Family lending and borrowing

It is natural to turn to people close to you for help when you need it and to want to help others. However, sometimes unclear communication or misunderstandings can cause strain on your relationships and unnecessary financial hardship

Informal money arrangements among friends and family are very common.  Research has shown that as many as one in five U.S. adults receive financial support from friends or family, and up to one in three U.S. adults provides support to others. During times of crisis, these support networks can provide timely help.

Discussing financial arrangements among friends and family can help reduce strain. It may feel awkward to have a frank conversation, but remember the goal is to come up with an arrangement that works for everyone involved. This will help prevent more difficult conversations later. Below are a series of questions that can help you work together to solve problems and maintain strong relationships.

Asking someone if you can borrow or share their resources

Before you approach your friend or family member with your need or request, take a short time to think through all of the information you need to share and what the results could be of your request. You should be ready to provide clear answers about your situation. This can help you have a better conversation – and potentially a better outcome for your finances and your relationship. Ask yourself:

  • What exactly am I asking for?
  • Do I have other ways to meet those needs?
  • How would my relationship to this person change if they agree – or if they turn me down?
  • Do I have the ability to pay this person back?

Be realistic, and be honest with yourself, and the other person.

Has someone asked you for money or support?

Before you respond to a friend or relative who asks you to share or lend resources, pause to think it through first. Ask yourself the questions below, and then see if you need to clarify your understanding with the other person:

  • Am I being asked to give a gift that will not be paid back, or provide a loan that will be paid back?
  • How could this affect my own money situation, in the short and long term?
  • How would my relationship to this person change if I agree – or if I turn them down?
  • If it is a loan, what happens if they don’t pay it back?
  • If it is a loan, do I need it to be paid back with money, or are there other ways to be repaid – for example, can I accept other services like childcare, transportation, or something else in exchange?

Again, be realistic, and honest with yourself and the other person.

 If you can, write out what everyone has agreed to and give everyone a copy to refer to later. Whether you write it down or not, your agreement should answer the following questions:

  • Who is providing what (money, time, services, or something else) to whom?
  • How much, how often, and for how long?
  • Is this a one-time exchange, or happening on a regular basis?
  • How and when will the lender be repaid?
  • When will the arrangement be considered done?
  • When or how often will you check in with each other?
  • What happens if circumstances change?

For more information, click here.

Teaching Suggestions:

  • Under what circumstances should you borrow from family members or friends?
  • Ask students if they have borrowed or have lent money to family members or friends.  If so, let them share their experiences.

Discussion Questions:

  1. Do loans from family or friends complicate family relationships?  Explain.
  2. Why should all loans to or from a family members be in writing and state the interest rate, if any, repayment schedule, and the final payment date.

Coping With the Corona Virus-Related Financial Stressors

KEY POINTS

  • Nearly half of U.S. adults have reported that their mental health has been negatively impacted due to worry and stress over the virus, according to a Kaiser Family Foundation poll.
  • A new NFCC survey finds situations that immensely exacerbate financial worries include not having enough savings, losing a job and the inability to pay debts.
  • Many large health insurance companies as well as Medicare have increased their capacity and coverage for telehealth visits with mental health providers.

Here are some tips from the mental health and financial experts on how best to cope with these common money stressors.

1. Not enough savings

If you find yourself struggling financially and have a limited emergency fund — or none at all — focus instead on what you can control. “First, carefully examine your expenses and reprioritize your spending. Cut out everything but the essentials , such as,  mortgage or rent, food, utilities and insurance,” said author and certified financial planner Carrie Schwab-Pomerantz, who is also president of the Charles Schwab Foundation. “If you’re unable to pay a bill, contact your creditors right away. They may be willing to negotiate a payment schedule or waive late fees.

2. Job loss

If you haven’t already, file for unemployment benefits immediately through your state’s programThere will likely be a lag time until you receive your first check.

  • Make sure you still have health insurance. You could switch to COBRA to receive the same coverage you had under your employer for the next 18 months, but you have to pay for it yourself at a considerably higher cost than you were paying as an employee. “Do some comparison-shopping.”
  • Consider other jobs that you may be able to pursue. Use your down time to learn a new skill or start that side-hustle. Education, health care, and technology companies are among some of the industries hiring remote workers right now.

