Family Finances: Q&A with a Financial Advisor

When family and finances intersect, things can often get complicated.  Asking for help and receiving advice before making important decisions can make a big difference in how you feel about your finances. Here are answers to some common family finance questions:

Q: I’m considering contributing to a Health Savings Account rather than a traditional health insurance plan. What should I think about before making the switch?

A: An HSA is a low premium, high deductible plan that allows you to save money tax-free for your healthcare expenses. An HSA can be a good option for you and your family if you don’t visit the doctor often. If you have small children, doctor visits and other healthcare costs can be unpredictable, so be sure to calculate the true amount of what you may spend annually before switching to an HSA. Deductibles on these plans vary so it may take some time to build up enough savings in your account to really feel comfortable with your coverage. Before you sign up, calculate how much you’re willing and able to put into your HSA account and stick to a systematic deposit plan.

Q: I want to teach my children good money management skills. How old should they be before I start paying them allowance?

A: You can begin teaching your children about money as soon as they’re old enough to put coins in their piggy bank. One approach is to start by giving them small amounts of money in exchange for chores or tasks. Allow them to make their own decisions about what to purchase with their money, and encourage them to save for pricier “wants” by creating a chart in which they can track their progress. If they choose to spend their savings before reaching their goal, explain the trade-offs that come with making that choice. Do think carefully before you pay your children for positive behavior or getting good grades in school. Paying kids for doing what is expected of them can set inappropriate expectations for earning money when they’re older.

Q: My 16 year old daughter is a dedicated student and is involved in several extra-curricular activities. She doesn’t have much free time, but I think working part-time is important for teens. Should I encourage her to get a job?

A: Working part-time goes a long way in teaching young adults the value of money and helping them get a jump-start on their post-grad resumé. Begin by asking your daughter if she wants a job. You might be surprised by her answer. If she has friends that work or if she really wants the extra spending money, she might voluntarily choose to give up an extracurricular in favor of a job. If you expect her to help fund her college tuition or to pay rent after she graduates from high-school, it’s crucial that you explain this to her now so she can make trade-offs in her busy schedule and begin saving money.

Q: My sister has always been financially irresponsible and keeps asking me if I can loan her money. When should I cut her off?

A: If the money you’re lending to your sister is jeopardizing your current – or future – financial situation, you need to have a conversation with her right away. It can be emotionally difficult to put yourself first when a family member is in need, but the financial health of you and your family is most important. By prioritizing your own financial goals and stability, you may even have the ability to comfortably help family members in the future. If your sister is really in need of help with necessities or to fund an unexpected short-term expense, consider creating a written document containing how much you’ve lent to her, and under what terms. Use it to clarify your expectations of when and how you anticipate her paying you back.

Q: I want to start taking better care of my finances. What kinds of resolutions should I set for myself to begin my money makeover?

A: Looking at the big picture is the best thing you can do to evaluate your money management. You likely have a lot going on financially, so take time to step back and consider what you’re really trying to achieve overall. Make a list of all your financial obligations and goals – from daily expenses to long-term plans. Then start prioritizing, being honest with yourself about the “need to haves” like retirement savings and “nice to haves” like tuition paid in full for your college-bound child. Also re-evaluate the products and policies you already have in place and ensure you’re making the most of options like your employer’s 401(k) match. Lastly, develop a contingency fund. Unexpected events are bound to happen, but you can minimize the risk that an event like an illness or divorce will jeopardize your financial security by having emergency savings in place.

Paul Fragala, CFP®, CIMA®, is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Andover, MA.  He specializes in fee-based financial planning and asset management strategies and has been in practice for 19 years. To contact him: www.paulfragala.com, 76 Main St., Andover, MA, (978)-474-9900.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

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