by Julie Jaggernath
Has a family member asked you for financial support? Think twice about an agreement to provide a loved one with money or to co-sign a loan for them. As much as you might care for that person and want them to succeed, you also have to keep your own wellbeing in mind. When it comes to money issues and family, it’s never just about the money – it’s about the relationship, our values and beliefs, along with our behaviours. If you’re not certain about wanting or being able to help them, then backing out as soon as possible can be the best option for everyone.
What to Consider Before Providing Family Financial Help
There are many ways that people provide financial help to family. Parents may allow their young adults to keep living at home during college and after graduation. Children may gift money to parents to help with the bills or a large purchase. No matter what support you’re thinking about giving, first consider your own financial situation. Can you afford to help? Will you need to go into debt to do it? Will it push back your own important goals, such as buying a home or retiring a few year early? Decide if the consequences to you are worth it before committing to what your family member has asked for.
If you’re considering co-signing a debt, keep in mind that this is more complicated than just gifting money. Before signing, you need to be absolutely sure of two things. The first is that you can afford to pay the whole debt if the primary borrower is unable to meet their financial obligations. A common misconception is that co-signers are only responsible for part of the debt; the fact is that co-signers are 100% responsible for 100% of the debt. So if your family member stops making payments, then you have to start paying to keep the loan and your credit rating in good standing. There are also other dangers to consider before co-signing a loan for someone and the lender may require you to seek legal advice before doing so. The second thing to be sure of is that even if you have to cover the payments temporarily or permanently, your relationship with your family member will remain intact.
How to Break the News to Your Family Member
If your budget doesn’t allow you to cover the payments or don’t want to risk putting your relationship on the line, it’s best to gracefully decline to provide financial help. The hard part will be explaining this. Sit down with your family member and have an honest conversation with them. It’s important to acknowledge that you want to help. However, explain that after carefully looking at your own finances, you simply cannot afford to give them the money they’re requesting, or to take responsibility for their loan if they become unable to make payments. If you’re able to provide less financial support, or a different kind of support, then share the specifics of that with them.
Regardless of the circumstances, saying no to a loved one who needs help is hard. Be honest, be compassionate, but also be very firm on the decision you’ve made. Your family member’s disappointment is ultimately a small price to pay in comparison to damaging your relationship or jeopardizing your financial health.
How to Help Family Members Move Forward
Even if you cannot commit to giving financial help, that doesn’t mean your family member won’t appreciate your emotional support or any advice you have to offer. Consider helping them make a plan to reach their goal with the resources they have available. If they’re struggling with financial problems like repaying debt and you’re not sure what to do, ask them to contact a local non-profit credit counselling organization. They offer free and confidential appointments, and you can be with them in these appointments as well. A non-profit credit counsellor can help your family member find options to overcome their challenges at no cost to either of you.