Bailing out your spendthrift relatives

If your parents or siblings can't manage their money, you might feel obligated to help -- but that shouldn't mean sacrificing your own financial security.

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By Walter Updegrave, Money Magazine senior editor

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

NEW YORK (Money) -- Question: I'm a 27-year-old newlywed in fairly good financial condition. My wife and I make about $70,000 a year, save in a 401(k), expect to pay off our car and school loans in four years and hope to buy a house after that. My problem concerns my parents and siblings. They don't budget or save and have horrible spending habits. For example, my step-mom used proceeds from a life insurance policy to buy a hot tub even though she was having trouble with car payments and credit cards. I'm worried that one way or another my wife and I will have to dip into our savings to pay for this behavior. Any advice?  Tim, Minnesota

Answer: If it's any consolation, you're not alone. I get questions from a fair number of people who are doing well financially, but whose parents, brothers, sisters or other relations are struggling.

I typically find that the people in your position would like to help or at least feel obligated to on some level, but are conflicted about how much assistance is reasonable. I also often detect an underlying sense of anxiety, explicitly stated in your case, that the demands of needy family members may undermine the financial security most people have worked hard to achieve.

There are no fixed rules that apply when finances intersect with family ties. I could tell you that, as long as you don't legally bind yourself to your parents' or siblings' actions by, say, co-signing a loan for them, that you can't be held responsible for their behavior or forced to bail them out in any way. But that response won't address the emotional or moral obligation that you may feel.

I can, however, make a few suggestions that may help you plot a reasonable strategy for dealing with this issue. So let's start.

First, unless you've already done so and failed, I think you ought to consider interceding. Otherwise, you may always have a nagging doubt about whether you made a good-faith effort to help.

Hold an intervention

I suggest you go to your parents and siblings (separately, of course) and, as diplomatically as possible, express your concerns about their finances. You might use the fact that the economy is in such bad shape and so many people are having difficulties as a way to broach the subject. I wouldn't get into your fear about the potential blowback their actions may have on you. Rather, I'd just say that, as member of the family, you're naturally concerned about their welfare and that you're available to talk about financial issues if they're open to it.

I wouldn't be at all surprised if they told you to take your concern and shove it. It's very possible that they're living just the kind of lives they want to live and have no intention of changing their ways. Or they may simply resent you for what they perceive as condescension in your presumption that they need help. If that's the reaction you get, you can simply back off, knowing that you tried.

But if they're receptive to altering their behavior, you may be able to help them do that. It would be unrealistic to expect a transformation overnight. But perhaps you can put them on the path toward long-term meaningful change by, say, suggesting they seek debt and budget counseling.

Or you might recommend they consider spending a session or two with a financial planner who works on an hourly basis and who might be able to get them on a regular savings regimen. If nothing else, you could point them to online resources such as our Money 101 lessons on setting priorities and budgeting.

I'd be wary, though, of getting too involved in their affairs. If they're going to develop better financial habits, the effort has got to come from them. You can't force it from outside.

Give with caution

Whatever their initial reaction, the biggest decision you'll likely have to make at some point is to what extent, if any, you want to help your parents and siblings in the future should they ask for financial assistance.

If they spend as profligately as you suggest, I'd be amazed if you don't eventually get requests for help -- if you haven't already -- whether it's for money to pay off a car loan or credit-card bill, make a mortgage or utility payment or help with other expenses. They may also ask for loans, although you should be aware that many times "loan" is a euphemism for donation.

There are a couple of ways you can address these requests. One is to set a policy of just saying no -- make it clear you're not willing to dole out cash or loans whatever the situation. That's a tough policy to have and still maintain decent relations with your family, however.

A more flexible approach might be to consider each request individually and then make a decision based on the merits of the case and your financial ability to help out. This policy gives you the option to help out if you feel it's really warranted, but also gives you the latitude to beg off. The downside is that, if you say yes too often, you may become known as a soft touch, and the requests from your family could multiply. That's not good for you or them.

Ultimately, you'll have to decide what approach makes the most sense for your situation. Actually, let me amend that. You and your wife will have to decide. It's essential that you're both involved in handling family requests for financial assistance, whichever side of the family they come from. After all, the savings and other assets you and your wife accumulate during marriage belong to both of you.

One final note: while there may be no fixed rules about how to deal with family members who are struggling financially, I believe there are at least two guiding principles.

The first is that family ties or no, you are under no moral obligation to finance someone else's profligate lifestyle. Doing so is a waste of your money and it doesn't really help the recipients of your largesse.

The second principle is that your primary duty is to maintain the financial security of your immediate family -- your spouse and any children. So if you do decide to assist family members you believe are deserving of help, you want to do so in a way that won't jeopardize your immediate family's finances. To top of page

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