Grandparents often see their grandchildren more objectively than the parents can. They aren't as concerned that they do well in school, they don't have to make them do their homework every night, and don't have to discipline them. In other words, grandparents can simply have fun with their grandchildren and acknowledge who they are. They can be the kind of parents they always wanted to be.
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Grandparents also help kids see where their parents came from. It can even be good for kids to see their parents struggle with their own parents. They will see that conflict is a normal part of the parent-child relationship.
What about grandparents who are involved in the childrens' lives from day to day? If they are an integral part of raising and disciplining the children, it is important to have open communication with them on how you expect your children to behave and what the consequences are to be when the kids don't do what they are told.
Just as fathers need to be alone with kids to bond with them, grandparents need to have time alone with their grandchildren, too. If grandparents live far away it is still important to nurture the relationship. Make a book of photos of them so your children will feel close to them despite the physical distance. And there is always the phone. A call from a grandchild can make a grandparent's day.