Financially Irresponsible Family: How to deal with it

Financially Irresponsible family can be awkward in terms of mixing family and money issues. Whether it’s loaning money to a struggling relative or dealing with irresponsible spending, it can be difficult to manage this. Regardless of how diligent you are about your own good financial choices; these things can seriously disrupt your financial progress.

The “Financially Irresponsible” dilemma for many people in these situations is that they feel as though they must choose between money and family. And that it feels wrong to choose the money side. However, here’s the thing: It is money you have received as a result of your personal hard work and good choices. You would have also made a lot of sacrifices to earn that money. If you had mis-used your earnings, you wouldn’t have that money. But by giving it to someone who will not spend it correctly, you haven’t wasted your money, but your life.

We would all love to be millionaires. But let’s face it, most people never make it that far. Our culture values money and possessions – almost to the extreme. People want to be rich – or at least look like they are rich. Because of this, many people make irresponsible choices when it comes to their finances, and many of them make excuses for it.

With that in mind, here’s how to best help financially irresponsible family members, so you can make the best possible financial decisions right now to help them.

Financially Irresponsible Partners

Unfortunately, many financially responsible people are stuck with financially irresponsible partners. When you start dating someone the furthest thing from your mind is probably their financial habits! In fact, for some, it may not even be a conversation that’s breached until you’ve tied the knot.

Therefore, people often find out too late about their partner’s financial woes. Marriage takes more than just love to make it work and things like finances can sometimes make or break a relationship.

Each partner has an obligation to their partner and their family to be open, honest and responsible when it comes to finances. If one partner isn’t being transparent, there are measures that can minimise or solve the problem. However, these steps demand a commitment from both parties.

Steps to minimise!

Evaluate their Situation. Assess the issues your partner is dealing with. What is the primary struggle financially? Are they prone to overspend constantly? Do they lack financial goals? Whatever the reason, assessing the situation beforehand can help you better understand your partner and where to go from here.

Have a Conversation. Communication with your partner is always recommended. However, try to approach the conversation without blaming and debating. Discuss your concerns with your partner and explain that being financially irresponsible cannot continue. Take the opportunity to try and understand where they’re coming from and why they might have a problem.

Create a Plan. In some cases, if your partner has already done financial damage, you will need to take steps to repair your finances. Sit down together and work to create a plan that will get you both to save, budget and set up long-term financial goals.

Take Control of the Finances. Trying to break a habit of any kind can take time. Therefore, it may be wise for you take over the finances while your partner works through their bad finance habits. This will ensure that any bills for example gets paid so that you don’t get behind.

Get Professional Help. There are moments when you can’t handle things on your own. Depending upon your situation, you may need to enlist the help of a professional. If your finances have spiraled out of control, a financial counsellor can help you take the right steps to get back on the correct path.

Safeguard Yourself

Unfortunately, you can take all these steps and still not make any progress. In such times, it’s important to protect yourself from being financially harmed. On the extreme side, you may consider removing your partner from various bills and set up separate accounts in your name only. Although it’s not an ideal situation, you may not have a choice if your partner continues to you in financial harm. Depending on the situation, it could one which is hard to dig yourself out of. The first step, however, will be effectively communicating with your partner and possibly getting through to them.

Financially Irresponsible Parents

As an adult, you take it upon yourself to deal with your finances. Unfortunately, not all adults do the same thing. And perhaps it’s not a skill that you learned from your parents. In fact, many adults today struggle with the fact that they have financially Irresponsible parents. It can be difficult to help your parents financially if you are struggling with student loans, credit card debt or providing for your own family. However, it is possible to assist your parents without going broke if you make a plan that factors in what they need and your capacity to help.

Ways to help!

Communicate with your parents. Communication is absolutely vital to overcome this challenge. Before your parents retire or face serious financial hardship, have an honest discussion with them about the challenges they’re having or expect to have and the type of and extent of help they need. A financial advisor can help facilitate a conversation about these delicate topics.

