Wanting to help your loved ones and having the means to do so is both generous and a luxury. Ensure that you do so wisely, though. Be aware of common financial scams that utilize familial relationships to lure you out of your hard-earned money. Also, be aware of the consequences associated with certain types of financial support. In doing so, you are taking steps to protect yourself and your assets. Continue reading to learn more.
Encourage Financial Independence Through the Integration of Financial Literacy Lessons
One of the most promising and productive means of providing financial support to loved ones is to encourage financial independence through the integration of financial literacy. The core components of this type of literacy are budgeting, saving, and investing. The basics of all financial issues are saving too little money and spending too much money. When a person engages in these two habits, they pose as an immense barrier to financial security. You can help your loved ones by encouraging the following:
- Teach your loved one the true value of money.
- Place an emphasis on saving.
- Introduce the concept of investing by opening a custodial brokerage account for a child, help your loved one in purchasing fractional shares of stock and/or purchasing cryptocurrency.
- Teach the loved one about credit. It is important to have credit for emergencies and to build credit. It is also important to teach a young loved one how to be responsible with credit and why it is important for their future to have established credit. Be certain to warn your loved one of debt that carries a high interest rate and revolving credit.
- If the loved one is real young, encourage them to invest in a Roth IRA. This type of individual retirement account is funded with the after-tax money and the withdrawals that are made within their retirement can be tax-free. When investing in this type of account early when the amount of their tax rate is low, the individual could experience compound growth and income that is tax-free while retired.
- The next step to helping in the encouragement of financial literacy is to help your loved one learn how to create a budget based on their salary and the estimated expenses that they have.
- Ensure that the loved one has a checking account, a savings account, and an emergency funds account. By having these accounts, the individual is set up to handle all of their financial affairs.
Help Children Save Money
You should look for and encourage the children in your family to save money. Yes, you may start with a piggy bank. That will help the child learn how to save money on their own.
You may want to start a whole life insurance policy for the child and even save for their educational expenses by opening a 529 Plan. You may purchase stocks, bonds, cryptocurrency, and other items that will help in saving money.
Understand What is Truly Means to “Cosign”
One method for helping loved ones borrow money is to become a cosigner. Prior to doing this, though, you must understand what it means to “cosign”.
It does not matter if your loved one is trying to get a car, a credit card, a home, or a student loan, you must understand that becoming a cosigner means becoming a “guarantor”. In short, this means you agree to obtain legal liability for the loan and pay it off if they are unable to do so themselves.
While it is commendable to want to assist a loved one in this way, it could prove to be very costly to you. For more information on the risks and responsibilities involved, visit the website of the Federal Trade Commission.
Money Management Education
If you want to help a loved one develop money management skills, you should talk with them about various types of financial concepts from as early of an age as possible. You should cover the concept of learning the most basic of math skills, teach the individual the concept of self-control, and what it means to delay gratification by delaying purchases.
Encourage your younger loved ones to establish an early and positive relationship with a financial institution. This will help encourage financial-based well-being well into adulthood. You should also encourage the loved one to learn how to manage credit in a wise manner and encourage the accumulation of a strong type of foundation and how it relates to financial success.
Avoiding Check Washing
If you have and utilize checks, you should review your bank account on a regular basis. The goal is to ensure that each check was charged appropriately for the amount that you wrote it for. Check washing scams result in the payee’s name being changed and – in some instances – the dollar amount being changed. Then, the check is cashed or deposited so that the scammer engaging in the scam benefits.
If you want to help a loved one, give them cash or make direct deposits into their banks. You may do so with a bank transfer.
If you have been a victim of a check-washing scam, contact your bank immediately. If you would like to learn more about this type of scam, you may visit the United States Postal Inspection Service online and conduct a search of the scam.
Helping Loved Ones in Hard Times
There are many types of hardships that may occur throughout life. These include the loss of a job, the development of an illness, experiencing an accident, losing a home, and the list goes on and on. It is difficult to watch loved ones go through difficult times. This makes it very easy to find yourself in the midst of a financial abyss.
It is commendable to help your loved ones, but you must ensure that you do not do it at your own expense. You should never allow yourself to be hurt by helping a loved one.
The following outlines some productive strategies for helping your loved ones during times of financial hardship:
- Instead of locking yourself into a financial nightmare – such as becoming a cosigner on a car loan – you should consider providing a cash gift to your loved one. For example, if they are attempting to buy a car but their credit requires a cosigner, you should consider giving them money to purchase a used vehicle or the money for a down payment on a newer vehicle. Just be certain that it does not result in you being put into financial jeopardy.
- The next way to help a loved one is to give them a personal loan. You should write out the terms of said loan and both of you should sign it. The outlined details should include the amount of the loan, the payments, how often the payments are made, the interest rate, and even the recourse that will occur if the loved one defaults on the loan. If the loan will be large, be certain to consult with a tax professional. There could be implications that will need to be dealt with when it comes to low-interest loans for loved ones.
- If your loved one is constantly experiencing problems with their money, you should consider creating a plan for bill paying. It could be that they have no clue as to where their money is really going. In short, you just create a budget that outlines the money that they receive and the expenses that they have. You then identify areas where they may cut back (such as monthly subscription services) in order to free up some of the money that they have.
- If you want to help a loved one, you could consider hiring them to perform certain tasks for you. For example, if you need help around your home or maintaining your property, you could hire them to do the work for you. This gives them some money to work with and provides you with the help that you need. When hiring your loved one, be sure to outline what they are being hired to do, what they are getting paid, and the deadline associated with the work.
- If you are not comfortable providing cash to your loved ones, there are other ways you can help. You may give gift cards and/or gift certificates to them for certain stores and/or places. This gives you more control over how the money you provide them will be used. In addition to this, you may also contact their bill collectors and pay them. For example, if they owe the gas company, you could call that company and pay some or all of their bill for them.
When a loved one is struggling, it is commendable to assist them. The most important thing is to ensure that they have a checking and savings account and understand the basics of budgeting. If you could like to learn more about financial literacy, contact us here at Somerville Bank at one of our several locations today: https://somervillebank.net/locations/
Somerville Bank has 8 Locations