Giving financial help to relatives Be Empowered to Give Safely and Avoid Scams
January 28, 2024
Many older adults who are financially established give financial help to relatives. For example, they may help by cosigning a loan, educating younger relatives concerning money matters, or saving for a grandchild’s college expenses. A desire to help relatives can be a generous choice; however, even in familial relationships, it is important to understand the terms of the help you are giving. It is also critical to be on the lookout for scams, which may involve bad actors masquerading as family or claiming to represent family, any of which target older adults.
Understand the risk of cosigning a loan
If you are thinking of helping a loved one borrow money by being a cosigner for their first car loan, to obtain a credit card, or to get a student loan, there are important things to know first. When you cosign a loan or sign up as a “guarantor,” you are agreeing to become legally liable for their loan and pay the debt obligation as one of the borrowers. In this situation, if your loved one fails to make payments in accordance with the terms of the agreement, you are liable not just for the amount of the debt you cosigned, but also any interest accrued, late fees, and collections costs. Even though cosigning is a well-intended gesture, a defaulted loan could be difficult to repay, especially if you are on a fixed income. If the primary borrower fails to repay the loan, you as the co-signer are responsible to pay the debt. For more information about the risks you take when you become a cosigner and ways to reduce those risks, visit the Federal Trade Commission (FTC) at ftc.gov.
Build a foundation for financial success
An effective way to help develop sound money-management skills is for family members to regularly talk with younger relatives about basic financial concepts starting at an early age. Teaching self-control, the ability to delay gratification, and basic math skills early on can provide a foundation to support financial well-being in adulthood. Establishing an early and positive relationship with a financial institution, and teaching concepts such as the benefits of saving money for a sizable purchase (such as a bicycle or car) and how to wisely manage credit, will provide a strong foundation for financial success.
Explore ways to save money for a child
If you want to help pay for a younger relative’s education expenses, such as tuition for college, you may want to open a tax-advantaged 529 Plan or Coverdell Education Savings Account (Coverdell ESA). As long as all funds are used for qualified educational expenses, the money earned will not be taxed.
Be on guard against phone calls from con artists
A common scam targeting older adults involves an imposter calling an older adult pretending to be a relative in trouble. The caller (sometimes impersonating a relative) does enough homework to mention the name of the relative or other people the older adult knows and may claim his or her wallet was stolen, or even that they are in jail. They may sound like they are crying, which makes it difficult to recognize the voice. The scammer may even spoof phone numbers, which means that they can make it appear the call is coming from a relative. The fake relative usually pleads for the older adult to send the money immediately and not tell any family members for fear of upsetting them.
Many older adults immediately jump to the assistance of a relative without asking questions that would verify the caller’s identity. If you find yourself in this situation, always check with another family member to determine whether your relative actually is in trouble and needs money. Consider trying to reach the family member you believe is in trouble the way you normally would, such as using their cell phone or via email. If you decide to send money, only send money to people you know. Never wire money or send gift cards or money through payment apps to strangers who claim they are helping your family.
Whether you are helping a relative in need or simply providing what you believe is minimal assistance, be sure to understand the terms of the help you are giving, and be on the lookout for scams intended to steal your gift.
Lastly, if you become a victim of any form of fraud or identity theft, you should contact your financial institution immediately to protect your accounts from potential criminal activity. Additionally, many community banks offer special savings accounts for children, so why not accompany them to the bank to open an account? This is often the first step toward a lifetime of financial independence.
