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Are You the ‘Family Bank’?

When to say yes—and how to say no—if family members turn to you for financial support

ALMOST EVERY FAMILY HAS ONE: the person family members call on when money is tight and they need a helping hand. The more financially responsible you are, the more likely you are to be considered “the family bank.”

If you’re that person, have you ever wished you could just say no, even if you feel helping out financially is the right thing to do? Maybe you have other priorities to deal with or you doubt the money will be used wisely. Or you’re convinced that your kids will learn more by saving for that desired purchase—whether it’s a house, a car or a fancy new smartphone—on their own.

Naturally, you’ll always want to be there for your family members when they need you, but there are times when it does make sense to politely say no, even to those closest to you. If you’re considered “the bank” in your family, here are four useful tips.

4 Tips for Managing Family Financial Requests

1. Start talking about money with your children while they’re young. “Set up regular family meetings to discuss life skills, including the earning, saving, spending, investing and sharing of money. What role does money play in your family’s life? How do your financial decisions express your family’s values?” says Valerie Galinskaya, managing director within the Merrill Center for Family Wealth™. “From a young age, encourage children to ask questions about the decisions you’re making so that they can begin to understand the reasoning behind them and develop sound money management habits of their own.” With that background, they may have more realistic expectations if they do someday 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, and you’ll want to be in a position to provide it. “We create budgets for such things as travel or shopping, so why not for family giving?” asks Ben Storey, director of Retirement Thought Leadership at Bank of America.

“We create budgets for such things as travel or shopping, so why not for family giving?” Ben Storey,director, Retirement Thought Leadership, Bank of America

Storey advises that you determine how much you can commit to this purpose without disrupting your retirement planning and current living needs. When you have that figure, consider your other priorities. Are there any lifestyle changes you may need to make in order to keep giving to family during tough times? Most important, before you give, be sure to set aside an emergency fund for yourself to ensure that you will have a comfortable cushion in retirement.

3. Set firm guidelines for saying yes. Decide in advance under what circumstances you would feel comfortable giving or lending money. “If you’re going to make a gift of the money, think about using the occasion as a teaching moment,” suggests Storey. Without sounding preachy or judgmental, try to explain to your relative how you’ve put yourself in a position to provide this assistance. Have you kept your debt under control, for instance, or lived within your means or avoided high-interest credit cards? “For young adults in the family, this could be a valuable lesson,” he says.

“If you expect to be paid back, create a loan document,” recommends Joe C. Schmieder, principal consultant of the Family Business Consulting Group, based in Chicago. This may include details on how frequently repayments will be made and whether interest will be charged. If the family member has asked you to invest in a business, request a business plan or other formal details on how the money will be used. “It’s important that the recipient understands your terms,” Storey says.

If you’re dreading the prospect of refusing a request, prepare your reasons beforehand so that you can explain them unemotionally.

4. When you must say no, don’t make it personal. Instead of blaming family members for their financial troubles or questioning their plans, develop a basic philosophy that applies to everyone. Explain that this philosophy 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, pride and self-sufficiency. If you’re dreading the prospect of refusing a request, prepare your reasons beforehand so that you can explain them unemotionally. When you can’t afford to give, outline the reasons for your decision.

When a family business is involved, notes Schmieder, it’s possible that your relatives don’t understand the company’s financial limitations. “Not everyone may be aware, for instance, that company owners have an obligation to reinvest their profits into their businesses to maintain growth,” he says. Use this opportunity to explain that the company’s profits aren’t a ready source for gifts or loans.

As you consider each request, it’s always important to remember that gifts or loans to family members will have a direct impact on your retirement planning. There might be an unwritten fifth rule, says Storey: “Beware of being overly generous, or you could end up needing financial help yourself.”

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This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is in your best interest based on for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.

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