Chances are good that somewhere in your family tree or circle of friends there’s a person you care about who mishandles their money. They rack up credit card debt, fritter away savings, and undermine their own success with poor financial decision-making.
You’d like to help, but aren’t sure how. If you bail them out, you could enable financial dependence or compromise your own financial security. If you inject yourself into their financial affairs, you might permanently damage the relationship.
Financial intervention with a friend or family member with money problems is a delicate business, indeed.
The key is knowing how — and whether — to come to their aid, experts say.
“Family members can actually do more harm than good when they are trying to help loved ones with money trouble,” said Deborah Price, founder of the Money Coaching Institute in Novato, California. “They may inadvertently shame or disempower them.”
In some cases, Price said, the family and friend support network may be partly responsible for cultivating the financial behavior they seek to change.
She cites one former client who was always encouraged by his wealthy parents to pursue his entrepreneurial vision, receiving large sums of money regularly to invest in his startup businesses. His wife and her family also rallied behind him, no matter how ill-conceived his investments seemed.
“This is a smart, capable guy, but there was a pattern he was unaware of that caused him to make bad choices, and now his family is having to make radical lifestyle changes that nobody wanted to make,” said Price. “For the first time ever, they have to say ‘no’ to him and that makes it very difficult for his family relationships. But they all helped to create the problem.”
The following tips, pulled together from interviews with financial professionals and money coaches, offer possible ways to help your loved one break the cycle of overspending and chart a course for financial stability.
Don’t give money that you want back
David Hays, president of Comprehensive Financial Consultants in Bloomington, Indiana, cautions against Band-Aid solutions, like bailing out your friend or family member, especially if it’s money you need or want back.
“I have loaned money to people and it has worked out never,” said Hays. “Loaning money just creates division and animosity when they don’t pay you back.”
Disagree? Imagine your frustration when your friend shows up with a tan from a recent vacation, or your sibling splurges on a new car when she still hasn’t paid back your loan.
If you do decide to give a one-time gift (not a loan), said Hays, consider offering to pay their electric bill or mortgage bill for a month or two instead of giving cash, which can all too easily be squandered.
To encourage behavior modification, you may also want to make your gift conditional, especially if your friend or family member is a repeat financial offender.
For example, indicate that you are willing to help with a one-time gift only if they complete a financial counseling course, demonstrates an understanding of wants versus needs, or agree to check in with you monthly to ensure that their saving and spending plan remains on track.
Alycia DeGraff, a board member for the Financial Therapy Association, agrees that boundaries are important.
If you are still supporting your adult child five years after they graduated from college and it’s affecting your ability to meet your own financial goals, it’s time for a line in the sand. Indicate, for example, that you will no longer be able to help them pay their bills after their next birthday if they add any further to their credit card debt or rent that apartment they can’t afford. (Learn more: Parents supporting adult children)
“It’s not meant to be a manipulation tool,” said DeGraff. “It’s a warning. You need to make the terms of your support explicit.”
Remember, too, however, that your friend or family member can set limits of their own. “Boundaries are for everyone,” said DeGraff. “If I have a sibling who is being intrusive and asking about my financial situation, I can tell them that I don’t feel comfortable talking about my money with them anymore.”
Ask if they want help
Indeed, no matter how simple the solution may seem or how much you may wish to help, it’s important to recognize that someone who is struggling to manage their money may not want your help.
You won’t get anywhere by butting in uninvited and you might even alienate your friend or family member from your life.
The only way to know if they want your help is to ask, said Hays.
“I’ve asked family and friends, ‘Are you tired of this? Are you willing to make changes?’” he said. “A lot of times people want to make changes, but they don’t know how.”
If the answer is no, respect their privacy and try to remember that this is not your problem to fix. If the answer is yes, indicate that you are there to help and define the capacity in which you are able to assist.
That may include helping them craft a monthly budget, checking in with them regularly, finding them a (free) money management course, or putting them in touch with a financial professional who can provide an independent, third-party analysis. (Need a financial professional? Find one here)
If you do not intend to give monetary gifts or loans, make that clear.
Set them up to succeed
Barry Bigelow, a financial professional with Great Waters Financial in Duluth, Minnesota, said those who habitually struggle to get their finances under control often feel overwhelmed. They can’t break the cycle of money mismanagement or are afraid to admit to their higher-earning friends that they can’t afford to keep up.
The first step to a successful intervention is to help your friend or family member set small, achievable goals that start to change their money mindset. Don’t expect them to establish a budget, pay off debt, and increase their retirement savings all at once.
“You’ll never see people just make wholesale changes,” said Bigelow. “If you’re addicted to living a lifestyle you can’t afford, you’ve got to take a winnable approach.”
Hays agrees, suggesting a good point of entry is to help them find room in their budget (by canceling unused gym memberships, cable TV, or eliminating one dinner out per month) to establish an emergency fund, which empowers them to believe in themselves.
“Most people don’t have an income problem,” said Hays. “They have a spending problem. If you can help them make some small wins, and get through a few months where all the bills are getting paid, they start to believe they can do it.”
Many financial professionals recommend having three to six months’ worth of living expenses set aside in a liquid, interest-bearing account, more if your job security is uncertain. With a financial cushion on hand, we are all less likely to rack up credit card debt during a financial rough patch, which only perpetuates the cycle of debt.
“Help them put together a budget and mentor them along the way,” said Hays. “A lot of times people think of the word ‘budget’ as a restrictive thing, but it’s actually just about making mindful choices of how we want to spend our money on housing, food, and entertainment.”
Be positive. Be encouraging. And help them learn from small mistakes.
Once their emergency fund is in place, Hays said your loved one should start whittling down debt, funneling extra payments toward their highest interest rate credit card first, while continuing to make minimum payments on their remaining balances. Once the first card is paid off, they should apply those extra payments to the next highest interest rate credit card until they’re debt free. Just be sure they don’t incur additional debt as they work to pay down their balances. (Learn more: Credit card debt: The problems, fixes, and prevention)
It is also important to keep track of where your money is going, especially if you struggle with saving and spending. Mobile apps and online software programs make it easy. Mint, for example, provides a weekly summary of where your money went, bill reminders, free credit reports, and alerts if you’ve gone over budget.
As you stage a financial intervention, keep in mind that money behaviors can be difficult to change. Saving and spending patterns are shaped by our upbringing and life experience. Family money problems can have a history.
Those who spend compulsively or blindly invest in unproven business opportunities, despite their track record of financial failure, generally don’t know why they repeat behaviors that compromise their personal, financial, and/or professional success, said Price.
“Money is incredibly symbolic and a metaphor for our deepest internal conflicts,” she said, noting professional intervention from a financial therapist or money coach may be necessary to help your loved one identify and modify their financial behavior.
“Most of these patterns and behaviors are subconsciously driven. If a person doesn’t know what the problem is, they are highly unlikely to be able to solve it on their own,” said Price.
It’s understandable to want to help a friend or family member who struggles with money management. Just be sure your support doesn’t compromise your relationship or your own financial well-being.
To effect meaningful change, you’ll need to set limits, appreciate their boundaries, and help your loved one set small, winnable goals that empower them to take the reins of their own financial future.
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This article was originally published in April 2020. It has been updated.