3. Inability to pay your debts

Nearly half of U.S. adults currently have credit card debt and 13% of them are not paying anything at all or don’t have a plan on how to pay, according to a report by CreditCards.com. 

Consider temporarily paying only the minimum on mortgage/rent, car loans and student loans as well, said Schwab-Pomerantz, whose Schwab MoneyWise website has a list of resources to help during the Covid-19 crisis. More help could be available. You may be able to lower or suspend your mortgage payments for up to one year in some cases. Contact your lender.  If you’re having trouble paying your rent, talk to your landlord about your situation and your options. Some states and municipalities are providing eviction restrictions for impacted individuals. Many utilities and phone companies have stopped cutting off services for nonpayment. Call them.

For more information, click here.

Teaching Suggestions

  • Ask students how the corona virus has affected them, their relatives, or friends. What steps have they taken to minimize the effects of the corona virus?
  • List the steps to take if you don’t have enough emergency funds to get through this financial difficult period.

Discussion Questions

  1. How are millions of Americans coping with stress and anxiety as they deal with the fear and reality of death and disease due to the corona virus pandemic?
  2. Discuss the economic and emotional worries that are keeping American awake at night.

Managing your bills during COVID-19

COVID-19 has thrown the economy into a tailspin. Many people have been laid off, furloughed, or are working fewer hours. And as wages dry up, bills can pile up.

Debt can be tricky. Here are some ideas about how you can manage your debts and start regaining your financial well being.

  • Gather your bills: Make a list of your monthly bills: rent/mortgage, car payment, utilities, student loans, medical bills, and anything else. Consider how much you need for food, medicine, and other necessities.
  • Ask for help: Many companies have special programs to help people right now. Contact the companies you owe money to and try to work out a new payment plan with lower payments or delayed due dates. Make sure to get any changes in writing.
    • Find out if your state or local government offers programs that will allow you to hold off on paying some bills right now.
    • Trouble paying your mortgage? Here’s some advice on how to manage that problem. If you have a government-backed mortgage, you may be able to delay payment by contacting your servicer.
    • Need additional help? Check out ftc.gov/creditcounselor for tips on how to choose a counselor who really helps you out.
  • Prioritize if you need to: If you still can’t pay everything on time, look at what would happen if you couldn’t pay each bill and decide which bills to pay first. Would you lose your home? Would your car be repossessed? Would your debt go into collection and affect your credit report?
  • Study up: Check out the FTC’s advice on how to cope with debt in the short term, and how to get out of debt when you are able.
  • Watch out for scams: In stressful times, scammers are everywhere. Beware of any company that guarantees that creditors will forgive your debts, or makes you pay up front for help. If you are looking for debt relief, make sure to find help you can trust.

For more information, go to: click here.

Teaching Suggestions

  • Ask students to develop a plan to manage their debts, especially during the coronavirus pandemic.
  • Ask students if they should turn to a company that claims to offer assistance in solving debt problems? Why or why not?

Discussion Questions

  1. Why should you avoid waiting until your account is turned over to a debt collector?
  2. What is a constant worry for a debtor who is behind in payments of bills?

Fill out the FAFSA

For many people, how to pay for a college education is one of the major financial decisions before deciding on a school. There are many different ways to pay for college. Understanding your choices can help you make the right decision for your situation.

Start by completing the Free Application for Federal Student Aid (FAFSA)

A critical first step for many prospective students is to complete the FAFSA . FAFSA completion is an important part of the student aid process.

Due to the coronavirus pandemic, some states have extended their FAFSA deadlines. . Contact your school’s financial aid office to find out if their priority FAFSA deadline has been extended.

Why fill out the FAFSA?

Filling out the FAFSA is required if you want to apply for federal assistance, including grants, loans and work study. Your eligibility for need-based federal aid, such as Pell Grants and subsidized student loans is determined by your FAFSA submission.

Filling out the FAFSA does not commit you to taking out student loans or accepting the financial aid offered. However, if you do not submit a FAFSA you will not be able to access federal grants or other forms of federal financial aid.

In addition, states typically require students to complete the FAFSA to qualify for state grant programs, and most colleges and universities will not consider awarding any institutional aid, until the FAFSA has been submitted.

