YOU BE THE FINANCIAL PLANNER While at some point in your life you may use the services of a financial planner, your personal knowledge should be the foundation for most financial decisions. For each of these situations, determine actions you might recommend. Situation 1: Fran and Ed Blake, ages 43 and 47, have a daughter who is completing her freshman year of college and a son three years younger. Currently they have $34,000 in various savings and investment funds set aside for their children’s education. With the increasing cost of education, they are concerned about whether this amount is adequate. In recent months, Fran’s mother has required extensive medical attention and personal care assistance. Unable to live alone, she is now a resident of a long-term care facility. The cost of this service is $4,600 a month, with annual increases of about 5 percent. While a major portion of the cost is covered by her Social Security and pension, Fran’s mother is unable to cover the entire cost. In addition, the Blakes are concerned about saving for their own retirement. While they have consistently made annual deposits to a retirement fund, current financial demands may force them to access some of that money. Situation 2: “While I knew it might happen someday, I didn’t expect it right now.” This was the reaction of Patrick Hamilton when his company merged with another business and moved its offices to another state, resulting in his losing his job. Patrick does have some flexibility in his short-term finances since he has three months of living expenses in a savings account. However, “three months can go by very quickly,” as Patrick noted. Situation 3: Nina Resendiz, age 23, recently received a $12,000 gift from her aunt. She is considering various uses for these unexpected funds including paying off credit card bills from her last vacation, or setting aside money for a down payment on a house. Or she might invest the money in a tax-deferred retirement account. Another possibility is using the money for technology certification courses to enhance her earning power. Nina also wants to contribute some of the funds to a homeless shelter and a world hunger relief organization. She is overwhelmed by the choices, and comments to herself, “I want to avoid the temptation of wasting the money on impulse items. I want to make sure I use the money on things with lasting value.”
1. In each situation, what are the main financial planning issues that need to be addressed?
2. What additional information would you like to have before recommending actions in each situation? 3. Based on the information provided, along with Exhibit 1–1 and the financial planning process, what actions would you recommend in each situation?
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