Are You the Family Bank?
Almost every family has one: the person everyone calls when money is tight and they need a helping hand. The more financially responsible you are, the more likely you may be considered “the family bank,” according to a 2013 study conducted by Merrill Lynch in partnership with Age Wave. The study found that almost two-thirds of people over age 50 provide financial support to family members, with the overwhelming majority saying they do so because “it is the right thing to do.”
Still, if you are that person, you have probably wished sometimes that you could just say no. Naturally, you will want to be there for your family members when they really need you. But there are times when it makes sense to say a polite no, even to those closest to you. If you are considered “the family bank,” these rules could help.
Four Rules of the Family Bank
1. Start talking about money with your children when they are young. “It is a good idea to schedule regular family meetings to discuss the role that money plays in your family’s life and how your financial decisions reflect your family’s values,” says Michael Liersch, head of Behavioral Finance at Merrill Lynch. “From an early age, allow children to ask questions about your decisions so that they can begin to understand the reasoning behind them and develop sound money management habits of their own.” With that grounding, they may have more realistic expectations if they find themselves in a financial bind and consider asking you for help.
2. Create a budget for giving. Even if you pass on your own sound money management habits, there are bound to be times when relatives will need your help. Yet a recent Family & Retirement survey found that 88% of respondents had not made provisions in their budgets for helping family members financially. “We create budgets for such things as travel or shopping, so why not for family giving?” asks Bill Hunter, director of Personal Retirement Strategy and Solutions at Bank of America Merrill Lynch. Hunter advises that you determine how much you can commit to this purpose without disrupting your retirement saving and your current financial needs.
3. Set firm guidelines for saying yes. Decide in advance under which circumstances you would feel comfortable giving or lending money. “If you are going to make a gift of the money, think about using the occasion as a teaching moment,” Hunter suggests. Without preaching or sounding judgmental, try to explain to your relative what you have done to put yourself in a position to provide this assistance. “If you expect to be paid back, create a loan document. It is important for the recipient to understand your terms.”
4. When you must say no, avoid making it personal. Instead of blaming family members for their financial troubles or questioning their plans, “develop a core philosophy that applies to everyone,” Liersch says. “Explain that this philosophy has helped your family build its wealth and that any loan or gift decisions will be made based on your core values,” such as a strong work ethic or self-sufficiency.
If you dread refusing a request, prepare your reasons beforehand so that you can explain them unemotionally, Liersch suggests. If you cannot afford to give, outline the reasons why. And remember, he adds — even saying no can be a chance to say yes in terms of communicating with your family about money habits and values. As you consider each request, it is always important to remember that gifts or loans to family members will have a direct impact on your retirement planning. An unwritten fifth rule, Hunter says, might be: “Beware of being overly generous, or you could end up needing financial help yourself.”
For more information, contact The Menashe Morley Group in the Rancho Santa Fe office at 858-381-8113.
The Menashe Morley Group, serving the community for over 30 years: David Menashe is a Senior Vice President and Wealth Management Advisor, and Bruce Morley is a First Vice President and Wealth Management Advisor and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated.
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Photo by Andy Templeton