How to Give Money to Family Members Without Making it Awkward
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It’s a familiar worry: is everyone in my family financially provided for? Is there anything I can do for them?
Data backs up the concern that many families share: An AARP study found over 40% of middle-aged adults expected to give their parents some financial help in 2020. More than half also said they supported their adult children to some extent.
Wealth advisor Sefa Mawuli sees this first-hand. Her clients are high-powered professionals working in tech and other industries; but some of them grew up with much less. In many cases, “they've had the benefit of a good education, and now have good high paying jobs. But many of them do not come from wealth themselves,” Mawuli of Citrine Capital in Washington, D.C. says.
Her clients feel like they need to help family members financially — and wonder whether they can afford to do so. “It’s very, very common,” Mawuli says.
Some experts suggest setting up an emergency fund specifically to support your aging parents. Others say covering regular expenses like an electric bill is the simplest way to offer support for a family member in need. No matter how you decide how to do it, your goal should be to get ahead of any emergencies and be proactive instead of reactive.
Here’s how you can plan in advance to provide financial support to your loved ones in a crisis or on a regular basis.
How to tell if you can afford to help family members
A recent study from the Employee Benefit Research Institute (EBRI) found many Americans rank helping family members financially as a higher priority than saving for their own retirement.
Factors like socioeconomic status and culture also come into play. Nearly half of Hispanic workers and retirees surveyed said it was more important to help family and friends, and those with incomes under $35,000 per year overall were more likely than those making more money to prioritize helping family and friends over retirement savings.
However, experts warn that putting the financial well-being of others ahead of your own can backfire. “A broke person can’t help another broke person,” says Maria Melchor, founder of the Instagram account FirstGenLiving, where she gives personal finance advice. Melchor doesn’t mean that in a harsh way. She’s speaking from her own experience negotiating the best way to support her parents, who she came to the U.S. with from Mexico when she was a child.
There’s a pull between her and her parents’ home country’s culture that really values helping family out, and the very individualistic mindset that’s predominant in the U.S., says Melchor, who also has a business helping clients with budgeting and finances. Most of her clients are first-generation immigrants or people who are the first in their family to graduate from college.
“And so really, this conversation about supporting loved ones has to do with navigating that, with kind of balancing some of your generational expectations with your own pursuit of individual financial stability and control,” she says. That balancing act isn’t easy. “It is a really personal decision to find out how you’re going to be able to support somebody financially,” she adds.
Once you’ve covered your own expenses — including building up your own emergency savings fund of at least three months' worth of expenses — see how much money you have left over and decide how you can help. There are a lot of ways you can give support, from helping with bills to acting as an informal line of credit. But only use money that you can afford to give away, and avoid taking on debt for another person.
How to start helping a loved one with finances
Melchor uses a spectrum, based on how comfortable you are with talking about money with the person you’re looking to support. One end of the spectrum is what she calls a more “hands-off approach,” where you determine how much money you can afford to give and then set that money aside without talking with your loved ones about it in advance.
“So okay, I looked at my finances, I can actually afford to either give now $200 every month, or to put away $200 every month in our family emergency fund,” Melchor says as an example. “And that is the extent of how much I can offer to help others either now, or if or when they come to me.”
The other end of the spectrum is having a conversation with your mom, dad, son, sibling or other relative where you ask them what they need help with and come up with a plan together. Maybe this results in you consistently paying a bill for them that they were struggling to make. Mawuli actually recommends you meet with a financial advisor — here’s how to find a trustworthy one — for this chat. She says it can help to have an objective third-party present when the inevitable hard feelings show up.
Joy Liu, a trainer at The Financial Gym, says if you’re giving a family member large sums of money, check in every few months to reevaluate the amount. “I've talked to [clients] about… building something to where we can reevaluate on every six months or a yearly basis to see, ‘How is this going? Do you still need the support? Is this sufficient support? Can we pull back?’” she says.
As a creative solution, Liu’s clients have set up shared accounts that they allow their loved ones to pull from whenever they need cash to help them meet expenses. “That way, we don't have to have a weird conversation about it — it's there," she says.
“In reality, people are financially interdependent on one another. And that's not a bad thing,” says Liu. “I think we can all embrace that a little bit more. It can help us to step out of some of this toxic capitalism and individualism that drives a lot of financial scarcity.”
Other ways to help
If you’re not able to help others financially yet, that’s also ok. Working on your own financial well-being is important, too. Securing your own emergency savings and getting on track for retirement will actually help your family in the long run, setting you up to give more if and when you can afford it and helping to break the cycle of scarcity.
There are plenty of other ways to help a family member out even if you can’t afford to give cash yet, Mawuli says. If you have space in your home, you can consider allowing your parents to move in. With the sky-high costs of child care, grandparents could help you save money if they’re willing to babysit for free. “And then you can also in turn help by supporting their ongoing living expenses,” Mawuli says.
Sharing resources and information is also incredibly valuable. Don’t be patronizing toward a family member who lacks financial knowledge. That’s a lesson Melchor has had to learn with her own family.
Telling her parents what they need to do with their money hasn’t felt good. “What feels better is being like, ‘Hey, this is what I'm doing [with my money]. What do you guys think? Would you want to do something like this?’” she says. “Like, ‘I started investing? Do you guys invest? No? Oh, I see. Do you want to learn? I can teach you.’ I think that that's generally felt much healthier.”
Correction: A previous version of this story misstated the name of the firm where Sefa Mawuli works. It is Citrine Capital not Citrine Capital Wealth Advisors.
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