Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “how should I handle a family member asking for money?” Money is a powerful force. It can empower charities to help people and it can be the motivation for costly lawsuits. Money even has the power to change relationships. If you’re ever approached by family members or even friends that need help financially, here are a few ideas on how to handle the situation so money hopefully doesn’t become a wedge between you.
First, if you care about this person asking for help, it’s likely you want to do something to help them. If you have the financial means to help, but you’re afraid this will change your relationship, tell them frankly and honestly how you feel. If that means you can’t offer them a gift or a loan, there may be other ways to help, such as finding local resources or others that can help.
Second, if you want to help them financially, the ground rules need to be crystal clear. If this is a child asking for money, you might consider it a gift. If you have more than one child and this may stir animosity among their siblings, consider making gifts to each of them or keep your decision confidential. After all, it’s your money and your decision. If their request for money is a loan, put a promissory note in place. A promissory note is a legal document signed by both parties that outlines the terms of the loan, such as the interest rate, payments and duration of the loan. I’m a fan of these notes because it makes the transaction official. If you were to pass away after making a loan to your cousin, that money would still be owed back. If done properly, your heirs would inherit the note and your cousin would owe them the money. This generally works well for loans to children when their siblings may be upset about gifts.
Lastly, if this person is seeking help from you because they’re going through a tough time, in addition to a gift or a loan, consider helping them find a side-job to make more money temporarily. You could also help them with setting up a budget or seeking credit counseling. This may genuinely help them while increasing the chances of being paid back one day and decreasing the chances of being asked for money again.
Mixing money and family means there’s a risk of the relationship changing, but these steps may help you preserve that relationship while also providing real help. If you have a question about this topic or have a question for next month’s video, please send it to TFreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month.
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