Beating Broke

Personal Finance from the Broke Perspective

Are Insurance Companies Just Big Ponzi Schemes?

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It struck me the other night, as I was reading a book and came upon a section on Ponzi schemes, that insurance companies are borderline Ponzi’s themselves.

Ponzi Schemes

What Is a Ponzi Scheme?

The definition of a Ponzi scheme is when the broker/banker/agent takes money and promises an unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Ponzi schemes are named after Charles Ponzi, an Italian immigrant who was the original Ponzi schemer.  In recent years, the most famous (and longest lasting) Ponzi scheme is attributed to Bernie Madoff.  Madoff’s Ponzi scheme is thought to have begun in the late 1980s or early 1990s and didn’t end until 2008 when he was arrested.  This Ponzi scheme cheated nearly 5,000 customers out of $60+ billion dollars.

Insurance Companies Are Set Up Like Ponzi Schemes

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.

With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.

In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  And, unfortunately, you often have to fight for the payment.  Health care coverage may be denied if the health insurance company doesn’t find the treatment worthy of the expense or if they deem it experimental.  Likewise, if you file a home insurance claim too many times, the insurance company can choose to drop you as a customer.

Ponzi schemes
Photo by Daniel Tausis on Unsplash

For the most part, insurance companies are in charge and decide when to cut customers.  But what would happen if the premium payers dried up?  It would certainly get more difficult for the insurance companies to pay any claims.

How Insurance Companies Are Different from Ponzi Schemes

Where the key difference lies is that if you stop paying your premiums, the insurance company stops paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”–if it were to happen.

In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.  However, as the years go on with no new insured clients and the current clients age, the insurance company could have difficulty paying claims.

Final Thoughts

Even though insurance companies seem to fit many of the criteria for a Ponzi scheme, no.  insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

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How to Handle Someone Who Gives Too Many Gifts

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First world problems, right?  How can you complain about someone who gives too many gifts?

Believe it or not, that’s something I’ve struggled with during the holiday season.  I have one relative who, simply put, is buying too many gifts for me, my husband and my kids.

Handle Someone Who Gives Too Many Gifts

How to Handle Someone Who Gives Too Many Gifts

If this relative was independently wealthy, that would be one thing, but I know that she’s also trying to save money for some home repairs and a trip of a lifetime to Europe.  I wish she would buy each of us just one gift and put the rest of the money in her vacation fund.

Do you also have problems with someone in your life who buys too many presents?

If so, there are things you can do.  (Though you’ll probably want to implement most of these suggestions AFTER this holiday season.)

 

Set a Gift Giving Limit

Most people buy gifts because they want to be nice, and they want to do something special for you.  However, people can overstep their bounds.  This year between all of my relatives who like to give gifts to our kids, the kids are getting more than enough presents.  Combined with the gifts my husband and I were going to give, my kids were going to have way too many gifts.

I set aside some of the gifts I was going to give; I’ll use them next year.  I also had my mom set aside some of her gifts for birthdays.  I’ve also asked some of the relatives to set a limit of one or two gifts in future years so that our children are not drowning in presents.

Accept and Be Appreciative

Another idea is to simply accept the many gifts and be appreciative.  After all, as Trent Hamm, guest blogger on The Christian Science Monitor, points out, “These gifts are given out of love.”  Hamm, who struggles with his family members giving his kids too many gifts, explains, “People give our kids gifts because they love them so much and it’s their way of expressing it.  For me, telling them  not to do so is akin to saying, ‘Please don’t express your love and caring for our children.’”

Handle Someone Who Gives Too Many Gifts
Photo by Ben White on Unsplash

If someone like a grandparent routinely goes overboard with the gift giving, you can reduce the number of presents that you get your kids and save money.  You can just reap the benefits of saving money, or you can take the cash that you saved by not buying so many gifts and instead give the cash as a present to the prodigious gift giver.  Everything comes full circle this way.

Direct the Giver’s Generosity

I remember when I was little, my mom’s friend wanted to get me a Christmas present.  She got me Green Eggs and Ham since I was a prolific reader, but  I was well beyond that book.  Too often, people try to be generous by giving a present, but the gift they give is not necessarily what the recipient needs or wants.

You can direct the gift giver’s generosity by steering her to a wish list.  You could create it on Amazon, and then you would be able to keep track of what has been bought, and you could also have some say in the plethora of presents coming into your house.

Final Thoughts

Learning how to handle someone who gives too many gifts requires tact and patience.  While the situation may be frustrating now, the time will likely come when that person, especially if it is a grandparent, will be gone, and you’ll wish you had this problem.  Be grateful, and use one of the suggestions above to try to stem the tide of gifts, even if that person isn’t willing to change.

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Do you struggle with well-meaning relatives buying too many gifts?  If so, how do you handle the situation?

 

How to Handle Financially Toxic Parents

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Your parents should provide for you as you grow up, but what happens when they ask you for money?  Should you give money to your parents?  The answer to how to handle financially toxic parents depends on both you and them.

