Recently, I’ve had several opportunities to seriously consider how money impacts the relationships within my family, and it’s made me develop a number of “rules” with which I interact with my family on a financial basis.
The first situation occurred several months ago, when one of my siblings was suddenly unable to take care of his children. My other sibling stepped up to the plate and temporarily adopted the two children, even though he already has three of his own. It turns out that five children between the ages of five and fourteen living in one house with three bedrooms is stretching their finances and their sanity to the limit. As the third sibling, I felt as though I should bear at least some of the financial burden of the situation, so when I overheard news of their dire financial situation, I elected to give them a cash lump sum that would take care of a couple of emergencies.
Later, another relative of mine found himself jobless and nearly homeless. This person called me and asked for a loan so that he could stay afloat for a few months. After giving him some extensive advice, I told him that I would not loan him a single dollar. Unsurprisingly, he hung up on me.
Just recently, a close family friend offered to give me the down payment for a home and also pay any gift taxes on it. He wanted nothing in exchange except that I would keep him on our Christmas card list in perpetuity. Although this individual is in better financial shape than I, he is not on the strongest financial ground himself, so I turned down the gift.
Each of these situations caused me to carefully consider what sort of relationship exists between my financial situation and that of my family members. In each situation, I wound up drawing up a list of positives and negatives before I made my decision, and when I later reflected on all of the positives and negatives as a whole, I realized that my decisions were based on a few fundamental rules. Here are my rules for dealing with financial situations within the family.
Never loan any money to a family member. This creates a relationship that has a financial obligation tied to it. You suddenly go from being a family member or a close friend to being a banker. Any sort of loan defaulting or other issue can do nothing more than damage familial relationships or cause additional hardships. No matter what the situation, you should never loan money within the family.
Never give financial support unless there is a need for it and evidence of rational financial behavior. It was clear that when I gave money to my sibling’s family, they were in need of it. They were doing fine with their finances prior to accepting the additional responsibilities, and it turned out that even though they were trying hard to stay afloat, the additional responsibilities were weighing them down. They were not mis-spending money in any way; they simply had too many mouths to feed and clothe and shelter.
Never give financial support if it is asked for. If you do this, the person you give money to will begin to view your gifts as part of their assets. You want to be able to help them out in emergencies, but you never want to find yourself in a situation where your finances are being relied upon to keep members of your extended family afloat.
Never give financial support unless you can afford it yourself. If you don’t have the money yourself, don’t give the support. Sinking your own ship will not help right someone else’s ship.
Never accept financial support unless you truly need it. Even a gift can change the dynamics of a relationship, and you should be vigilant in this regard. If I had accepted the down payment gift, I would have felt strong obligations to the family friend above and beyond anything else, and this would begin to feel over time as though it were a “purchased” friendship, something I never want to have.
These five rules are the ones I will use in any situation involving finances and my family or close friends.