Financial Help For Friends and Family

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.

 

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