COVID-19 has impacted jobs across all sectors, and State Unemployment Agencies are reporting an unprecedented backlog of claims. We have been hearing from our clients of a desire to assist their adult children financially. Many of the questions include how and what kind of support to provide and if it makes sense. If you are in this situation, here are some ideas on how to temporarily assist your adult children during a financial emergency.
Start an emergency cash fund for your child.
Make a one-time deposit or smaller, more frequent deposits to a high-yield savings account (like Flourish).
Fun idea: Many banks or credit unions offer change deposit programs. They’ll round up your debit card purchases and transfer the extra change to a savings account. Think of it as a “Change Jar.” It adds up quicker than you think!
When your child encounters a financial emergency, make one-time distributions or loan them the money. Anything they payback can be put back into the savings account for future needs.
Gift them highly appreciated shares of stocks or mutual funds from your Non-Retirement accounts.
It could potentially benefit you by helping you avoid the capital gains tax if you sold the shares while they were still in your account.
After the shares are gifted to your child, they can choose when to sell the assets, and they will incur any capital gains tax on what is sold. Structuring your giving this way can potentially reduce taxes for the family.
Discuss this option with your Merriman Wealth Advisor to make sure it fits into your Financial Plan.
Offer small cash loans to cover emergency expenses.
Discuss a payment plan that can start once your child’s financial situation improves.
If mutually agreed upon, an interest-free loan with a small monthly payment is still more helpful than anything any bank could provide to them.
It never hurts to have the agreement in writing and signed by both parties.
If you can’t provide an infusion of cash, little gifts can still make a big difference!
Give gas or grocery store gift cards when you can.
Meal prep large casseroles or frozen meals that can be heated quickly and serve many portions.
Offer childcare when you can.
Help them review all options in their own financial life.
They may be able to take a special distribution from their own IRAs or 401(k)s for hardships due to COVID-19.
Do not co-sign a loan for your child. As much as you want to help them, you could become liable for the loan, and it can negatively impact your credit history.
Do not ignore the tax ramifications of using retirement assets such as IRAs or annuities to give cash to your child. These assets can be taxed as ordinary income and have the potential of significantly increasing your income tax liability.
Do not stretch your own finances too thin. You need to protect your financial security first. We always recommend discussing large gifts with your Merriman Wealth Advisor, whether they be to charity or a loved one.
As parents, it can be extremely difficult to watch our children struggle financially and equally as hard to balance helping and overreaching. When making these types of decisions, we find that an objective third party like our advisors can help you make a decision that works for everyone. We encourage you to reach out if you need guidance with how best to help. We are here for you and your family.
As a dad and a financial advisor, I find myself constantly trying to explain how money works. In my opinion; budgeting, investing, and creating income are topics that should be equally important to my 8-year-old daughter as they are to a 50-year-old client. Unfortunately, for whatever reason, access to financial literacy tools for money management are not a mainstream part of our educational system. With more and more resources available at our fingertips, it is my hope that the next generation will grow up already knowing how to save and plan for retirement way before they get their first job.
Take my daughter for example. Last summer, my then 7-year-old asked me what I do for work (I’m a financial planner). It turns out, her friends were all talking about what their parents did for a living, so naturally my daughter wanted to join in on the conversation. Up until this point I had always told her that I helped people get ready for retirement, which I summed up as a “summer vacation that never ends”. She didn’t give it much thought until other kids started talking about how their parents owned a restaurant, helped people get better as a doctor, or worked on getting packages delivered faster as an engineer at Amazon. When my daughter told her friends that her dad helped people get ready for a never-ending summer break, she got a lot of “Huh?” faces.
I then decided to have a more in-depth dialogue with my daughter around what I actually did. The basics of how investing works seemed like a good place to start. So, using the tools we had at our disposal (crayons, blank paper and a 7-year-old’s imagination) I set out to explain what a financial advisor does. It started with a simplistic explanation of what the stock market is, and by the end of our first conversation, my daughter had learned the rhyme: “Stocks make you an owner, and bonds make you a loaner.”
This was progress! After a few more arts-and-crafts sessions, we had created a story explaining how investing in the stock market works, and it was starting to resemble a book. At this moment, I told my daughter we should try to publish our book so other children could learn about investing, and she turned to me and said, “Dad, you can’t just publish a book. Only authors can do that!” Challenge accepted!
