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How to Help Loved Ones Financially

How to Help Loved Ones Financially

Christine Benz:

Hi, I'm Christine Benz for Morningstar. Many financially stable people may wish to help loved ones who are struggling financially. Joining me to discuss what can often be a sticky situation is Michelle Singletary. She's a

Washington Post

columnist, and she's also the author of a new book called

What to Do With Your Money When Crisis Hits.

Michelle, thank you so much for being here.

Michelle Singletary:

Thank you so much for having me.


Let's start with something that you emphasize in the book. And you do cover this topic about how to help loved ones who are struggling financially. One thing you say is to just start with a self-assessment, if you want to help someone else, take a look at your own financial situation and make sure that you are actually equipped to do so. Can you talk about that?


I'm a big believer in "to whom much is given, much is required." But you've got to make sure that your financial house is stable. And the more you have, you might sort of feel like, "Well, of course, I have this extra money, I've got this retirement account..." But you really need to look at what your needs are first. Make sure that you're secure before you give out of your extra. And so it means that you got to know your numbers, you have to understand, for example, if you're older, how much you have allocated for healthcare, long-term care. If you don't have long-term-care insurance, you got to make sure that pot of money is there. And then when you do that, when you've assessed it, and say, "Yeah, I've got some extra," then you start to think about: How can I help my adult children, my grandchildren, extended relatives, siblings?

I know for myself and my family, I've got the good job. And so there is a lot of demand on my salaries and savings from family members. And my husband and I have set up a system by which we help folks. And it is very, I have to say, it's pretty intense. And for a reason. There is a practical reason behind that. Because once your relatives and friends and adult children know that you've got a system in place, they're not going to just come to you with willy-nilly stuff, right? They're going to come with when they really need the money. And that's what you want to hope for.


Let's talk about this system. You wrote in the book that it is important to have a conversation about the person you want to help's financial situation. So you need to get, as you call it, a little bit in their business. Let's talk about that. Because you want to be sure that, actually, you can help and that you're not just putting a band-aid on what is an ER-type situation. Let's talk about how you go through that assessment.


That's such a great question, Christine. Because when you have done well for yourself, most of the time, you do want to help. And that's such a great thing. But you don't want to enable bad behavior. And so one of the things that my husband and I do is we say, "OK, let's look at your financial situation. What got you here?" That doesn't mean that you're not going to help somebody who, say, was reckless, but you do want to make sure that the money that you're going to be giving is going to actually lift them up and, as you say, not just put a band-aid on it.

For an example, one relative came to us and was behind in their mortgage and wanted us to help them catch up. And normally, you know, that's not like we wouldn't do that. But I looked at her financials, and I couldn't see how she was going to keep the house even if we helped her. And so I said to her, "I don't see your way out. You just can't afford this at this mortgage level. And if I give you this money, in a couple months, you're going to be in the exact same place." And that's like throwing good money after bad. And it was a very difficult conversation, a close relative, love her to death, and she cried. I cried a little bit. And you know what ended up happening? She did end up keeping her house--because I said "no." She went back to her mortgage company. She started to work with a HUD-approved housing counselor, and they figured out a way to renegotiate her mortgage toward a more affordable payment.

So that forced her to work the situation out herself to a much better deal than if we had just given her the cash money. And that's what I'm trying to say. And I know it is a difficult conversation to ask somebody to open up their books to you. But if you went to a bank, that's what they're going to do. They're going to ask you, "Let's look at your debts. Let's look at your income." And you need to do that as well because you want to be sure that the money that you're pulling out of your retirement account--hopefully you're not doing that, but maybe your savings--that you're going to make sure that money is going to be well used by the person who needs it.


Speaking of banks, are people who are making extensions of financial help like this better off considering it a gift or a loan? How should I approach this if I'm the giver?


That question comes up all the time. You always, this is a hard-and-fast rule with me and my husband, you always make it a gift from the start. I do not believe in lending money to people for it just creates all kinds of issues. And especially if they can't afford to pay you back. Now you've got feelings hurt, and you don't want to ask for your money, they don't want to talk about it, and you really sever the relationship. So that's why I say that you need to do your assessment first to make sure you're giving out of your extra. And if you give out the extra and you can afford to miss that money, you can afford them, you know, not giving it back.

And so, for example, we did have a relative who was changing jobs, his wife lost her job. And so we helped them with a mortgage payment. And on the memo note, I clearly said, because they kept saying, "We are going to pay you back," even though we told them they didn't have to. And I said on the memo, "This is not a loan." And we never talked about it again, never asked it, and we did the assessment with them. And so we were confident that that this was a one-off thing, that they just needed a little bit of help and a little bit of push in that moment. And so you don't give a loan. Now, if they want to give it back later, you want it back--OK, but you make it crystal clear. And if you cannot afford to lose that money, then that means that you can't afford to lend that money.


