by Sarah Rutledge Fischer
Dear Allie,
My brother recently suffered a job loss. He’s a hard worker, but he had nothing saved for emergencies. And now that he’s older, he’s struggling to find another job. I want to help him, but I’ve heard so many horror stories about family members doing this and things turning out badly. I have the financial means to help, but how do I keep from getting taken advantage of?
Thanks,
Fraternal Bank of Me
Dear Bank,
It is wonderful to want to help your brother in his time of need, but you are wise to exercise caution before entering into this financial relationship. Few things tap into our insecurities as deeply as family and money. When you put them together without care, the results can cause lasting harm.
Before you offer your brother financial assistance, take an honest look at your relationship. If you can, ask for perspective from someone who knows you both and won’t sugar coat things. A financial exchange between two people can change the balance of power in their relationship, and if power is already an issue, the results can be explosive. For example, whether or not a loan is being repaid in a timely fashion can become the subtext of all conversation and undermine the preexisting feelings of trust and unity on which a relationship was founded. Understanding your existing power dynamics will help you anticipate how adding money to the mix might change things and whether that change is a risk you are willing to take.
If you decide that your relationship can weather the addition of money to the mix, consider making your brother a gift instead of a loan. In the situation you describe, a gift may be more practical. According to your letter, your brother’s struggle to find another job is partly related to the fact that he’s getting older. It may not be fair that his age has reduced his employment prospects, but it also isn’t likely to change. A gift to help your brother ease the transition to a different standard of living may be more helpful in the long run.
What’s more, the relationship risks of gifted money are fewer. There can certainly still be relationship pitfalls when money is gifted—for example, the recipient may feel a wounded sense of pride or concern that his every expenditure will now be put under a microscope. But in the case of a gift freely given, your concerns about getting taken advantage of become much less relevant.
If you do decide on a loan, there are a couple of guidelines you can follow to minimize its effect on your relationship:
- Understand your own financial position. No matter how promptly and consistently your brother repays the loan, unexpected circumstances could disrupt his ability to pay you back. Before you decide how much to loan, know how much you can afford to lose.
- Accept the possibility that the loan may not be repaid. Banks rarely make risky loans and rely on legal repercussions to ensure that their loans are repaid. A loan that your family member could not get from a standard bank is a high-risk loan. If you cannot accept the possibility that it may not be repaid, you probably shouldn’t risk the loan.
- Treat the exchange like a business transaction and put it in writing. Work with your brother to set out a plan for repayment. Discuss interest, late payments, and what happens if the loan goes unpaid. This can feel like expressing an expectation that things will go awry, but it is really an investment in clear communication, which is itself an investment in the long-term health of your relationship.
Finally, whether you make a gift or a loan, there may be tax implications to consider. Seek the advice of a financial expert to ensure that you don’t accidentally incur a penalty at tax time.
At the end of the day, as long as your brother’s wellbeing and your continued good relationship remain most important, I think you will be on the right path. That should get you started.
Your friend,
—- Allie
To submit your own question, email Allie at Allie@focusmidsouth.com. Focus Mid-South reserves the right to edit letters for length and clarity.