Fast-forward six months, and our rough draft was polished into a finished book. Today, you can find “Eddie and Hoppers Explain Investing in the Sock Market” on Amazon! As a dad and a co-author, I’m very proud of my daughter for helping me create this story and for helping me make the book a reality.
After the book came out, I figured my daughter would stay interested in financial literacy, but I should have known asset allocation and risk management weren’t exactly the most exciting topics for an 8-year-old. I had to find a way to introduce financial topics into everyday life.
Money management for a second-grader is pretty simple. My daughter’s main income sources are: A monthly allowance, gifts from relatives for birthdays/holidays, plus she had a lemonade stand last summer that netted a respectable profit. The problem wasn’t earning the money, the problem was keeping track of it and then remembering how much she had when she wanted to buy something.
So, as a dad/financial advisor, I did what comes natural… I created a spreadsheet to track everything. Turns out, spreadsheets are also pretty low on the list of things that my daughter finds interesting. This is when I had my a-ha moment. I did a quick internet search and found a lot of options for tracking how much a kid earns, spends and saves. Last summer when I was trying to teach my daughter what I did for a living, I did a similar search for children’s books that discuss financial topics and found very little. That’s what inspired me to write our book. Thankfully, this time I was able to find what I was looking for when searching for an app that could help me teach my daughter about budgeting.
Ultimately, I decided to use Guardian Savings with my daughter because it has the right balance of simplicity and effectiveness. Guardian Savings allows my wife and I to be ‘The Bank of Mom and Dad’. My daughter finally got organized, and she consolidated all her savings from the half-dozen wallets, piggy banks and secret hiding spots, so she could make her first deposit. More importantly, when we’re at the store or shopping online and my daughter finds something that she must have, we’re able to open the app and let her see the impact of making an impulsive purchase. Plus, as the parent, I get to decide what interest rate my daughter will earn in her account. Not only do I get to have a conversation about what interest is, but she gets to experience the power of compound interest by seeing her savings grow each month. Talk about a powerful motivational tool!
In this day and age, the idea of teaching your child how to balance a checkbook is outdated. The next generation will live in an entirely digital world. Apps are the new checkbook, and it may be a good idea to teach your children personal finance in the same environment they will be in as adults. Already a digital native, my daughter impressed me by how fast she learned how to use the app, not to mention the principals of saving and smart spending that are encouraged throughout the interface. In a few years, I’ll be able to discuss what asset allocation is and how a Roth IRA works, but for now I’m happy that my daughter can get practice making budgeting decisions and building a strong understanding of the basics. Financial literacy has to start somewhere and the sooner that foundation can be made, the more confident a child will be when it comes to managing money as an adult.
The idea of losing ourselves to dementia is a distressing prospect that people often don’t like to consider, let alone plan for. When we think about retirement we like to imagine the fun things: grand vacations, new hobbies, travelling to visit family, and spoiling the grandkids – not the exponentially rising cost of medical care and long-term care facilities. It’s an unpleasant reality that many financial advisors don’t like to address with clients, because they don’t want to be the bearer of bad news and they don’t have any easy answers.
I might not address these difficult considerations if Alzheimer’s didn’t run in my family. I lost my father earlier this year. He no longer knew who I was before he passed away, just as his father forgot him when he was my age. As a financial planner, I think about my own finances and eventual retirement more than the average person, and along with my retirement planning, I must ask myself uncomfortable questions and plan for a future I hope not to have. I help my clients tackle these concerns too, because one in three seniors currently die with some form of dementia and there are steps we can take to ease the burden on ourselves and our families.
Developing a comprehensive plan with a financial planner is one key step that is better taken sooner rather than later. Waiting until dementia has taken hold, like my father did, can lead to uncertainty and lingering doubts during an already stressful time. A comprehensive plan will include estate planning, investment recommendations, insurance coverage, and a cash flow analysis that incorporates factors such as the rising cost of medical care. These are all important factors for anyone who plans to live into old age, whether dementia is a specific concern for you or not.
Nearly as important as looking at the numbers is building a relationship with a financial planner you meet with regularly. The more I am able to get to know my clients and their unique situations, the better I am able to identify concerns and help make sure their wishes are carried out if they can’t advocate for themselves. Having dementia also puts people at greater risk for elder abuse, which regular meetings with a trusted financial planner can help uncover or prevent.