Assuming that I've gone through this process and maybe decided that it's not ideal to extend financial help either because it's just a bad situation and my financial help won't really make a dent or maybe I've decided that it's just not good for my own financial wherewithal, can you share any tips on other ways that I might be able to help? Maybe I'm a financially savvy, financially well person, are there any other types of help that I might be able to extend other than just pure financial assistance?


Yeah, and I want to also say that no matter what you and I say, because I think we're on the same page at this, that people are still going to lend money. And in the book, we walk you through, "OK, you're going to be hard-headed? Not going to listen to me? But here's what you do if you do in fact lend. You should write up a contract. It should be clear. You should have regular business meetings with this person, so that you know where they are. And if they find to the point where they can't give it back on the schedule, then you renegotiate it, things like that.

Now, how do you else help? You might be able to help in smaller ways, like we've had instances where we've paid people's utility bills, or I make sure that I keep a resource list. Like in the book, there's a bunch of resources, including Morningstar, because you guys do such a great job of helping people do their retirement accounts, and so I send them right to you about your articles. And so that's one way you can help people: to give them the information that you had to get you in the good financial position that you are. And I keep a file of resources like Morningstar,, And I say "Go here. Read these things so that while you're trying to struggle to get your life together, you have better information, so you don't come back here again." And so again, you can find little ways to help them pay their utility bills, maybe pay their cell phone bill, things that you can manage.

And ultimately, you might actually ask them to come live with you. And I know that's a big thing. But you can see this great big bookcase behind me. My husband and I purposely built a home with extra space, because we always wanted to have a space for people in our family who needed a place to land. So of all the years we've been married and we've had a home, I would say probably half of the time, we've had someone live with us at one point or another. Sometimes short-term, couple of months, sometimes, in the case of a relative, for three years. And we have a plan, we sit down with them, we go over their financials. So it isn't the goal to just move in here and we just sort of figure it out. We have a plan set in place. And I truly believe that, especially in the economy that we've had because of COVID and the pandemic because guess what? This is going to be over and another crisis will happen. And so you want to prepare--I believe, if you have space and space in your life, if you can't give them money, that you give them a place that they can live. And multiple-generation homes--I'm a big believer in sharing your space as a way to help other people when they get stuck financially.


You've talked a lot about your personal experience with giving and helping family members. I'm wondering if you can share a little bit more about how you and your husband have incorporated this into your budget because you've told me that you have incorporated ongoing assistance to family members into your budget. How did you do that, and when did you start doing that? And maybe you can just talk a little bit about that--how it's really a way of life for you.


It is definitely a way of life. It's something I learned from my grandmother. My grandmother Big Mamma took me--took a set of her grandchildren in, my siblings. It was five of us. My sister was 8, I was 4, a sister was 3, and twin brothers who were just about 2 years old. And so I learned from her about giving back. And so from the time I got out of college, in fact, I was taking care of my disabled brother, and I took care of him until he passed away at age 32. So, at about 22, I had a 20-year-old brother, who I was financially responsible for. And then after that, you know, my grandmother when she became ill, my grandfather when he got lung cancer, I helped take care of him. And currently, my godmother, who is on a fixed income, just living off of Social Security. My husband and I send her money every month for all her medical co-pays so she doesn't have to worry about that. And it's built into our budget. So every month it's part of our mortgage, and our tithes and our savings and retirement and kids' college fund. It's the money that we send to her every month, and we pay it just like you pay your bills.

And then we also have created what we call a "family and friends" bank account, where we designate a bank account. When we have extra money, we put it in there so that when people in our family are in need, that's what we pull it from, but we got rules. We help with college. We help with a down payment on a home. We help if you've lost your job to no fault of your own and you're trying to get by.

And many people who are listening are probably doing really well for themselves. And I just would encourage you to create a system so that you can help your adult children and your grandchildren. And here's what you shouldn't do. Because you're in a position, probably you've done well for yourself, you've got a really nice retirement account, you've got a savings, an emergency fund, you probably paid your house off, you're doing well. If you're a Morningstar regular, you've done all the things that you're supposed to do. What you don't do, however, is teach that to your adult children and your grandchildren. Time and time again, I find the generation who did well didn't really pass that knowledge to their children or they overindulge them. I mean, you're the grandparent paying for the private school for your grandchildren when your adult children are living way above their means. That's not helping them. You've worked so hard to do what you did, and you're not adequately passing that on, that financial legacy to your adult children and grandchildren. And I quite frankly think that is a shame. I want you to be generous but not so much so that you enable them that they can't get to where you are. They don't have money to save for their retirement fund or their kid's college fund because you are enabling them and you aren't saying no when you should say no.

Benz: Michelle, it’s always great to hear from you. I’m always inspired by talking to you. Congratulations on the book. Thank you so much for being here. Singletary: Thank you so much. Benz: Thanks for watching. I’m Christine Benz for Morningstar.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

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