Even if you have not finalized your plans for this fall, consider filling out the 2020-2021 FAFSA sooner rather than later, many state and schools award aid on a first-come, first-serve basis and may have established earlier, “priority” deadlines. If you miss a key deadline to complete the FAFSA, you will limit your ability to qualify for state or institutional funding.

For more information:

finaid.org

http://studentaid.ed.gov

Teaching Suggestions

  • Ask students why it is important to complete the FAFSA form sooner than later?
  • What basic information is needed before beginning the FAFSA application process?

Discussion Questions

  1. Where can you get assistance if you need help in filling out the FAFSA form?
  2. Why is important to take advantage of any scholarships and grants before applying for a federal loan?

Financial Literacy for Children

A lifetime of skillful financial decisions starts with experiential learning at a young age. To increase financial literacy for the next generation, consider these actions:

  • Give children a payday. Instead of a weekly allowance with simply giving money, create a system of earning these funds. Connect their household chores to earned amounts with a weekly payday. This practice can teach a child that people are paid for work to earn money for their living expenses.
  • Create awareness of opportunity cost. Every financial decision has trade-offs. Once money is spent, that money is not available for other uses. Keeping money in a clear jar allows the young person to visually see what funds are available, and when the money is gone.
  • Allow children to experience borrowing. If a child wants to buy something but does not have the money, set up a signed loan agreement with repayment terms. Also create a plan for the amount owed to be taken from future household earnings. Have the young person physically pay the money to better understand how credit works.
  • Connect them in the budgeting process. Include children in the discussion of family finances and the household budget to help them understand where money is spent. Consider creating a chart with spending amounts, or use slips of paper representing money that are used to pay the bills each month.
  • Teach wants vs. needs. Shoes or a clothing item may be a need but not a high-fashion version. To cover the cost of the higher-priced item, young people should be required to earn the amount for the additional expense.
  • Use money games. These activities can help children understand earning, saving, wise spending and other basics of money management for a financially sound future.

For additional information on financial literacy for children, click here.

Teaching Suggestions

  • Have students conduct online research to locate other actions used by parents to teach their children smart spending and wise money management.
  • Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.

 Discussion Questions 

  1. What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
  2. Describe possible money management learning activities for children that involve creative use of technology.

FINRA Investor Education Foundation Publishes “The State of U.S. Financial Capability”

Did you know that in 2018:

  • 19% of households spent more than their income?
  • 46% of individuals lacked an emergency fund?
  • 35% of credit card holders paid only the minimum on their credit cards?

In September 2019, the FINRA Foundation released data from its latest Financial Capability Study—one of the largest and most comprehensive financial capability studies in the United States. Among the findings, younger Americans, those with lower incomes, African-Americans and those without a college degree face the toughest financial struggles. More than 27,000 respondents participated in the nationwide study. Conducted every three years beginning in 2009, it measures key indicators of financial capability and evaluates how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics—both nationwide and state-by-state.

For more information, click here

Teaching Suggestions:

  • Ask students if they spend more than their income in a given year.
  • Ask students if they have a rainy day fund. If not, why?
  • Ask students if they pay in full when the credit card bill arrives. If not, why?

Discussion Questions

  1. What might be some reasons why almost one in five households spends more than their income?
  2. Why is it important to have a rainy day fund? Why almost half of Americans lack such a fund?
  3. Why is it vital to pay credit card bills in full? What are the costs of paying a minimum balance?

Apartment Loans

Many recent college graduates choose to rent expensive, upscale apartments rather than putting money into savings. Their “fear of missing out” (FOMO) on being “close to the action” or luxury-living amenities comes at a cost, with high demand for these units resulting in spiraling monthly rents.  To cover these higher costs, “apartment loans” are now available in several urban areas.

Similar to the high-risk mortgages that triggered the financial crisis in 2008, apartment loans may be viewed as predatory lending.  Renters may borrow up to $15,000 with no interest for the first six months, but then encounter an annual interest rate of 15-17 percent.  Some justify these loans in that the costs are lower than payday lending.

If you have to take out a loan to pay the rent for an apartment…you CAN’T afford to live there.  Your ability to build wealth and long-term financial security will depend on living within your income.

For additional information on apartment loans, click here.

