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Are You The 'Family Bank'?

How to say yes—and no—if you’re the person everyone in your family turns to 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," according to a recent study conducted by Merrill Lynch in partnership with Age Wave. The study, called "Finances in Retirement: New Challenges, New Solutions," found that 62% of people over age 50 provide financial support to family members, with the overwhelming majority (80%) doing so because "it's the right thing to do."

Still, if you're that person, haven't you sometimes wished you could just say no? Maybe you have other priorities to deal with, or you doubt the money will be used wisely. Or you're convinced your kids will learn more by saving for that desired purchase—whether it's a house, a car or a vacation—on their own.

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

Four Rules of the Family Bank
1. Start talking about money with your children when they're young. "Set up regular family meetings to discuss the role that money plays in your family's life, and how your financial decisions express your family's values," says Stacy Allred, Managing Director and Head of Merrill Lynch Wealth Management Center for Family Wealth. "From a young age, allow 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. Yet the Finances in Retirement survey found that few respondents had budgeted to be able to help family members financially, despite giving an average of $6,500 annually to family. "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.

If you're dreading refusing a request, prepare your reasons beforehand so that you can explain them unemotionally.

Hunter 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 Hunter. 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 Joseph C. Schmieder, principal consultant of the Family Business Consulting Group Inc. 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, ask for a business plan or other formal details on how the money will be used. "It's important that the recipient understands your terms," Hunter says.

"We create budgets for such things as travel or shopping, so why not for family giving?"Bill Hunter, Director of Personal Retirement Strategy and Solutions at Bank of America Merrill Lynch

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 core 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 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. An unwritten fifth rule, says Hunter, might be: "Beware of being overly generous, or you could end up needing financial help yourself."

3 Questions to Ask Your Advisor

  1. What estate planning strategies can help me make the most of my “giving budget”?
  2. What are reasonable loan terms for family members?
  3. Can you help me explain finances to my kids?

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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 suitable 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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