Lending Money to Family and Friends

by Stacy Francis, CFP®, CDFA

I received an interesting email this morning. It was from a mother-of-two in her early thirties, who was broke because over the past five years, her parents had continuously borrowed money from her, supposedly to get into some miraculous investments bound to triple within six months. Of course, none of these had worked out, so they didn’t have any money to pay her back. Her children needed new clothes, she needed a new car, her husband needed a vacation . . . and her parents were giving her guilt trips for refusing to lend them more money. When she told me this story I had to keep myself from asking her parents phone number and calling them to give them a piece of my mind!

This situation may sound terrible, but I have heard similar stories before. Which is why I generally advise against lending money to family members and friends. Many friendships have ended this way, and within families things can – and do -- get really ugly. Your own children can be exceptions, but even there, make sure you

  1. Put everything, including amount and conditions for the loan, on paper,
  2. Have a clear payback plan, and
  3. Don’t lend them another dime before they have paid back the original loan.
  4. Use a lender like Virgin Money to legitimize the loan so that you protect your assets.

Like I said, in 99% if the cases, don’t do it. But if you are going to anyway, at least make sure you cover the steps above.

 

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Should Your Kids Have Credit Cards?

by Stacy Francis, CFP®, CDFA

The children in front of me in line at the grocery store today were no older than eleven or twelve, yet when the time came to pay for their snacks and sodas, they pulled out their MasterCards. I started to wonder, is this normal now? Do all kids and teens have credit cards and – even more importantly – should they?

I started thinking about my son Sebastian. When should he get a credit card? He is only 21/2 but is the right age 10,15 or 20?

This, of course, depends – on everything from your financial situation to your relationship to your children, and in turn, your children’s relationship to money. But generally, I would advise against it. After all, you want your children to develop a healthy relationship to money – one where they spend no more than they earn, preferably a bit less. If money seems to appear out of nowhere (like, out of your bank account) to bail your children out when they get into trouble, chances are they will get themselves into much more trouble later on, when sums and stakes are higher.

There is, however, one major exception: secured credit cards, where you or your children (or both) deposit a certain amount into an account, and your children can learn how to manage money the way most adults do.

If your children are very mature and financially responsible, it may not be a bad idea to allow them to carry plastic as long as you can manage the account with them. But for the grand majority, stick to ATM cards, secured credit cards or good old-fashioned paper bills.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

What Size Allowance Should I Give My Child?

by Stacy Francis, CFP®, CDFA

At the park today, the moms were discussing allowances. At what age should a child start to receive them, and how much is appropriate? All at once they stopped and asked me, “You are the expert, tell us what to do!” Talk about pressure. I took off the mom hat and put on my financial planner thinking cap.

There are almost as many theories for this as there are experts in the field. The most common system seems to be to give the child $1 per week and years of age. Meaning, for instance, that my son would receive $3 per week, and my friend’s six-year-old daughter $6. But of course, the right amount will also depend on other factors such as

  1. Your child’s attitude toward and awareness of money. Before he or she appreciates it, there’s little point in throwing cash his or her way.
  2. What sorts of expenses your child is expected to cover in exchange for the money. If he or she, for instance, needs to cover friends’ birthday presents and some or all of his or her own clothes, he or she will need a lot more than he or she would if the money were for entertainment only.
  3. How much you expect your child to save. Many parents take care of their children’s savings for them, but if possible, I always recommend that you give him or her enough money to set some aside and watch it grow. For many children, this is an invaluable lesson.

Of course, both the sum and the level of responsibility will change as your child grows older. The most important thing of all is therefore to keep an open mind and constantly rework your allowance system as your circumstances change.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Talking to Kids about Money

by Stacy Francis, CFP®, CDFA

During a dinner party last weekend, a woman told me her son had taken her by surprise by asking “are we rich?” She said she was dumbfounded, and as she had no idea how to respond, she mumbled, “no.” Her son got extremely anxious, and she spent the rest of the evening trying to comfort him. Below is some advice, so that the rest of you can be prepared in case your son or daughter . . . pops the question.

If you do have a good amount of money, tell your child that you have enough to be comfortable. If possible, avoid going into sums and too much detail – most children won’t grasp them anyway. They just want to know that you are OK.

If, however, your child insists and starts asking for numbers, tell him or her that you are doing better than most. This should still his or her curiosity.

