What You Should Consider Before Supporting a Family Member Financially

Helping Family Members Financially

Families are comprised of people with very different personalities, values and financial habits. There may be high earners, low earners and no earners – and even those who are currently financially comfortable can hit hard times and need help with their finances.

According to recent research commissioned by Ameriprise Financial*, more often than not, family members – especially those that are part of the sandwich generation – oblige when a family member is short on cash. Of 1,000 baby boomers surveyed, more than half (58%) report assisting their aging parents in some way, and most (93%) report providing financial support to their adult children.

Helping family is admirable, but boomers may be failing recognize is the impact this support can have on their own retirement security. Only one-in-ten (10%) admit that helping their parents has slowed down their retirement savings; one-third (34%) feel the same about the support they’ve provided their adult children. 

It can be difficult to turn down a family member who needs support, but before you say “yes,” think carefully about your ability and willingness to provide financial support.

Want vs. Need

When it comes to living expenses, there is an important difference between a true need and a perceived need. If you are hesitant to help, consider how critical the request really is. Ensuring that a family member can make their rent payment or buy groceries is critical – but helping them afford a nice spring break or pay off a credit card debt may not be a necessity. If the expense isn’t a basic need, or if you’ve assisted with the same expense in the past, ask yourself if you are enabling irresponsible financial behavior.

Loan vs. Gift

Often family members who ask for financial help expect to be able to pay you back, but unfortunately these good intentions don’t always materialize. Consider whether your family member’s circumstances or past behavior indicate that they’ll actually be able to repay you. Also ask yourself whether you’ll be okay – financially and emotionally – if they don’t. When you come to a conclusion, be sure to clarify with the recipient if the money is a loan or a gift, and decide if you will charge interest on the loan and if you’re willing to continue providing financial support in the future.

Expectations vs. Reality

It can be easy to say “yes” to a request for financial help, only to have mixed emotions down the road. Consider your own feelings and ask yourself if you’ll resent your decision – or your family member – in the future. Are you expecting the person to respond in a certain way, such as with appreciation or reciprocity? Are you doing it to feel needed or simply following a parental instinct? If your expectations aren’t met, will you be disappointed? If so, it may be better to say “no” than risk damaging your relationship.

The most important question to ask yourself is, “How will this affect my own financial well-being?” It’s crucial to take a look at your short- and long-term goals and determine if you can really afford to help. It’s natural to want to provide support, but don’t let a struggling family member jeopardize your own financial security, especially if you’re approaching retirement. By prioritizing your own financial goals and stability, you may even have the ability to comfortably help family members in the future. 

Making financial decisions can be difficult – and communicating about finances can be even more challenging when you have a family member in need. Consider working with a financial advisor who can help you set goals, track your progress and include any support you’d like to give to family members into your overall financial plan.

* The Money Across Generations IISM study was commissioned by Ameriprise Financial, Inc. and conducted by telephone by GfK in December 2011 among 1,006 affluent baby boomers (those with $100,000 or more in investable assets); 300 parents of baby boomers; and 300 children of baby boomers at least 18 years old. The margin of error is +/- three percentage points for the affluent boomers segment and +/- six percentage points for the parents and children of boomers segments. 

Paul J. Fragala, CFP, CIMA, is a Financial Advisor with Ameriprise Financial Services, Inc. in Andover, MA.  He specializes in fee-based financial planning and asset management strategies and has been in practice for 18 years. To contact him: www.paulfragala.com, 76 Main St., Andover, MA, (978)-474-9900.

Advisor is licensed/registered to do business with U.S. residents only in the states of MA, PA, MD, AZ, RI, FL, TX, DC, NY, SD, ME, CA, IA, OH, IL, NH, MI, NJ, NM, NC, VT, ND.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

© 2012 Ameriprise Financial, Inc. All rights reserved.                                                                                                    File # 136533

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