A recent study by Merrill Lynch is thought-provoking on the touchy subject of relatives becoming the “family bank.”
“It is one of those hidden issues,” said Jay Seaton, area president of Apprisen, formerly the Consumer Credit Counseling Service of Northeast Ohio.
Seaton often hears from senior citizens at workshops about financial stress caused by people loaning or giving money to adult children. The survey is the first time Seaton has seen the subject tackled nationally.
He noted other examples of the phenomenon occur when adult children — whose finances are off track — are taking care of aging parents who may not have money. Another scenario involves family relatives who have been successful with money being asked for help.
The amount of support provided by people ages 50 and over to family can be thousands of dollars a year, the study said, and averages $14,900 among people with less than $5 million in investable assets.
Here are some figures:
• Six in 10, or 62 percent, who are age 50 or older are providing financial support to family members.
• Three out of five, or 56 percent, believe a member of their family is the “Family Bank,” meaning someone to turn to for financial help.
• Half of people 50 and older not yet retired say they would make major sacrifices that could impact their retirement to help family members.
• Many pre-retirees and retirees also say they give support without knowing how the money is being used.
Some comments from study participants included: “I thought I would be supplementing my grandchildren’s college fund. It turns out I was the college fund.”
“I paid down my mortgage and didn’t run up my credit cards, unlike my sisters. Now everyone in my family is turning to me for money.”
Seaton said resentment can grow from the person making the gift or loan — especially if it’s not paid back and the person sees the recipient spending on luxuries.
“It’s quiet, it can bubble over or it can stay right below the surface. There’s a tension there that keeps humming along,” he said.
Seaton and financial planner Darrell C. Claytor, with Securities America Inc. in Twinsburg, acknowledge there’s no one-size-fits-all answer on loaning/gifting money to family members.
“My first rule of thumb is if you’re going to give family members money, don’t assume it’s a loan. You’ll get your feelings hurt if you feel it’s a loan. If you can’t afford to give it, say you just can’t,” said Claytor.
Seaton said it’s important to have the conversation ahead of time. If it’s a loan, Seaton suggests drawing up a simple IOU with dates — even if there is suspicion that a payback schedule might not be met.
Often, the people giving the money can then find themselves in a financial bind.
Claytor has had clients who “had to go back to work because they did reduce their standard of living by giving gifts they should have kept themselves.”
Time for a talk
As uncomfortable and awkward as it might be, Seaton said when a family member asks for money, it’s a good opportunity to have a conversation about finance in general.
“I would suggest, even if it’s difficult, a set of steps, without saying yes or no quickly. I would take it as an opportunity, not getting in their face about their business, but to have a conversation about their situation. Why do they need this level of funding? I would ask them to do their homework. I don’t think it’s impractical to ask them to put together a current budget, even if they’ve never done it,” said Seaton.
That might be difficult — especially when the request is because of an emergency. But without the recipient acknowledging a problem or working on avoiding having to ask for more, the problem won’t go away.
Can tell them no
“In the end, the answer may be no, and I understand what that means in terms of family dynamics,” Seaton said.
Seaton said another possibility is giving money in payments and asking the family member to reach certain goals, such as meeting with a credit counselor, before getting more money.
Claytor said there’s always a danger of “enabling” the person who needs the money.
“Unfortunately, sometimes if you continue to help people on a frequent basis, they become dependent on you. You’re not helping them and you haven’t learned how to say no and let them swim for themselves. Some people say, ‘Enough is enough’ and cut them off. Other people feel it’s a lifelong situation to help people,” said Claytor.
Summit gas prices
As my readers know, I continue to recommend staying on the Standard Choice Offer (SCO) for natural gas, which is the monthly variable price through a provider assigned by Dominion East Ohio and which follows a state-approved formula. Prices for the SCO fluctuate, but continue to be low and below fixed-rate contracts.
I’ve also said that community aggregation plans, where governments negotiate a group rate, can sometimes result in a good fixed price, though often it’s better to stick with the SCO since the price has been so low.
Summit County has negotiated an aggregation rate for eight of its townships and the city of New Franklin that’s not bad. The county had hoped to get a price between $4.17 per thousand cubic feet and $4.22/mcf, but when it struck its price, the prices had gone up slightly and the rate will be $4.38/mcf for 20 months beginning Feb. 1, 2014.
For reference, the November SCO price was $4.10/mcf and as of Dec. 11, the December SCO will be $4.42. In comparison, public fixed rates are mostly in the high $4 and $5 to $6/ mcf range.
So if you’re in those Summit County townships, the fixed price is a fairly good one. It’s not as good as I had hoped, so it’s nothing to lose sleep over in making your decision. You will be fine either going with it or staying with the SCO.
Aggregation customers who have not chosen their own fixed rate and customers who are on the SCO will automatically be included in the new rate, unless they call or turn in the opt-out letters that were scheduled to be sent Friday. Consumers have until Jan. 3 to opt out.
To review my advice for natural gas and electricity options, an earlier column is online at www.tinyurl.com/bettyenergy