Find Non-Financial ways to Help. There are several ways to support your parents without opening your wallet:

  1. Help them downsize – If your parents are finding their current home unaffordable because of its size, it may make sense for them to downsize. Help them run the numbers on how much a move to a smaller home would save them over time to determine whether it’s worth it.
  2. Guide them through a relocation – Volunteer to help your parents identify cities and states with a lower cost of living. You can even offer to help them pack and move to their new home.
  3. Ask them to move in – If your parents can’t afford to live independently anymore, taking in your parents can have a profound positive impact on their finances, often freeing them from a mortgage, rental payments, and associated bills.
  4. Create a budget for them – If your parents are seeking ways to stretch their money further, a simple way to help them financially is to sit down together and draft a basic budget that factors in their income and expenses every month. Look for areas where they can earn more or spend less to live more comfortably.
  5. Help with maintenance or repairs – If your parents need help paying for car or home repairs, and you have the skills to do them, offer to do these repaid for them occasionally.
Avoid the pitfalls of helping

While you may want to do everything in your power to help your parents succeed financially, there are some financial decisions relating to your parents that you should think twice about:

  1. Co-signing on a loan with your parents. If you co-sign a mortgage or other loan on behalf of a parents, you become as responsible for the debt as your parent. If they default on the loan, you’ll have to start repaying the debt, which can make it a risky undertaking.
  2. Adding your name to your parents’ property. If your ageing parents adds you as a co-owner to the current deed on their house, the portion they transfer to you will be treated as a gift that is taxable to them, and if you later sell the property, to you.
  3. Involve Other Family Members. This is a private matter and you shouldn’t involve other family members in the process unless the struggling family member wants to.

The most important thing to remember is that you do not have to help. Sometimes, relationships can become demanding and controlling and negative and those are things you never need in your life, even if it is your parents. Don’t be afraid to walk away from a negative situation.

Financially Irresponsible Adult Children

While every parent aspires to help their children, continuing to give them money to grown children on a regular basis can cripple your own financial situation as you near retirement. If you, like many parents, have an adult child loving at home with you, you’re not alone. There’s a widespread of young adults in our society who are struggling to get off the ground. In many families, this works out fine. The adult child is responsible and contributes to the household while they set themselves up to live independently.

But if your adult child has moved home – or never left – and expects you to take care of their needs, you’ve probably started to feel resentful and frustrated. Many young adults today seem to have the idea that there is a “Bank of Mum and Dad”, so they spend carelessly. This is the child who gets a new tattoo or a new phone, splurges on a fancy part for a vehicle, buys new clothes etc then asks you to pay their rent.

It doesn’t have to be that way! Here are some steps you need to keep in mind as you make financial decisions about your adult children.

Things to keep in mind!
  1. Be specific about your intentions. If your child needs financial help, make sure you clearly tell them what the money is for and whether or not it is a one-time event. If they don’t understand the limits, they may get a false sense of help will ongoing.
  2. Consider a loan instead of a gift. Also specify whether your help is a loan or a gift. Write a contract with a set timeline. How long it will take to be paid back and how frequent the payments will be. The payments can start out small and later increase, as your children hopefully find their footing. Don’t feel guilty about making your child pay you back.
  3. Help them make a budget. Sit down with your adult children and help them make a budget. Look at what money is coming in every month and what is going. See what can be completely cut out or reduced. If they are overspending what they make, devise a budget that is going to work within their parameters. Also make sure they are paying themselves first in a pension too. That will help put them on a path to be financially independent down the road, even while going through these troubling times.
  4. Welcome them home. Instead of giving your kids money towards their rent, consider having them move back in with you. Also, sort out financial parameters, like contributions for rent, food and utilities, and whether you will charge them a flat rate for everything or just ask them to pay for certain items. Also lay out your expectations about the things that would cause conflict.

With thought and clear communication, you can protect your family from the kind of relational damage only money can do.

Final thoughts

The most important step is asking explicitly what help your family member needs to work their way out of their situation. From there you’ll have a better idea of the type of information and assistance they need.

Family and money aren’t always a good mix. But, in tough economic times or when faced with unexpected emergencies, one family member may truly need your financial assistance. Before you commit to helping, be sure to think through what you can and can’t afford to do. Remember, if your own cash resources are limited, there are other effective and creative ways to help your family member.

Leave a Reply

Your email address will not be published. Required fields are marked *