by Jude Boudreaux, CFP®, Sr. Financial Planner
Helping close or extended family with money is common for many parents or financially successful individuals. You might be happy to help out or you may see it as a burden. Either way, if you decide to help family with your wealth, it’s important to be crystal clear about the terms. As Brene Brown says “Clear is Kind, Unclear is Unkind” and I’ve found this to have a huge impact across my life. Just like the way “Clean your room” isn’t as effective as “Make your bed, put your laundry away, and pick up any toys from the floor”, “We’d be glad to help you out” isn’t as effective as a clear statement. Below are three steps to help when your family asks for money.
Step 1: Be Clear About Your Agreement
It’s easy to just say ‘oh don’t worry about it, pay me back whenever” because it’s the comfortable thing to say. A simple statement along the lines of “We can give you $5,000 so you can move into a new situation, but that’s all we can offer” or “We are glad to support you as you go to college and we will provide you with a monthly amount of $1,000 that we expect you to repay us on a monthly basis after you graduate.” In the future you may find that you don’t need your children or extended family to repay you, however I strongly believe the idea of honoring that agreement is valuable. Even if you take those funds and set them aside in an account for that same child’s future there’s still a lot of value in communicating clearly that ‘as a family, we honor our agreements’.
This step also includes communicating if the agreement changes. Having both you and your loved one live in ambiguity might be easier in some ways but it will create a layer of anxiety around both of you as you continue in an unclear agreement. I’ve seen clients struggle when a gift turns into an expectation, and the worry that causes on the giver and receiver’s sides. If you’re able to help provide a certain amount every year, then share that limit with your loved one and let them know that if things need to change, you’ll give them as much notice as you can.
Step 2: Set a Sharing Budget for Yourself
This is a recommendation I received from another financial planner. She had a client who often gives regularly to her family, set up a separate bucket of funds for sharing, whether that is with family members, charity, or any other intention. This separate amount of cash provides comfort to her so that she can say ‘yes’ to requests she would like to up to that amount, and clearly say ‘no’ to ones that are not comfortable. This also helps her client avoid constantly trying to figure out where her sharing interferes with her ability to meet her own financial goals.
Step 3: Know When You Need to Bring in a Professional
It’s intimidating to ask to meet with a professional counselor or therapist but having a neutral third party who is skilled in communicating can help everybody come to a more positive outcome. They can help you clarify agreements, be certain that everybody gets heard in an emotional and challenging conversation and assist in managing the emotional energy in the room when things get too high for us to maintain our own balance. Your financial planner can help you define the terms of sharing with family members, give you a sounding board for your own questions and concerns, and can help ensure you’re taking care of any technical aspects of financial giving that you may not be aware of. We’ve navigated these waters with other families and are always glad to serve as a guide for the families we have the pleasure of serving.
If you are looking to help a family member financially, contact your TPC planner to help navigate your generosity on clear terms.
Jude Boudreaux, CFP®, is a Partner/Sr. Financial Planner in the Chicago and New Orleans offices of The Planning Center, a fee-only financial planning and wealth management firm. Email him at email@example.com.