Should You Be Helping With Grandkids' College Costs?

These days, Joan Witte and her husband are setting aside money for college -- not for their children any more but for their grandkids.

This annual giving totals at least $1,000, spread among their four grandchildren's college accounts.

The Wittes want the pleasure of doing this while they're alive. And in one case, they recognize the need: Without such help, one of their three children likely won't be able to afford college for his kids.

"So we feel this is a valuable use of some of our discretionary income," says Witte, a publicist in Walled Lake, Mich.

But even though her views aren't unique, questions surround the feasibility of such giving and around whether grandparents should feel obliged to help financially.

Certainly, some see good reasons to chip in. While many grandparents see college as a prerequisite to a fruitful career, many know that the cost of college can cause sticker shock for many families. Indeed, for the 2013-14 school year, total costs averaged almost $41,000 for undergraduates at private nonprofit four-year colleges, according to the College Board.

So if grandparents could help with such freight, why wouldn't they?

In a recent survey by Fidelity Investments, 53% of grandparents said that they are saving, or planning to start saving, to help pay for grandchildren's college costs. (Average household income of respondents was $73,000.)

While 72% of grandparent-respondents to Fidelity's survey think it's important to help in this way, fully 49% believe grandparents have a responsibility to cover some college costs if they are able.

Indeed, respondents to the Fidelity survey expect to contribute a median of $25,000 to the college funds of all their grandchildren -- with 35% anticipating giving $50,000 or more.

Ability To Help

But can many grandparents really afford such outlays? Have attitudes changed to the degree that contributions are expected of grandparents?

Likely not to any great extent, some suggest, given many retirees' scant assets. Consider data of the Employee Benefit Research Institute (EBRI): This year fully 58% of retirees have less than $25,000 in savings, excluding the value of their home.

Many retirees "have very little ability to provide significant amounts of money to grandkids' college," points out EBRI research associate Craig Copeland. Among the issues that retirees need to consider, Copeland says: "Health care costs are likely to rise, even as their income goes down as they retire. Many live on Social Security payments."

Elle Kaplan, CEO and founder of LexION Capital Management, says that her clients don't feel that it's their responsibility to help grandkids with college. "The responsibility for education falls to the person benefitting."

Kaplan believes that contributing to grandkids' college costs "will remain a legacy goal. There's probably interest in doing this, but not necessarily the (widespread) ability" to do so.

To Michael Lynch, a financial planner with Barnum Financial Group -- an office of MetLife -- "it's great for grandparents to contribute to grandkids' education. Vehicles like 529 college savings plans are well set up for grandparents' contributions. But I would never advise this if it would put a senior at risk."

How would grandparents know if they can afford to help with grandkids' college costs? To answer that, people should do a detailed analysis of their finances.

As financial planner Kevin Worthley of Wealth Management Resources explains: Grandparents should compare "their (expected) retirement expenses over their remaining years with their income and assets in retirement."

From there, grandparents could assess how much, if any, giving they can afford.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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