Family Finances: Are Your Loved Ones a Liability?
Every family seems to have one crazy uncle pushing his pyramid scheme at family dinners, but what happens when those closest to you are struggling with money? Do you open your wallet and help? Most of us don’t have tons of spare funds sitting around to get our siblings or even our parents out of a jam, so what’s the best way to deal with this?
Learn to Talk About Money
One of the most common reasons we may end up helping our family members out of a financial situation is because of the long lasting taboo that we shouldn’t talk about money. Often it feels wrong or embarrassing to discuss something you may know so little about, but by avoiding these conversations, we’re setting ourselves up for future problems on a larger scale. It’s a lot easier to troubleshoot a problem at the beginning before it grows into a massive problem that requires more resources be thrown at fixing it.
Sometimes you may be able to spot financial problems that may be arising and other times they may be well concealed from you. By trying to anticipate any issues, you may be able to initiate a conversation sooner when more alternatives are available to you and your loved one. Remind them that finances are tricky for everyone and the idea that we are expected to understand everything with no formal financial education has led us to this difficult place. They are not unique in their struggles and things will get better with some careful discussion and planning.
Understanding the Money Dynamic
Some people are confident that lending their family member money will work out and that they will eventually be paid back for their generosity. Others know better than to expect to be repaid for their contribution to right the sinking ship that is their relative’s financial situation. This is typically a judgment call based on what you know about your family member and their accountability. If you suspect a loan will never be repaid, then it’s best not to make a loan. You can either distance yourself from giving money and try to help in other ways (by negotiating debt payments, etc.) or your other option is to give the money to your relative without expecting repayment. No matter what path you choose make sure your loved one fully understands what you are giving him or her and what, if anything, is expected in return.
Make a Plan Together
If you’ve gotten to this phase you’re likely exhausted by the emotional burden that has fallen upon your shoulders. You want to help, but other than throwing money at the problem, you’re not sure what else you can do to make things better. Likely, money alone will only temporarily bandage the problem. What you need is a plan to ensure that you and your relative are on the same page and that you understand how and why their financial situation had gotten to this point and what can be done to prevent it from happening again. Do they need help finding a better job, kicking a spending habit, finding a cheaper apartment? What is driving this underlying issue and what can you do to help?
Try to have productive conversations about money that are geared towards making their situation better. Avoid assigning blame, and try to stay as calm as possible. As stressful as this situation may be for you, it’s probably 100 times more stressful and humiliating for your relative, so keeping the conversation as light and helpful as possible is always important. Talk about steps you can take together to make sure things are better moving forward and talk about your relative’s goals and what you can do together to help him or her move toward them. Then develop a step-list of how to best tackle the items that need to be addressed in order to get to those goals. Try to divide the tasks into small manageable chunks so that you can set your family member up for the feeling of success and accomplishment and avoid as many discouraging setbacks as possible.
Seek Help from a Third Party
This all sounds practical in theory, but family dynamics are one of the trickiest areas to navigate. That compounded with the shame and humiliation that can come with financial stigmas can make relationships contentious at best. Only you know whether your relationship can handle the stress of these conversations, but if you suspect that it will be too emotionally charged, it may be time to call in a neutral third party. Take your relative with you to talk to a therapist, trusted advisor, or a financial counselor. Many financial counselors and CPAs are well versed in having these difficult conversations and developing a plan that is more likely to stick since your relative may put more stock in a third party’s opinion especially if he or she is a respected authority in this area. Let this third party take some of the burden off your shoulders and give you the room to walk away from the problem if you need to. At the end of the day your mental sanity and financial security are also important, so it’s important to find a balance that won’t rob you of everything you’ve been working toward.
Written By: Lindsay Dell Cook
Lindsay Dell Cook is a CPA, writer, and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband, and enjoys taking their adorable mutt for walks or reading a good book while buried under a pile of cats.