halloween witch saving money on her pumpkin

Need a financial Trick that can Treat?

With the kids back in school and football in full swing, my phone starts to ring with questions from my clients.  After a summer full of fun and sunshine, we tend to get more serious about our finances as the seasons change.  I believe this in large part to be brought on the by what we choose to pay for our children’s back-to-school education expenses: clothes, supplies, sports, and oh yeah- the tuition!  There isn’t much reprieve from these costs before we’re handing out candy for Halloween, providing a Thanksgiving feast for the entire family, and then culminating with the over-the-top holiday parties and gift sprees many fall prey too.  January is a great month to be a credit card company for everyone that overextended themselves.  Breaking this cycle of excessive spending is just one of the areas that working with a financial advisor can help correct.

I recently had the opportunity to sit down with long time clients, a firefighter and his wife, who were only a few months out from his retirement.  Usually at these pre-retirement meetings, we complete one last review of their retirement budget, pension estimate, final payouts, health insurance options, investments, and make sure they’ve updated their legal documents (Wills, Power of Attorney, and Power of Attorney for Healthcare).

In this particular meeting, we were reviewing their budget when I asked about their “grandchildren expenses.” They were spending $2,000+ year on clothes, $800+ month on food, and then each of the five grandchildren would get $300+ for Christmas.  The parent in me was wondering what they were teaching these children by giving so often and much?  Would they always expect someone to be there to give cash at a moment’s notice?  These were eyebrow-raising numbers for a financial planner like myself, so we dug deeper to help me understand why this spending came about.

I was then shown a picture of a beautiful little girl with a huge smile on her face holding up a shopping receipt longer than she was tall. 

These loving and proud grandparents then explained that, yes, they felt it was too much, but they couldn’t help themselves.  They went on to explain that they by taking on these expenses, they were also helping out the parents who were financially-strapped.  The underlying rational was that the grandmother (who loved her work) just needed to pick-up another shift every once in a while to be able to afford the extra expenses.  I explained that during her upcoming retirement years, there weren’t going to be any extra shifts available to work.  We all agreed that with his retirement coming shortly after Christmas, this was an opportune time to implement behavioral spending changes or as the grandkids had joked before “Paw Paw was going to have to be a greeter at Walmart!”

This is when it’s tough to be the grandparents, the parents, and the financial advisor.  Everyone means well for the children, but changes needed to be made.  Here’s the idea I shared that we agreed to implement through gradual, but simple measures.

Open and contribute on a monthly basis to a 529 Education Savings Plan for each grandchild.

For those of you who don’t know what a 529 plan is, they are savings plans that family can contribute to, receive state tax deductions (amounts vary for every state), and can be withdrawn tax-free for higher education expenses. The owner of the account names a beneficiary student (can be changed) and makes the withdrawals, so it’s not just a lump sum of money given to a child when they turn age 18. One downside is that if you withdraw the funds for anything other than higher education expenses, you will be taxed on the gain, but not the principle.

For those of you who don’t know what a 529 plan is, they are savings plans that family can contribute to, receive state tax deductions (amounts vary for every state), and can be withdrawn tax-free for higher education expenses.  The owner of the account names a beneficiary student (can be changed) and makes the withdrawals, so it’s not just a lump sum of money given to a child when they turn age 18.  One downside is that if you withdraw the funds for anything other than higher education expenses, you will be taxed on the gain, but not the principle.

To open a 529 plan in your state, there is usually an option for an initial $50 investment and then an ongoing monthly contribution of $25, so a large lump sum isn’t necessary.  I personally use an aggressive age-based fund for all of my nieces, nephews, and daughters because I understand market risk and have longer time horizon.  With this option, the funds I invest now take the most risk upfront and as each child gets older they become more conservative until they are put in cash-like investments on their 18th birthday.  In addition, most state-approved 529 plans charge no upfront sales charge and have very low annual expenses which help your investment start with more and keeps costs to minimum over the life of the account.

For the grandparents, this idea took care of their need to give, provided a state tax deduction, helps the parents with college costs, and gives them the opportunity to educate their grandchildren about how to invest (on a systematic basis and understanding the stock market goes up and down).  They would then need to explain that most of old ‘gifts’ would be phased-out because of their Grandpa’s retirement and most new gifts going into a special account for each child.

In this situation, the trick that treats is simply re-imagining gifting. 

If you’re reading this article and can relate, there may be a little grief after the gifts slowdown and eventually stop, but speak to everyone involved in a way that makes sense to them.  Trust me, in the long run you’re doing yourself and everyone else a huge favor.

For a comprehensive website dedicated to all things 529 plans, please visit: www.savingforcollege.com.


Blog 4Drew W. Boyer is a licensed financial and investment advisor specializing in First Responder’s investment options, pension guidance, and financial/retirement planning for over 12 years.  Drew lives and works in Columbus, OH with his wife Johanna and their young daughters, Lena and Elise.  Drew also serves as the financial voice on the board of the 24-7 Commitment Foundation.

This article is the author’s opinions alone and is not intended for financial, tax, or legal advice.  Please consult your own financial, tax, and legal advisors to make informed, personal decisions.  Drew W. Boyer is a Registered Representative with Fortune Financial Services, Inc. and a practicing Investment Advisor Representative and Managing Partner at Parallel Equity Advisors, Ltd.  Fortune Financial Services, Inc. and  Parallel Equity Advisors are separate entities.

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On a mission to be and inspire us all to be better humans, to strengthen fire families & marriages, to nurture and encourage fire wives, do "good business" in all areas of my life and of course, love on my 4 kids.