Financial trouble can happen to anyone, at any time in life. Often, people can fall into financial hardship when they experience a sudden job loss, or unexpected expenses. The current COVID-19 pandemic has also left many Canadians struggling financially due to work slowdowns or business closures. Whatever the source of financial hardship, many people turn to family for help. Our natural inclination is to help a family member; after all, it feels like the right thing to do. However, lending (or giving) money to a family member experiencing financial trouble can be tricky. While you may want (or feel obligated) to help, proceed with caution to avoid any negative outcome, such as resentment, arguments or awkward moments at family gatherings.
If a family member approaches you for financial help or if you recognize that a family member is struggling financially, what should you do? If the financial stress is situational (ie: an emergency expense), then a one-time financial loan or cash gift can alleviate the problem. However, if chronic financial trouble seems to plague a particular family member, offering another loan or cash gift would be like “throwing good money after bad”. For these relatives, it might be better to connect them with a financial advisor who can provide sound financial advice to help tackle debt, meet their financial obligations and set financial goals.
If a family member has fallen upon hard times and is struggling financially, here are a few tips that you can use to help them get back on their feet, while managing your own financial health in the process.
Have the money talk
Money talks are uncomfortable and often a sensitive subject to broach. There isn’t a single script for having the money talk because every situation is different. When people are struggling financially, they tend to isolate themselves, feel overwhelmed, stressed and embarrassed. It may take a little coaxing, but you will need to understand the details before offering any type of financial support. Approach the subject discreetly and keep the financial information they share with you in strict confidence. It’s important to empathize and show support without judgement.
Evaluate your own financial situation
Before offering a struggling family member a loan or giving them a cash gift, it’s essential to ensure that you don’t put your own financial security at risk. That means reviewing your monthly expenses, other financial obligations and financial goals. If lending money to a family member will put a strain on your finances, it’s probably not a good idea. However, if you have squirreled away a substantial savings account, lending (or gifting) the money might be doable. Figure out how much money you can reasonably afford to give or lend before making a commitment. Consider the implications associated with not having the money in your account. Will plans be delayed? When you know your own financial situation, you have a clearer understanding of the type of financial assistance you can comfortably afford to provide.
Determine the type of financial assistance to extend
The type of financial assistance you do provide will depend on several factors, including your own financial situation and the amount of financial relief needed. In some cases, giving a cash gift can address a temporary financial crisis, such as an unexpected expense or an emergency. In other cases, especially when the financial assistance needed is substantial, you might consider extending a personal loan or co-signing a bank loan. When considering any type of loan, be sure to document the loan terms, including any repayment schedules in writing and have the family member sign it. If you agree to co-sign a bank loan, you will be legally bound to repay the loan if your favourite uncle defaults on payments. Co-signing a loan will also impact your ability to obtain credit until the loan is paid in full.
Provide non-monetary help
If your own financial situation excludes providing monetary assistance, there are non-monetary options that you can offer to help relieve their financial troubles. Give gift certificates, pay for a week’s groceries, offer to babysit the kids or pick them up after school. You could invite them to dinner or simply offer to be their financial accountability partner to help keep spending in check. Offer to help them spruce up their resume, search for employment opportunities, give them a job (if you are a business owner), or recommend them for a job opening. In times of financial stress, every little bit helps.
Point them to financial resources
In some cases, a family member’s financial problems may be too big for you to handle. In those situations, the best thing you can do is point them to the right financial resource, like a financial advisor. These knowledgeable professionals are a valuable resource for family members struggling with financial burdens. Financial advisors can help them develop a budget, set up a debt repayment plan and can recommend other financial resources to aid in their financial recovery. Vexxit can be a great support to help match them with a financial advisor catered to their specific situation. It’s a free service and helps people find their perfect professional match.
It's never easy to see a loved one struggle with finances, whether due to an unforeseen circumstance, an unexpected pandemic or from repeatedly making bad financial decisions. If you can help (and you are willing), help without jeopardizing your own financial security. If you are unable to help a family member deal with their financial crisis, you shouldn’t feel obligated to provide financial assistance, nor should you feel uncomfortable about saying “no”.