenever she gave me a big check for a birthday or an anniversary: “I’d rather give it with a warm hand than a cold one.”
Grandparents across the U.S. are making similar calculations. According to the AARP, almost all American grandparents say that they offer some sort of financial support to their grandchildren, typically in the form of helping pay for their education (53 percent), living expenses (37 percent), or medical bills (23 percent). A recent survey by TD Ameritrade found that the average grandparent couple spend $2,383 a year on their grandkids. This figure is undoubtedly skewed by the wealthy (and disproportionately white) people who give their grandkids the largest amounts—but even grandparents who are just scraping by try to share what they can. And it doesn’t include other ways of helping beyond giving money, such as by being unpaid daycare providers.
Intergenerational gift-giving has grown substantially in the past decade or so. One analysis of Census Bureau data found that between 1999 and 2009, the amount that Americans over 55 gave to their adult children increased by more than 70 percent. During that period, the amount given specifically for primary- and secondary-school tuition and school supplies—that is, to be spent on the grandkids—nearly tripled.
Financially, my husband and I are lucky; we’ve been careful with our spending, yes, but more than that, we’ve had relatively well-paying, stable careers. Most Americans our age aren’t so lucky: Just 39 percent of working adults in the United States have managed to save enough to get themselves through five years of retirement, let alone give a leg up to their progeny.
But even without adequate savings, parents and grandparents these days are quick to offer monetary help to younger generations—sometimes raiding the nest egg they might need for themselves. “Financial managers advise the elderly to hold on to the money they’ve saved, to use it to care for themselves in old age, to avoid becoming the responsibility of their children,” Kathleen Gerson, a sociology professor at New York University, told me. But many grandparents have a hard time listening to this advice, she said, because they can see that their children and grandchildren are even more financially insecure than they are. Giving money serves two functions, Gerson said—it’s “a way of expressing love,” and a way to help ensure “that your children’s children will have a decent spot in the world.”
But no matter how well intentioned these transactions are, the fact that many young Americans turn to the Bank of Grandma and Grandpa is evidence of their struggles and the lack of an adequate safety net to keep them afloat. Giving money to grandchildren is also one way that well-off families pass on privilege and wealth not just to the next generation, but to the one after that—a way that Americans stay rooted in the social stratum into which they were born.
Gerson pointed out that robust social programs benefiting grandparents might be what make them feel able to offer support in the first place. In the 20th century, poverty among the elderly was “greatly erased,” she told me, “thanks to policies such as Social Security.” According to the Center on Budget and Policy Priorities, a left-leaning think tank, 9 percent of Americans older than 65 have an income below the poverty line—but if Social Security didn’t exist, that number would balloon to 39 percent.
Yet while poverty among the elderly has plummeted, childhood poverty has held steady—as programs like food stamps and Aid to Families With Dependent Children have been overhauled and the cost of college has skyrocketed. According to the National Center for Children in Poverty, children younger than 18 are more than twice as likely to be poor as adults older than 65. That stark difference in their fortunes makes it hard for grandparents to turn away from the youngest generation, whose needs are so obvious. As Gerson put it, grandparents are “stepping into the void” created by the loss of social safety nets.
Stepping into that void most enthusiastically are grandparents of color, according to a 2012 study by the AARP. African American and Latino grandparents were more likely than their white counterparts to spend money on schooling: 65 percent of African American grandparents and 58 percent of Latino grandparents helped pay for their children’s education, compared with 53 percent of all grandparents polled. African American grandparents were also far more likely than other groups to assist with everyday living expenses. They were also more likely to be a little bit indulgent. “I give to my grandkids because they ask for things,” said 52 percent of African Americans and 43 percent of Latinos, compared with about 30 percent of grandparents overall.
While older Americans are dealing with their own financial woes—insufficient savings, for instance, and a mountain of medical bills—they still tend to feel more secure than their children, for whom pension plans and health-care coverage in old age are even more uncertain. Indeed, today’s grandparents might be the last generation to feel as if they have more economic wiggle room than their kids do. Older Baby Boomers, who are now in their late 60s and early 70s, grew up in a time of economic expansion and relative job security, when Americans could still earn a solid middle-class income with just a high-school degree. That places them in a better position to share the wealth with their families than Gen Xers, when the majority become grandparents.
But today’s grandparents are probably not quite as financially secure as they think they are, according to Teresa Ghilarducci, an economist at the New School and the author of How to Retire With Enough Money. Many of them have inadequate insurance for unexpected medical bills, especially long-term care, she told me, and they might not realize that “their costs for house cleaning and personal services are likely to go up as they become more fragile.” A lot of people have trouble understanding what retirement really costs and how much to save, Ghilarducci said. (Her rule of thumb: Savings should equal eight to 10 times your annual salary preretirement.) Even worse, if a recession happens in the next couple of years, she told me, it could reduce elders’ retirement money (from savings and part-time work) by as much as 20 to 25 percent.
While wealthier Americans can blithely give away money to their kids and grandkids without thinking twice, many working- and middle-class Baby Boomers struggle to help out. The TD Ameritrade survey found that one in four grandparents had to dip into savings to give money to grandchildren. And about 8 percent said that the desire to offer financial help to the youngest generation was leading them to put off retirement.
We do it anyway, often against financial analysts’ advice, because it’s hard to resist giving money to the children right in front of us rather than socking it away for a future that no one can foresee. It’s a sign of what Gerson calls “family cohesion”—the urge to help the grandchildren we love, even if we then ignore our own future needs, when we sense they lack something that we can provide.