Skill Level Intermediate
- When a loved one is in financial trouble, it's natural to want to help. But we've all heard horror stories about how that help as gone awry, causing hurt feelings, resentment, maybe even a complete break. So how can we navigate this very thorny situation? Hopefully, with our loved one back on firm financial ground and a relationship with them in tact. Follow these four tips. One, don't rush into a specific commitment. If a loved one asks for a loan or if you pick up on their financial distress and offer to help, make sure that you get the facts of the situation first.
Important facts include whether this is a one-time or ongoing issue, how the issue came to be, and if the underlying cause has been resolved. Think carefully before getting financial entangled in a problem that doesn't yet have a clear course of action to resolve it. We also want to clearly assess the extend of our own ability to help. We may not have either the means or inclination to totally rescue our loved one from their trouble, and it's critical that we assess the circumstances and boundaries of what we're prepared to do.
This can be murky because we need to differentiation between being emotionally supportive and the practical terms of our financial support. To get the space to figure this out, tell your loved one that you need to look at your accounts or talk to your partner before you can commit to a plan. Next, consider how a loan may impact the relationship dynamics between you and your loved one. Is this an egalitarian relationship, like siblings or friends, or hierarchical, like parent and child. There is an inherent power dynamic to financial help and we wanna be cognizant of that, perhaps even addressing it outright.
For example, I've given this some thought, loved one, and I'd like to offer to help financially while you are out of work. I know it can be complicated for family members to loan each other money. My worry is that while this might help with your bills in the short term, it might also cause awkward feelings between us. I hope that we can promise to just be honest with each other and talk it through each step of the way. Third, keep it private. This is no one's business except the both of you and your respective partners if you have them.
It is very likely to cause resentment and conflict if word gets out. It might be seen as showboating by you. It could be embarrassing for your loved one. And others may be annoyed that you didn't help them in their time of need. There are too many ways for this to go wrong, so I will say it again. Keep it private. Finally, before you lend, consider making a gift of your financial assistance instead. When a financial institution lends money, there's usually an assessment process before a loan is offered and repayment terms that are accepted before a loan is received.
When we make personal loans, we don't usually have anywhere near that level of structure. We can choose to take on a little more rigor. Drop a term sheet, sign an agreement, but that may seem out of character with the spirit of love and support. The fact is, if we don't know how or when a loan might be repaid, the potential for conflict is high. This is especially true when the lending party starts to judge the choices of the lendee, like maybe they should just take a job outside their field or not buy a new iPhone until they pay you back. If you can afford it, make it a gift.
It's much simpler. By following these four tips, you can helped your loved one get back on their feet and keep the peace between you.