Too Much Do-Good May Hurt Your Finances

Too Much Do-Good May Hurt Your Finances

When it comes to helping others, your family will normally be at the top of the list. But just how much assistance can you give them without adversely affecting both them and yourself?

Potential risks of helping your family financially include denting your retirement income, risking your credit rating, impacting family relationships and facing tax implications. That doesn’t mean you should never help out a family member when they are in need. You should just go about it the smart way.

Always Put Yourself First: Before considering helping someone with a financial gift, you should first make sure you’ll have enough resources to last your lifetime and that your gift won’t set you back to an uncomfortable level. If you don’t have the money, don’t offer it, unless you are certain that money can be repaid in a timely fashion.

Think About Credit Scores: Sure, helping a family member buy a new car or luxurious furniture may make you relative of the century, but there are risks to consider. If you buy something for them outright, they may not have the chance to build up their own credit score, which can make it harder for them down the road for larger purchases like a house. Having a joint checking account or credit card or co-signing for a loan puts you at risk of the family member defaulting on payments and bringing your credit score down with them.

Hand-outs vs. Hand-ups: Helping out a relative can be rewarding and can bring families closer, but you have to be careful how often you dish out the cash when requested. While we don’t want to think our family members would take advantage of our generosity, it is a possibility that can hurt your finances and your relationship. If you continuously give, family members may come to expect your gifts and may be worse off later if you stop providing them.

Before giving any sort of financial gift, think about the potential risks and rewards of helping your loved ones. We want you and your family to live financially stable lives together. Your financial advisor can help you or your loved ones explore ideas for overcoming financial obstacles and how to give gifts that can make a difference without adversely affecting you.

FINANCIAL FACTS

And Your Plan Is What? – Thirty-eight million of the 84 million American households (45 percent) that are headed by working-age people (i.e., not retired) do not own any pre-tax retirement accounts such as a 401(k) or an IRA (source: National Institute on Retirement Security, BTN Research).  

At The Very End – Federal outlays for Medicare were $498 billion in fiscal year 2013, and $50 billion (10 percent) of that total was spent on Medicare patients in the final month of their lives (source: Medicare, BTN Research).  

Improvement – At the end of 2010, 9.0 percent of mortgages had at least one payment past due and another 4.6 percent of mortgages were in the foreclosure process. As of the end of 2013, 6.4 percent of mortgages had at least one payment past due and another 2.9 percent of mortgages were in the foreclosure process (source: Mortgage Bankers Association, BTN Research).