Providing financial assistance can be tricky, particularly when it involves close friends and family members. While the instinct to offer financial help for those we care about is admirable, it should be met with caution as it can often lead to bad outcomes. If a family member or friend is seeking financial assistance, below are some things to think about before committing to help.
Understand Their Financial Problems
If you are considering financial assistance, I would recommend gaining a basic understanding of what led to their financial difficulty in the first place. While this can be difficult as it requires some uncomfortable intrusion, remember they are likely coming to you as a last resort after maxing out credit cards, seeking loans from banks, etc. You are their lifeline and have a right to know the issues they are facing when seeking your help. Some common cases could be an unexpected job loss, divorce, poor budgeting, substance abuse issues, etc. There are undoubtedly many more, but by understanding the origins of the problem, you will be better equipped to help.
Money is Not Always the Best Solution
While a person may be asking for monetary help, money may not be the best solution to their problem. In my experience, most monetary issues result from poor planning/budgeting, bad habits, or bad relationships. If this is your friend/family member, then direct financial aid may do more harm than good. In this situation, it may make more sense to offer budgetary assistance, pay for counseling in the case of financial or personal issues, or pay bills directly instead of giving straight cash. Providing a long-term solution goes beyond the immediate quick fix monetary gift or loan.
Be Clear About Expectations
If you decide to offer monetary assistance, clearly communicate what your expectations are in return for the help. This step is crucial if you want to maintain a stable long-term relationship with this person! Is the help an outright gift or a loan with a repayment expectation? If a gift, do not expect repayment. If a loan, be sure to formalize it in writing and link it to collateral if possible. By having the writing arrangement, you will emphasize its seriousness and eliminate any ambiguity about its terms/expectations and remove personal aspects.
Whether you provide advice or monetary assistance, take any arrangements made seriously. Valued relationships, in addition to money, may be at risk. You can seek the advice of a professional for your specific situation and potential alternatives.
Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.
Fox 6 Talking Points:
- Understand Their Financial Problems
- Money is Not Always the Best Solution
- Be Clear About Expectations
Marshall Clay CFP, JD, is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC -“Welch”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.