How to Decide When to Close the Bank
If you have saved and invested responsibly, you’ve probably had family members ask you for money. The more responsible you are, the more likely this is to occur. 56 percent of people (three out of five) over age 50 believe one person in their family has been singled out as the “Family Bank,” according to a financial study conducted by Merrill Lynch and Age Wave. If you are that person, figuring out when to give money and when it is time to stop being the family bankmay be one of the more difficult decisions you face.
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The high cost of serving as the Family Bank
A national study conducted by Merrill Lynch and Age Wave titled “Family & Retirement: The Elephant in the Room” provides a closer look at the role of the Family Bank. Most of those who gave money to family members (80 percent) did it because they believed it was the right thing to do, rather than an obligation or quid pro quo. Unfortunately, serving as the Family Bank may not be the right thing when it comes to your own finances.
More than half of people age 50 or older stated they were willing to make some retirement sacrifices to help their family financially. These sacrifices include retiring later, returning to work after retirement, and having a less comfortable lifestyle. But there’s a big difference between giving up some luxuries and being unable to cover your food, shelter, and healthcare costs as you age. Here are some tips that may help you figure out when to give family support and when to stop giving family members moneyfor your own good.
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Establish clear guidelines
Set firm guidelines about when you would or would not be comfortable providing financial support. Would you be willing to pay for medical expenses for an illness? How about for elective surgery? Are you planning to help all your children and grandchildren with college tuition, or only those with a deep financial need? Letting your family know your family financial support guidelines up front can help avoid hard feelings down the road.
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Apply your own standards
Despite the fact that Family Banks are themselves financially responsible, 36 percent gave money to their adult children without even knowing how it would be used. Before giving money to a relative, find out why they need it and what steps they have taken to resolve the issue on their own. Is the person facing a genuine need or simply looking for an easy solution? It is not helpful to give money if it allows poor financial habits to persist. If the money need is the result of poor money management, you may need to provide some guidance on how to manage family finances.
Set a budget for giving
It is important to establish how much you can safely give without endangering your retirement or lifestyle. 88 percent of people age 50 and older who gave money to relatives have not factored this support into their financial plans, despite giving an average of $6,500 each year. Your other significant expenses are figured into your budget, so why not giving? A financial planner can help you figure out how much you can afford to give before you need to close the Family Bank for your own good.
Don’t feel bad about closing the Family Bank
If you decide it is time to stop providing the adults in your family with financial support, don’t hesitate to close the Family Bank. The most common reasons people stop being the Family Bank is because they feel their money is not being used wisely or because their own lifestyle is hurting. If your lifestyle is suffering or you are behind on your retirement savings goals, it may make more sense to put that money towards your own financial wellbeing. Remember that while there are real banks that can help your family members with their finances, you can’t borrow for retirement.
If you would like some help deciding if it is time to stop being the Family Bank, consider reaching out to skilled financial planner Matt Logan today at www.MattLoganInc.comor call 336-540-9700. We can assess your finances and help create a livable financial plan that includes family giving while meeting your retirement goals.
Matt Logan Inc. is an independent firm with Securities offered through Summit Brokerage Services, Inc., Member FINRA, SIPC. Advisory services offered through Summit Financial Group Inc., a Registered Investment Advisor. Summit Brokerage Services, Inc., its affiliates and Matt Logan Inc. do not give tax or legal advice. You should consult an experienced professional regarding the tax consequences of a specific transaction. These are the views of Matt Logan Inc, and not necessarily those of Summit Brokerage Services, Inc. and any of its affiliates and should not be construed as investment advice.