Teaching Suggestions

  • Have students conduct a survey of renters to determine actions they took to determine the location and cost of obtaining an apartment.
  • Have students create a visual presentation with the dangers of apartment loans.

Discussion Questions 

  1. What actions might be considered to avoid apartment loans?
  2. Describe financial and personal concerns associated with apartment loans.

Fake Credit Repair: Good Teton Professionals, LLC

In June 2019, the Federal Trade Commission (FTC) charged that two defendants, Douglas Filter and Marcio G. Andrade, using such trade names as Deletion Experts, Inquiry Busters, and Top Tradelines, used deceptive websites, unsolicited emails, and text messages to target consumers with false promises of substantially improving consumers’ credit scores by claiming to remove all negative items and hard inquiries from consumers’ credit reports.

The defendants also falsely claimed to substantially improve consumers’ credit scores by promising to add consumers as “authorized users” to other individuals’ credit accounts.  In most instances, however, the defendants were not able to substantially improve consumers’ credit scores.  The complaint also alleges that the defendants charged illegal upfront fees and failed to provide consumers with required disclosures about their credit repair services.

The defendants often used illegal remotely created checks to pay for the credit repair services they offered through telemarketing, according the FTC’s complaint.

For more information, click here.

Teaching Suggestions

  • Ask students to prepare a list of federal laws that protect consumers from operators of fake credit repair schemes.
  • What is the best advice before you sign with such companies as, Grand Teton Professionals, LLC; to repair your poor credit?

Discussion Questions

  1. What is a household to do if it is experiencing problems in paying bills, thus resulting in poor credit scores?
  2. What are your options, if you are having problems paying your bills and need help?
  3. Discuss the statement, “Only time and a conscientious effort to pay your debt in a timely manner will lead to the success of improving your credit report.”

The “Bank of Mom and Dad” for Mortgages

Which source of home-buying finances has “millions of satisfied customers, has never asked for a bailout, and really cares about its borrowers”?  It’s the the “Bank of Mom and Dad.”

Parents and relatives are a common source of funds when buying a home.  With a difficult housing market, this financial assistance for young homebuyers is often necessary.  According to a study by Legal & General, the “Bank of Mom and Dad” is the seventh largest source of home-buying funds. The top six were Wells Fargo, JP Morgan Chase, Quicken Loans, Bank of America, U.S. Bancorp, and Freedom Mortgage.

The downside of this trend is that many parents are postponing, and even endangering, their retirement years to provide financial assistance to their children. Before accepting funds from family members, consider these factors:

  • Assess the current and future financial impact for family members involved.
  • Evaluate the tax situation and costs that might be involved.
  • Determine potential implications for other family members.
  • Consider other sources and possibilities, such as making it a loan rather than a gift’ also investigate government or private programs available to lower-income or first-time home buyers.

 For additional information on family assistance for home buying, go to:

Link #1

Link #2

Teaching Suggestions

  • Have students create a video presentation to demonstrate the positive and negative aspects of parents providing funds to their children for buying a home.
  • Have students conduct research online and with financial institutions to determine programs that are available to lower-income or first-time home buyers.

Discussion Questions 

  1. How might providing funds to children for buying a home affect the financial and personal situation of parents and other family members?
  2. Describe actions to take before parents provide funds to their children for buying a home.

Weighed down by debt? How to ease the load

If you’re overwhelmed by debt, it’s crucial to find a solution.

FDIC Consumer News offers a few tips.

  • Contact your lender immediately if you think you won’t be able to make a loan payment.
  • Reputable credit counseling organizations can help you develop a personalized plan to solve a variety of money problems. 
  • Be very careful of “debt settlement” companies that claim they can reduce what you owe for a fee.
  • Avoid scams.
  • Remember that you have rights when it comes to debt collection.

For more information, click here.

Teaching Suggestions

  • Ask students if they know anyone who has had financial difficulties and how they resolved their problem.
  • Ask students to review the main provisions of the federal Fair Debt Collection Practices Act and how the law protects consumers from unfair debt collectors.

 Discussion Questions

  1. Why is it critical to contact your mortgage lender immediately if you think you can’t make a loan payment on time?
  2. In what ways reputable credit counseling organizations can help you develop a personalized plan to solve financial problems?
  3. What are the warning signs of possible fraud by a debt settlement company or credit counselor?