Money Management

For parents, the instinct to rescue their children financially is powerful. Here, we look at three ways such a rescue may backfire. 

It’s like hitting the jackpot when a child is born into a family that loves and protects them. And if, as they grow, a child’s family provides them with the tools they need to get ahead, the lucky streak continues. While the word “no” is easy enough to say, it’s tough to turn away when a child is hurting.

The same parents who adore their children from birth are also among the most generous. It may be a desire to be around long enough to see their children succeed. When a parent moves money from their bank account into their child’s account, the practice carries certain risks. Here are three of them.

1. You’re on your own

Let’s say you’re single and retired at age 62, the moment you were eligible. You have $250,000 in an IRA, and while you know that’s not a lot of money, you’re happy to work part-time to supplement your income.

Now, imagine that your child is 32 years old and trying to buy their first home. They live in a high cost-of-living area, and the $50,000 they’ve saved as a down payment is not enough to make a 20% down payment. They ask you to loan them $50,000 and promise to repay it over time.

While your heart may scream for you to rescue your child, several potential problems may arise, including:

Your child buys a home and quickly discovers that homeownership is far more expensive than they anticipated. The money they imagined being able to pay back each month goes toward everyday living expenses instead. You’re only 62 and initially planned on withdrawing the Required Minimum Distribution (RMD) from your IRA at age 72, the mandatory age at which the IRS says you must withdraw money. You’re counting on the power of compound interest to help grow your nest egg over the next decade. If your IRA investments earn an average return of 7% for the next 10 years, your $250,000 will balloon to $491,788. However, if you loan your child $50,000 of that money, a 7% return on $200,000 means you’ll have $393,430 instead. The bottom line is this: Loaning your child $50,000 could cost you more than $98,000 in retirement. You need to charge your child an interest rate equal to or more than you can earn on the funds you’ve invested, or else you’re guaranteed to lose money. Agreeing to loan an adult child money introduces a transactional aspect to the relationship. Suddenly, you’re responsible for contacting them when a payment has not been made and enforcing the terms of your agreement.

2. Time is on their side

Your child has decades longer to save, invest, and manage their money than you do. In short, they have more options. For example, they can invest the $50,000 they have put aside for a down payment into a financial vehicle paying an average annual rate of 7%. By adding $500 to their down payment savings each month, they may have a cool $104,600 available in five years. Five years may feel like forever to them, but you know how quickly those 60 months will whirl by.

3. Hitting a brick wall is not necessarily a bad thing

If you reflect on all you’ve learned throughout life, you may discover that the most important lessons were instilled when your circumstances seemed dire. It may have been during a period of illness or joblessness. It could have been while you were raising young children or fighting to get ahead of inflation. Learning how to get over brick walls is how we become more resilient.

As a parent, it’s natural to want to protect your children from the tough times you experienced, but what if that robs them of the opportunity for personal growth?

As author Idowu Koyenikan says, “There are certain life lessons that you can only learn in the struggle.” Perhaps our job as parents is to be there for our children emotionally but to allow them to grow through the struggles that come their way.

When you provide your child with immediate gratification by dipping into your personal retirement stash, you may find that you’re both shortchanged.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Real estate inventory is unlikely to increase until mortgage rates drop. Read on to see why. 

If you’ve been struggling to buy a home this year, you’re no doubt in good company. Not only has it gotten expensive to take out a mortgage, but home prices are high, too. We can thank low inventory for that.

The basic laws of supply and demand tell us that any time there’s a shortage of a given commodity, its price tends to rise. That’s what’s going on in the housing market today.

As of the end of March, there were only 980,000 unsold homes on a national level, according to the National Association of Realtors. That represents a 2.6-month supply of available homes.

But it commonly takes a six-month supply of homes to meet buyer demand in full and equalize the housing market so that neither buyers nor sellers have the upper hand. Right now, sellers are still getting away with commanding higher prices because they know buyers don’t have a lot of options.

If you’re hoping home prices will come down in the near term, then what you really need to hope for is a rise in real estate inventory. But that’s not likely to happen until mortgage rates drop. Here’s why.

Today’s homeowners aren’t that motivated to sell

For the most part, people who own homes today aren’t very eager to sell them. The reason? A lot of people are paying off mortgages at much lower rates than the rates we’re seeing today.

In fact, a lot of people went and refinanced their mortgages when borrowing rates fell to record lows in 2020 and 2021. Back then, you could easily sign a 30-year mortgage at around 3% if you had good credit.

At this point, the average 30-year mortgage rate is around 6.4%, as per Freddie Mac. But why would someone with a 30-year, 3% mortgage put their home up for sale and risk having to sign a new mortgage at double the interest rate or more? It just doesn’t make sense.

Even homeowners who didn’t refinance their mortgages in 2020 and 2021 may be sitting on mortgage rates that are lower than 6.4%. And just as someone with a 3% mortgage wouldn’t want to swap it for a 6.4% mortgage, so too might someone paying 4.5% or 5% on a mortgage not want to see their interest rate increase.

That’s why it’s easy to point to high interest rates for mortgages as the reason housing inventory is stuck in a slump. And unfortunately, we may not see a drop in rates — or an uptick in inventory — for quite some time.