How to Handle Financially Toxic Parents

Reasons Your Financially Toxic Parents May Need Money

There are many reasons your parents may ask you for money.  Some are valid reasons, and others, not so much.

A Job Loss

Sometimes the unexpected happens.  Your parent may find him or herself out of a job and in need of money.  Our neighbor, Rob, worked hard all his life.  Because he married young and he and his wife had children in quick succession, Rob never got to go to college.  He worked as a janitor.  While he and his wife were responsible with their money, they just didn’t have much money.  They couldn’t establish much of an emergency fund because his income just paid the bills and covered the expenses of his seven children.

When Rob was 59, he lost his job.  At that age, he had a difficult time finding a new job.  In this situation, helping your parents out, if you’re financially able, is the right thing to do.

An Unexpected Funeral

How to Handle Financially Toxic Parents
Photo by Rhodi Lopez on Unsplash

If your parents no longer have life insurance and one dies, how does the other pay for the funeral?  Funerals can run upwards on $10,000 or more.  If your surviving parent doesn’t have the money to pay for the service and burial, contributing to this expense can be a nice gesture.

However, it is always better to plan for the future. If your parents don’t have a life insurance plan, talk to them directly. Remember, it’s never too late to have a policy. Burial insurance can be a savior by covering the funeral costs. Burial life insurance is nothing but a permanent whole life policy with small death benefits. Insurance experts also call it final expense insurance, funeral insurance, etc. You will be surprised to know that most of the big companies provide burial insurance for seniors. So, if your parents don’t have a policy yet, inspire them to have one and prepare for the unexpected.

For Younger Siblings

My friend, Joan, became friends with another girl, Leslie, in high school.  Leslie had an unstable home life and eventually moved in with Joan and her family.  When we all graduated high school, Leslie went to college for engineering and also worked full-time to support herself.

At regular intervals, Leslie’s mom, who still had four younger children at home, called Leslie and asked her for money.  For years, Leslie gave money to her mom because she felt guilty.  After all, her stepdad had just left, and her mom had to provide for the younger kids.

However, over time, her mother continued to spend irresponsibly, but Leslie didn’t feel like she could say no because if she did, her younger siblings would do without.  Leslie begrudgingly gave her mom money until all the kids were out of the house.

Bad Money Management Skills

How to Deal with Financially Toxic Parents
Photo by allison christine on Unsplash

Now, I’m on the flip side and am old enough to have friends who have adult children.  One of those “friends” (and I use the term loosely), Heather, continually writes on Facebook about her money troubles.  These posts always appear as thinly veiled requests for money.

In the most recent post, Heather wrote about the financial troubles she and her husband have and went on to say that their 20  year old son, who is working two jobs and taking a full load of college classes, is giving them money to pay for their utilities and gas to and from work.

However, in that same week, Heather posted about going out to eat two different times and having a manicure and pedicure as well as getting her hair highlighted.

Say what?!

Should You Give Your Parents Money?

As an adult, if you find yourself in the awkward position of deciding whether or not to give your financially toxic parents money, there are a few questions you should ask yourself:

Can you afford it?  Do you have the money to give your parents?  Can you loan them money without causing your own financial hardship?

Why do your parents need the money?  Are your parents in a truly tight financial spot because of unemployment, sickness or another issue?  Or, do they have a history of mismanaging money and now, like so many times before, they’re in a bind?

Are they trying to change their situation?  If your parents are facing financial difficulties, are they taking steps to try to improve their situation?  Are they wisely cutting expenses and learning how to manage their money so they won’t be in this position again?  You probably can’t give them advice here because they likely won’t listen, but you can recommend your favorite financial blogs or books to help them get a better handle on how to manage their money.

What does your spouse think?  If your parents are routinely asking for money, your spouse may be annoyed or angry.  After all, you’re giving away money that now can no longer be used for your own retirement fund, household needs, or for your kids.  If your spouse is tired of you giving your parents money, please listen.  The last thing you want to do is make your own marriage unstable to enable your financially toxic parents bad money habits.

Money arguments are the number one cause of divorce.  Giving money to your parents frequently can definitely lead to tension and disagreements in your own marriage.  Is enabling your parents worth it?

Should You Cut Your Parents Off?

If you do decide to lend your parents money, how often can you do so?  You should set boundaries for the limit of your generosity in the beginning.  Leslie, the girl I went to high school with, regularly gave her mother money for eight to ten years.  Then, as her younger siblings grew up and left home, Leslie saw that her mother often caused her own drama and financial woes.

She cut her mom off about 15 years ago, and now she rarely hears from her.

I don’t know how long Heather’s son will lend his parents money, but I hope it’s not for too long.  There’s no reason why a son should be financing his mother’s highlights and pedicures when he himself is working two jobs to pay his way through college.

Finally, if your parent is in dire financial straits due to addiction or gambling, you shouldn’t lend them money.  Using tough love here would be the best advice.

Have your parents ever asked to borrow money for you?  If so, how did you handle it?  

Are you a parent?  If so, have you ever asked to borrow money from your children?

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