If, on the other hand, you are not doing so well, the situation gets a little trickier. You don’t want to worry your child, but at the same time you don’t want to lie. Tell him or her that you are doing alright, and hopefully will do even better in the future.

As a general rule, stay as close to the truth as possible and avoid details.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

The Financial Impact of another Child

by Stacy Francis, CFP®, CDFA

My nutritionist had a baby a month or so ago. She told me over the phone that she was relieved beyond words that her insurance company had covered most of it, because the bill for her birth and subsequent hospitalization added up to a whopping $80,000. You just wait, I told her.

Because the thing is, while children are wonderful, and the greatest joys of many people’s lives, they are also huge financial responsibilities. Bringing one into your life requires a great deal of planning, especially if you – like most mothers – want nothing but the very best for your youngster. Here are just a few things to consider:

  1. Childcare. If you and your spouse both work full time, someone needs to care for your treasure while you’re at the office. From nannies and Montessori schools to public daycare and occasional baby sitters, making sure your baby is always safe and in good company can cost you. Lots.
  2. Your work life. You may want to cut back on your hours to spend time with your baby – even stay at home for a couple of years. The higher your current salary, the more you will feel this drop in income.
  3. College. While your child may score an amazing scholarship, chances are also, you may need to foot a good portion of the bill. With tuition many times in excess of $20,000 per year, be prepared and make sure you leave room in your budget to start saving early.

Of course, many more factors can (and will!) apply to your specific situation. By thinking ahead you can give your child a wonderful life, without sacrificing your own.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Enriching Your Children’s Lives the Pollan Levine Way

by Stacy Francis, CFP®, CDFA

I just finished Mr. Pollan and Mr. Levine’s book, Die Broke. While I found a myriad of interesting points between the covers, one that really resonated with me was the way they turned the old-fashioned view of children and inheritances upside down.

Why, argue Pollan and Levine, would you keep stashing your cash away into savings your children will receive after you die – most likely when they’re in their forties or fifties and finally at the age where most people are financially stable, anyway? Doesn’t it make more sense to contribute toward, say, their first home, or to help them out during the early stages of their careers, when most people hold low-paying, entry-level positions?

And anyway, wouldn’t this be more rewarding for you, too? Wouldn’t you rather be there to bask in their tremendous gratitude, when you make the dreams that are otherwise out of their reach come true? Instead of watching them struggle to make ends meet? Time is money, after all, and if you make their lives easier by giving them money, chances are, they will have more time for you. Who knows, they may even find themselves in a financial situation to start giving you grandchildren.

Old traditions are wonderful. I am all for traditions. But when someone has a better thought, shouldn’t we take it to heart and make a change? Isn’t that how we ended up with cars instead of horses-and-carriages, currencies instead of the barter system, and light bulbs instead of kerosene lamps? I bet tons of twenty-somethings are dying for you to read this.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Leave a legacy for loved ones

by Stacy Francis, CFP®, CDFA

When should I start saving for my children? a thirty-something mother of two asked me today. Right now, I suggested. She looked puzzled. Wasn’t it a little early? They are, after all, only two and four. I told her that if she is serious about their financial futures, the first couple of years are key.

Why?

The answer is, of course, time. $100 in a savings account is – as long as you invest it sensibly – going to be worth a lot more in 20 years. For adults, this can be the time left until retirement. For an infant, 20 years is the time left until college. Then they have 40 or so more years during which the money can accumulate. Take a look at the numbers below, and it won’t be hard to see why $100 in a child’s account is worth many times $100 in a thirty or forty-something’s account.

Assuming a 10% average yield per year,

$100 in 20 years=$673

$100 in 40 years=$4,526

$100 in 60 years=$30,448

The problem is, when we’re young, retirement is as distant a concept as, say, cancer, or politics. And it should be. But if you implement the following strategy, and teach your children about finances early on, chances are by the time they’re thirty, their gratefulness will see no end.

During your child’s twelve or so first years, save half of everything he or she receives. Whenever a well-meaning aunt, grandparent, or friend gives your child $20, let him or her have $10 to spend, and set the other $10 aside in an investment account. By the time your child becomes a teenager, you can cut the savings back to 10%. But throughout high school and college and entry level job years, keep preaching the importance of saving 10% of everything they earn or receive. Not only do many people find themselves millionaires in their early thirties this way, but your children will be in much better financial shape than their peers once life really starts to get expensive.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.