A tough housing market to navigate

Even though today’s homeowners generally aren’t so motivated to put their properties up for sale, there are always some exceptions. In any given neighborhood, there’s apt to be someone — even if it’s one out of 100 homeowners — who needs to move to be closer to family or to pursue a job. So even though housing inventory is low right now, at least it’s out there.

But it could take a while for mortgages to get cheaper. And until that happens, buyers might find themselves duking it out with others to go after the limited properties that manage to show up on the market.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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A writer shares the things she feels are worth more of her money. Read on to see what they entail. 

Saving money has always been important to me. In fact, it actually pains me to dip into my savings account for emergency expenses, even though I know that’s what the money is there for. And to make my savings habits possible, I’m cautious in how I spend my paychecks.

Not only do I consider most purchases I make carefully, but I also make a point to keep some of my larger expenses low. The average U.S. mortgage payment, for example, is $3,048, reports Business Insider, and that’s for a 30-year loan. For a 15-year loan, it’s $3,976. I have a 15-year mortgage, and I can tell you that my monthly payment is less than half of what the average person with that term pays.

I also do other things to keep my bills low. I drive an older car, I do lots of cooking myself rather than dine at restaurants, and I spend as little as I can on clothing for both myself and my kids.

But there are certain items I have a tendency to spend a decent amount of money on because I feel that doing so is important and lends to a better quality of life. Here’s what those items look like.

1. Running shoes

My family is a family of runners. Even my 8-year-old twins run multiple miles a week. Since I’ve been a runner for a long time, I know how important it is to not only have quality shoes, but to replace your shoes often. And I won’t hesitate to do that, even if it means higher bills.

2. A good laptop

As a writer, the last thing I can afford to do is get slowed down by a slow laptop with limited capacity and memory. I’m more than willing to shell out extra money for a business-class laptop that lets me get my work done with ease. This isn’t to say that I need the most expensive laptop at the store. But I won’t settle for a $500 laptop, either, if I need capabilities beyond what it offers.

3. Healthy food

As someone who’s been known to impulse-buy Costco cheesecakes, I can’t exactly claim to uphold the healthiest food habits at home. But part of the reason I feel that it’s okay to indulge in desserts like that is because I, along with my family, eat my share of vegetables and healthy meals, like lean proteins. These items tend to drive my grocery bills way up. But I’m willing to deal with higher credit card bills if it allows me to feed my family the way I want to.

It’s all about setting priorities

The things in my life that I’m willing to spend extra money on are things that are very important to me. And that’s why I’ll gladly spend $160 at the supermarket on a week’s worth of food, but I generally won’t spend more than $8 on a t-shirt or pair of kids’ pants.

Even if you have lofty savings goals, you should know that it’s okay to spend extra money on the things you consider a priority. You just can’t spend extra on everything you buy. But if you limit your higher spending to a few key items that enhance your quality of life, you’ll likely find that it doesn’t hurt your finances at all.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Certain types of credit cards aren’t always easy to use internationally. Find out why you should always have a Visa or Mastercard when traveling abroad. 

Summer is almost here, and it’s a popular time to travel abroad. There’s usually a lot of planning that goes into an international vacation, including setting up your flights, booking places to stay, and scheduling activities. But there’s also an important step that people often miss.

If you’re going to be traveling abroad this summer, having the right type of credit card is a must. Because even though the vast majority of U.S. stores accept the same types of cards, that isn’t the case internationally.

You might have trouble using American Express and Discover cards

Every credit card has a payment network that processes transactions made with that card. The name of the payment network is printed on the card, and in the United States, the networks are:

VisaMastercardAmerican ExpressDiscover

Some merchants don’t accept credit cards from every payment network. For example, a merchant may accept Visa and Mastercard, but not American Express or Discover.

Visa and Mastercard have traditionally been the most widely accepted payment networks, while American Express and Discover have lagged behind in acceptance rates. That’s not the case in the United States anymore, as 99% of U.S. merchants that accept credit cards accept American Express and Discover. So, if a store lets you pay with a credit card, you can most likely use whichever type of card you want.

However, it’s a different story in other countries, where Visa and Mastercard are still far more widely accepted. American Express and Discover cards can be hit or miss. Here’s a look at the number of countries and merchants worldwide that accept cards from each payment network:

There’s a sizable difference in how many merchants accept Visa and Mastercard, compared to how many accept American Express and Discover. And that’s almost entirely due to merchant acceptance internationally. Remember that acceptance rates in the United States are now very similar for all four networks.

I live outside the United States and travel often, so I have some firsthand experience with this. With merchants that accept credit cards, I’ve never had trouble using a Visa or a Mastercard. But there have been plenty of times I haven’t been able to use my American Express cards.

What to have in your wallet when you travel abroad

Whenever you travel internationally, bring either a Visa or a Mastercard credit card. If you have any American Express cards or Discover cards you like, you may be able to use them with some merchants. But it’s a good idea to have a Visa or Mastercard as a backup.

Also, make sure to only use credit cards with no foreign transaction fee. Some cards charge an extra fee for foreign transactions, with the standard amount being 3%. There’s no reason you should pay this fee, because there are plenty of cards available that don’t charge it.

No matter where you are, it’s also always wise to carry some cash in the local currency. Paying by credit card is better when you can, since you can earn rewards this way and you can get your money back if anything goes wrong with a purchase. Not all businesses accept credit cards, though, so having cash is important just in case.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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