Dealing With the Family in Your Finances
If you are experiencing success in your financial life, how do you bring others in your family along with you?
It may be a sibling, a parent, or even an adult child who’s supposedly launched. Do you have a responsibility to family members who are struggling?
What if their financial peril is “their fault?”
However you answer these questions, you want to make your choice with the confidence that you’re not putting your own financial security at risk.
If you do choose to engage, there are steps you can take to not only protect your own wealth but perhaps even lead to more durable solutions and less need to assist in the future.
Is it really an emergency?
Let’s start with the nature of the request. Take a beat to understand if the situation they’re presenting is a true “break the glass emergency”, or if there’s a possibility to resolve the problem over a longer timeline.
A car breakdown such that your family member cannot get to work or an eviction notice – is likely one requiring an immediate injection of funds.
On the other hand, tax debt is a great example of a problem that’s certainly very serious but can be resolved in a longer time frame. It’s actually quite simple to set up a tax payment plan with the IRS and state tax officials to resolve tax debts over a period of years.
If student loan payments are causing a shortfall in monthly cash flow explore some options.
Is your family member taking advantage of opportunities to lower their payment through an income-driven repayment plan? These set their payment in accordance with their discretionary income.
Have they asked their loan servicer for a temporary payment pause if they’ve experienced a sudden loss of income?
Even in the “true emergency” category, there could be programs a family member is eligible for of which they are unaware.
As an example, if your family member receives a threat of having their utilities shut off, there’s usually utility payment assistance available.
Explore opportunities in your community to take advantage of emergency assistance programs.
Phone calls from debt collectors are a perfect example of a situation when, to the person receiving the call, the situation feels dire. But it almost certainly is not.
It’s the job of debt collection agencies to make the debtor feel they’re facing a crisis, to motivate them to make a payment quickly. Ask your family member if they are aware of their rights under the Fair Debt Collection Practices Act.
Send cash or…
Being able to distinguish between actual crisis situations requiring an immediate cash response and those circumstances that they can resolve over time will not only reduce the mental stress around the situation (both yours and your family member’s) but also allow the person who’s experiencing the problem to take a more productive role in its resolution.
Unless your family member is facing imminent homelessness or unemployment, see if you can help them find a resolution to the situation in a way that does not involve you Venmo-ing a payment immediately.
In the end, you may indeed decide to send money regardless of the true necessity to do so. But this is a decision you can make carefully, after fully considering the impact on your own finances.
If your family member is receptive, you can also use the knowledge that got you to where you are to help them proactively avoid future crises.
Likely you did not achieve your success without learning a few tricks about managing debt or saving and investing along the way.
But they’re your parents…
All that said, there are times when your family member will need ongoing assistance. This is particularly common for older Americans.
According to the Federal Reserve, among adults 60 years of age or older who receive financial assistance, 60 percent receive this assistance from their children. (I love the recent MassMutual commercial that speaks to this.)
If you believe the need to assist your parents or another loved one will be ongoing, build that right into your budget.
Personally, I like the idea of sending it automatically on a regular schedule, without the family member needing to need to ask each month. The date and amount could be tied to a specific recurring expense, such as rent, a car payment, or an internet bill.
Alternatively, regularly set aside an amount in your own bank account that you’re comfortable with, to draw on when asked.
Rather than reacting impulsively to an emergency, with all of the stress that entails, you’ll have already anticipated the request and have a clear sense of the extent to which you can be helpful.
Well, this is awkward…
The loan versus gift discussion is tricky. My personal view is that when you mix family and money, even if you call it a loan, ultimately it’s a gift.
The last thing you want is to create a situation in which you’re questioning a loved one’s choices of what they did with “your” money. If you need to be paid back, you cannot afford to make the loan. If you do get paid back, that’s a bonus.
Related to this is the difference between “bad choices” and “bad circumstances.”
Is their financial distress their own fault?
Did they make a decision that was unwise?
Possibly, yes. The question is, “Do you care?”
You need to decide before you engage whether the difference between a poor financial or life choice and an unfortunate sequence of events is important to you. Approaching the situation without being clear in your own mind on this is a recipe for breeding resentment.
It’s All About Family
Your goal is to help your family. Yet, you need to do so in a way that protects your own interests while minimizing the emotional stress on all parties.
You can do this by setting and communicating clear parameters of how much you can contribute.
Then anticipate this “expense” in your budget to the extent that you can. And wherever possible, help your family member to explore more lasting solutions to build up their own agency and confidence.