At Merriman, we regularly work directly with our client’s other professional advisors, such as accountants, estate planners, and insurance agents. Having a team of professionals that can work together on your behalf is valuable for everyone, but it’s vital for people who can no longer recall the specifics of their financial situation. We also help clients identify family members and other trusted individuals that we can contact in the event that they no longer seem able to make important financial decisions. Many people chose to proactively include their loved ones in financial planning meetings, so their loved ones develop a trusting relationship with their financial planner, and have the peace of mind of knowing who to call if they need help.
We at Merriman want our clients to know that families struggling with dementia have our support. If you have questions about how best to prepare yourself or your family, please don’t hesitate to contact us.
Have you ever been interrupted during something important by a phone call from an unknown number within your area code? The first one you let go, but in the back of your mind you come up with all the important messages that call could be trying to deliver. Is someone hurt and trying to call you? Has there been some emergency? While those thoughts stir in the background, the same number calls you again. This time you pick up, sure it is terrible or important news only to hear “Congratulations! You have won a free cruise to the Caribbean”. This kind of attempted exploitation is easy to stamp out, and all you have to do is hang up the phone. Unfortunately, attempts to steal your personal information and money can take on many, less obvious forms.
The term “financial exploitation” means the illegal act of taking economic advantage of someone for one’s personal gain. Examples of this include forging checks, bank account theft, and abusing a power of attorney authorization. Financial exploitation is on the rise today as the baby boomer generation reaches their 60s and 70s, and begins to rely more on caregivers and family members to help them manage their health and financial matters. According to the Senate Special Committee on Aging, senior citizens lost an estimated $2.9 billion from financial exploitation in 2018. Unfortunately, only 1 out of every 44 cases gets reported to local and federal law enforcement. It’s important to note that senior citizens are not the only adults at risk of financial exploitation. Any adult relying on others down the road to make financial decisions for them, can fall victim to this type of crime. This can happen when family members, “friends” and caretakers begin demanding personal loans after learning about the vulnerable state of health of the adult. If the vulnerable adult is dependent on the individual for health care services or other necessities, they may feel pressured to lend them the money.
Federal and state authorities along with financial institutions, have recognized this growing crime against vulnerable adults & senior citizens, and have passed laws and created new best practices for preventing this type of fraud. As a fiduciary, Merriman takes great pride in putting our client’s best interests first. If we suspect you may be the victim of financial exploitation, we will take the appropriate steps to protect you and your assets. That may mean reporting the incident to state authorities such as Adult Protective Services or working with your account’s custodian to prevent funds from being withdrawn.
Since this is an important decision, and one we do not take lightly, Merriman has recently created its own form that allows us to contact a designated individual(s) when we suspect our clients may be victims of financial exploitation and their health status is the primary reason. This allows us to be in touch with someone familiar to your specific situation who can give us additional information to dispute or validate our concerns.
We encourage you to be mindful of this growing risk, shield yourself from personal relationships that center around you giving them money, as well as designate a trusted contact for your advisor or custodian to reach if they suspect you may be the victim of financial exploitation. Please note that this individual will not be authorized to make financial decisions for you.
At Merriman, we believe it is important to help you do more than just grow your wealth. It is for this reason we share this concern as a way to help protect the wealth that you have worked countless years to accumulate, and to keep it away from those looking to exploit your hard work and discipline. We encourage you to ask your advisor about completing a Trusted Contact Form during your next review to ensure they know who to contact if they believe you may be the victim of attempted financial exploitation.
If you believe you would be a good Trusted Contact person for a close friend or family member, please feel free to use this article to start the conversation with them about placing you in that role. That way you can help to look out for them in the same way your Trusted Contact will look out for you.
With the arrival of our first child fast approaching, my wife and I in all of our excitement have been working through a to-do list to prepare for this lifechanging event. While we know we have many surprises ahead, taking the time to learn, ask questions and plan for what’s coming can only help us.
My focus has been planning for the next generation of our family, but this experience caused us to start asking our parents questions we hadn’t before. (more…)
College tuition ranks among housing and medical expenses as having the highest lifetime costs for many Americans. Making matters worse, planning for college involves a daunting landscape of savings plans, loans, scholarships, and trying to build the foundation for your children’s future. If you would like to help your child pay for college, we recommend saving for costs ahead of time. We’ve already reviewed flexible options for college savings like 529 Plans, Coverdell ESAs and UTMAs. This article covers the financing options you have to supplement those savings when it comes time to actually pay for college. (more…)