This is a guest post from Sarah Gilbert.
My husband and I both grew up in large families, and both of them were poor throughout our childhoods; my parents for beliefs (my dad was a Baptist missionary and a part-time minister for many years) and his because of a fractured family and substance abuse.
In both cases, most of the now-adult children have followed in the paths of their parents. Three of my siblings are engaged in Christian ministry work or some other kind of values-based careers that pay little. Three of his siblings have struggled to maintain a solid financial footing thanks to a fractured family structure or substance problems.
This means that our siblings have needed help, a lot. Sometimes that help is easy to give and pays both ways — I’ve hired my younger sisters to provide very capable and loving child care. We both win. Other times, one of my brothers-in-law comes up with a questionable business idea or one of our siblings runs out of good living arrangements and asks to stay with us “temporarily.” This has almost never worked out financially and has always been very hard to give.
If you haven’t ever had to consider whether or not to help out a family member or friend, you’re either a member of a very small family or so blessed with good people in your life, you’re probably not looking for advice on the internet. In other words: most of us get these questions. Thanks to a lot of my bad experience, I’m ready to help you navigate these questions.
Family financial help typically falls along one of three lines:
- I have a desperate terrible emergency and I need money now!
- I am kind of broke and I would like to live with you (borrow your car, have you give me a line on your cell plan, etc.)
- I need you to loan me money / invest in my venture / help me with school.
Rule 1. Don’t think of it as a loan.
For situation 1, my advice is very succinct: only help if you can afford to never get the money back. Those family members suffering desperate, terrible emergencies are often suffering such emergencies on a regular basis. I have no wish to impugn the character of such folk; they are often lovely people who make bad choices, or perhaps have been dealt a bad hand in life.
An in-law who I will refer to as “Eleanor” seems to have a habit of getting into close relationships (as landlord, employer, or both) with people who turn out to have been not entirely trustworthy, or mentally disturbed, or criminal, or all of them. I do not expect that she will somehow rid herself of this tendency and enter a period of financial stability.
Also, if your dear friend or sibling or parent is in such a deep problem — and especially if you think of it as a one-time problem — what a load off their stresses and your future relationship it will be for them not to owe you. Make it clear it’s one-time, and make it clear that you don’t expect it to be repaid.
Rule 2. There is no such thing as “free help” and there is also no such thing as “you’ll never know I was here”.
Let’s say your sibling moves in to your basement with his significant other. Let’s say you have been promised that they will help with babysitting and housecleaning and pay you a little rent. “You won’t even know we’re here!” they’ll say. Fantastic! But…
You’ll know they were here. And the babysitting will be free, so it will be on their terms (enter Rated R movies and trips around the block to pick flowers from your neighbor’s garden “for you”). The housecleaning will be up to their standards and, as you’re not married to them, you’ll feel less comfortable specifying that you NEVER want them to use bleach, because you’re allergic, or that you really don’t like the smell of their preferred air freshener.
Maybe you’re better at setting limits and having confrontations than I am. But trust me that either your budget or your relationship will suffer. Last time an in-law lived with us, the first month’s power bill was more than twice our normal bill (when theoretically our power needs hadn’t increased much). Even though I subsequently confronted them, I was torn between asking they pay back the $120 and preferring they save money to get into a new living arrangement ASAP.
Same thing goes for just about anything: a borrowed car may be returned without an accident, but with the stereo turned all the way up and the seat adjusted funny and the distinct smell of someone else’s hygiene decisions lingering in the air. Or maybe (as another family member discovered last month) you’ll have a red-light-camera ticket in the mail. Loan if you must, help if you can’t say ‘no, ‘ but loan with the knowledge that it will not be invisible and will never be easy.
Oh, and regarding cell phone plans: very dangerous.
Rule 3. Personal loans for businesses or education should be assessed like any other lending decision.
I have seen this work. I have seen parents or uncles give money to an adult child and seen the business thrive and the loan paid back. But I think we all know that this also a good way to lose money. As they say, “the best way to make a small fortune in the restaurant business is to start with a big fortune.”
If your family member wants to start a small business and doesn’t have credit to get a business loan (few do, with restrictions banks have these days), have them write a business plan.
If you don’t have the knowledge to assess their plan, have someone else you trust do so. Put severe restrictions on how the money can be used and make sure you trust the business partners involved. Don’t be the only funder if it’s a large amount of money — make sure others, too, have some stake in the business.
Every time I think of parent investment in business I think of my boss at a sweet little basement pub in my junior year at college. His dad financed it, and he did a lot right, but he hired an alcoholic chef and spent a bunch of his revenues on cocaine. My $23 wages check (with the early 90s $2.13-an-hour waitress wages and taxes) bounced. Twice. The sweet pub was something else my senior year.
Which brings me to my final point:
Rule 4. Give love and support but don’t send good money after bad.
Lots of us have friends and family members who struggle with addiction, or are simply the victims of criminally bad judgment, and we know this. And lots of us have probably already given money to these dear people. We’ve certainly been asked.
But once we’ve determined that our money is, indeed, going down the black hole of addiction or terrible decisions, don’t give more. If the choice is bankruptcy or more money, bankruptcy is probably the right choice. If the choice is foreclosure or more money, let it be foreclosure, and help them get set up in a very low-cost new apartment.
I am not advising to never help people who are alcoholic or predisposed to buying homes they can’t afford or who are perennially falling for people who swindle them. But do not help them again because you helped them the first time and they’re now in the same exact problem again and you don’t want your previous help to be a complete loss. You know what will happen.