I have pictures of my nieces and nephews, and friends babies in my wallet- why would there be any embarrassment or difficult questions as a result of this?
See, if you reach for your wallet to pay for dinner, and your date/business colleague says, "oh, what a cute photo! Is that your kid?," you can just say, "no, that's my nephew," and still beam with pride. I, however, would have to say, "no, that's some kid whose photo I downloaded from Flickr; isn't he adorable?" and the awkward conversation would not end there.