Finances: helping a family member in need

Money and family are not always a good mix. Sometimes, they may even form an explosive cocktail, and create feuds that are as long-lasting as they are destructive. Of course this doesn’t mean that you should let down a family member who is in serious financial straits. How should you react? myLIFE reviews the various options available to you.

Many situations can lead to financial difficulties of a greater or lesser extent: job loss, long-term medical treatment, a personal tragedy or poor financial choices. When such situations arise, the first reaction of many people is to turn to their nearest and dearest for help. So what should you do when asked for help? How can you follow your better instincts without putting yourself in the red? How can you avoid misunderstandings, and ensure that your financial aid is put to appropriate use and eventually repaid? You’re right to ask yourself these questions before putting your hand in your pocket!

A purely personal decision

Family solidarity, generosity and human decency are noble motives for taking action and offering help, but emotional blackmail, peer pressure or the fear of disappointing much less so. You should be free to decide on whether or not to help a family member. Take the time to consider your actions, and don’t be swept along in the heat of the moment. You could ask someone you trust for advice, preferably someone who is not involved.

When you take a decision, make sure that you are happy with it, and that it won’t affect your feelings towards the person you are helping.

If you don’t think about it properly before offering to help, you could exacerbate a problem rather than contribute to its permanent solution.

Treat the cause, not just the symptoms

When a family member finds themselves in financial straits, your first reaction may be to give or loan them the money they need without discussions. Although an emergency may sometimes justify such swift action, it is often preferable to first reflect on the causes of the problem rather than the symptoms, i.e. the need for money. If you don’t think about it properly before offering to help, you could exacerbate this problem rather than contribute to its permanent solution.

What has caused this need for money? In many situations, being in financial straits can hide other issues, such as difficulties managing a budget properly, finding a job or getting a promotion, or even a very costly addiction. If this is the case, wiping out a debt will only be a very temporary fix. Depending on the situation, you could provide permanent help:

• • by setting up a meeting with a charitable organisation (e.g. if it’s a case of over-indebtedness), a careers adviser, or a financial adviser you trust, etc.;
  • by offering training that could help with career advancement if you have the necessary skills;
  • by helping your family member get to grips with their finances. This may mean setting up a debt repayment plan initially, and then offering coaching on how to manage a budget. There is a comprehensive “Budget” section available on myLIFE to help you with this. Don’t hesitate to explain how you go about managing your own finances.

Offering your time, support and patience may be more valuable over the long term than a one-off financial boost. Having said all that, let’s now have a look at the financial options available to you to help a family member in need.

Offering your time, support and patience may sometimes be more valuable over the long term than a financial boost.

A gift of money

If a family member has a temporary liquidity problem, you may of course decide to give them the money they need. After all, it’s better to give than to receive. But don’t let your desire to help land you in difficulties. However much money is needed, it is important to be clear about your means and therefore your contribution. If it is a gift, state clearly that you don’t expect to be repaid.

Are you offering a one-off payment, or regular instalments until the problem is solved? Are there any conditions attached to your gift or any future gifts? If these conditions are not met, what will be the consequences? If it’s a gift, have you properly considered any tax and legal issues?

A generous act does you credit, but so does setting its precise terms. If you are clear and can avoid misunderstandings, it will help protect your relationship with the beneficiary of your gift.

A useful tip Want to make sure that your gift is used properly? If you’re worried about how your money will be used, why not simply opt for gift cards for specific stores rather than cash? It’s worth bearing in mind! Another alternative to cash is to offer to take over certain bills or standing orders.

It is key to be very clear on the terms of this loan, to set them down in writing and have the document signed by all parties involved.

A loan of money

If you intend to lend the money needed, here too it is key to be very clear on the terms of this loan, to set them down in writing and have the document signed by all parties involved. Just because you’re family doesn’t mean that you can’t put down clear commitments on paper, specifically:

• • the amount of the loan and how it will be made (in cash or otherwise, in a lump sum or several instalments, etc.);
  • the repayment terms (the timing and level of repayments, whether interest will be applied, etc.);
  • any consequences and penalties if the repayment terms are not met;
  • etc.

Be precise, and don’t confuse an emotional tie with trust. If necessary, consider asking for some guarantees or pledges.

Acting as guarantor

In some situations, a bank will ask for a third-party guarantee before releasing funds. But you should never take this step lightly as it can have enormous consequences. If you provide a joint and several guarantee, it’s quite clear-cut: you undertake to repay in full any debts for which you have provided a guarantee should your family member prove unable to do so. If the guarantee is not joint and several, you can ask the creditor to first seize the assets of the debtor (your family member) or to seek partial repayment from each party.

It is worthwhile thinking twice before providing a guarantee, as on top of the theoretical consequences mentioned, there is the issue of the very real risk you are taking. If a bank requires a guarantee before releasing funds, it is because they have assessed your family member as a risk. That should make you think carefully. Do you truly believe that they will be able to repay you? Are you really willing to take that risk? Once again, the desire to help should not cloud your judgement.

A useful tip Don’t rely on verbal promises and goodwill, ask for a full overview of your family member’s finances (income, expenditure, debts, assets, etc.). If possible, ask them to organise a meeting with themselves and their bank, at which you can put all your questions and gain a proper understanding of your commitment. You can also ask for a copy of all signed documents and the repayment schedule at this meeting. Ask the bank if they can inform you immediately if the borrower misses a repayment.

In some situations, a bank will ask for a third-party guarantee before releasing funds. However, be aware that this can have enormous consequences.

All work deserves payment

A final option could be to raise your family member’s income by employing them. Of course, this must be declared and based on a contract that has been properly drawn up. Depending on their abilities and situation, your family member could help with household chores or your children’s education. There are many opportunities for paid work: housework, odd jobs, gardening, help with homework, childminding, administrative tasks, etc. Some of these qualify as extraordinary costs and may be eligible for tax allowances. Find out more!

Coming to the aid of a family member in need is very much to your credit. It’s up to you to find the best approach for the situation, bearing in mind three key elements: you must be happy with your decision to help, clear on the facts and the terms of any aid provided, and careful not to put yourself in a difficult position.