When Friends or Family Ask for Money
Posted on April 1, 2015 by bob in MoneyWise
If you have family and friends and live long enough, someone sometime is probably going to approach you for financial 
assistance. While no rules exist to dictate the right decision in such a case, the answers to a few questions can help you choose a course of action. The 10 questions below may not cover everything that you should consider, but they are a good start.
1. Who is asking for help and what is the nature of your relationship? A request from a new acquaintance is not on par with one from your parent or child.
2. Who else is affected? Situations rarely impact only one individual. If the request is from your son because of his wife’s uncontrolled spending, you may not be inclined to help, but you need to consider the consequences of your action for your grandchildren.
3. How will your decision affect the future of the relationship? If you decline to help, might you lose the friend or become estranged from members of your family? If you help this time, are you setting a precedent for this person to come back repeatedly?
4. How big is the need? It is easier to say “Yes” if someone needing $500 plans to pay you back than if they want $10,000 that you will never see again.
5. Is the need one-time or ongoing? Providing a single infusion of funds is a smaller burden than agreeing to help with a medical situation that is open-ended both from the standpoint of duration and magnitude.
6. How did the need develop? Is the person in need responsible and diligent but faced with a challenge through no fault of their own, or is he perpetually in difficulty because of his own character deficiencies? Is this the first time she has approached you or part of a longstanding pattern?
7. What other resources are available? Are you the first person they have approached? Should they go to other people on whom they have a more reasonable claim? Are charities or governmental benefits available?
8. What is the impact on you if you assist? Can you afford to do what is being asked? Counting the cost before making a commitment may reduce the risk of resentment later.
9. What terms and conditions apply to the assistance? Are you making a gift or a loan? If you want to be repaid, including by a family member, treat the transaction as a business arrangement and document it properly. I once sold a car to an acquaintance for a series of payments. After two months he filed for bankruptcy and made no further payments. I was unable to get the car back because the loan agreement did not provide me a security interest in the vehicle.
10. How will this decision affect future behavior? Does helping this person this time set a precedent for her or others she might tell?
For instance, if you do something for one child and that child tells your other children, are they all emboldened to ask for help instead of working through situations they can handle on their own? Should you develop limits and boundaries ahead of time to guide your actions so that you have a method in place for dealing with requests? Exceptional situations might arise that you would handle outside of your normal approach, but you would have a frame of reference for most situations.
Most of us need a little help from time to time. My wife and I received financial help a time or two from our parents and we have assisted our children and various friends on occasion. Generosity and sharing driven by genuine care for others are praiseworthy, but wisdom suggests that we not jeopardize our own security or become enablers of others’ irresponsibility.
Alan Wallace
Alan Wallace, CFA, ChFC, CLU, is a Senior Private Wealth Advisor for Ronald Blue & Co.’s Montgomery office, www.ronblue.com/location-al. He can be reached at 334-270-5960, or by e-mail at alan.wallace@ronblue.com.
