Monday, June 7, 2010

Tough Financial Love – Knowing When to Say “No”

Tough Financial Love – Knowing When to Say “No”

Let me start by asking you a big favor: Please put your emotions aside as you read today’s post, because that may be the only way you will be able to fully appreciate the discussion.

“Bad things happen to good people.” “We are one another’s keeper.” “That’s what family is for.”

All of these sayings – or similar ones – underscore the fact that family members, at the minimum, are supposed to “be there” for one another in times of need. For the sake of this discussion, let’s focus specifically on financial need.

Here at Laser Financial Group, we pride ourselves on teaching the concept of “true wealth,” which basically teaches that to live a truly fulfilled life and enjoy long-lasting wealth, one must maintain a strong balance among family and social life, maintain the highest ethical standards, and give back to society.

Does this mean we should have an open checkbook to assist our kids, grand kids and other family members? If not, where – and how – do we draw the line and say “NO”?

As retirement planners who maintain very close relationships with our clients, we are sometimes consulted in instances when parents/grandparents are called upon to assist their family members financially. Honestly, there is an extremely thin line between a truly unfortunate situation that might be salvaged with a little help, and continual bad financial moves that simply and frankly cannot be sustained. Regardless of what your emotions may tell you, the latter always has only one ending:  wasting your assets in the name of “helping” someone you love dearly.

There have been situations where our only suggestion (not our answer, but our suggestion) was NO – as in “Do not help anymore.”

I always advise our strategists to tell our clients what they need to hear, not what they want to hear. Think about it this way. For those of you who have raised children –especially teenagers – rarely do they agree with you, but does that mean you were wrong?

Consider These Scenarios

Situation 1:

Son calls mom.”Mom, if you don’t help me, my home will be foreclosed.” The true story behind this – after we probe just a little bit? Son purchased a five-bedroom, single-family home in a gated community a little over 4 years ago. He drives the latest model of a luxurious SUV. He has not lost his job nor had his salary reduced. His negative amortization loan rate recently reset from the teaser rate of 1.25 percent to the true rate of 6 percent.

Emotions aside, this clearly is a case of someone’s son (who will always be her baby boy) who made a conscious decision to leave beyond his means. It really boils down to two options:
  1. Mom tapping into her retirement assets to help Son continue living beyond his means, potentially spending down her assets, after which Son’s house will still be unaffordable.
  2. Mom saying “no,” and speeding up the process of teaching Son to be a bit more financially responsible.
In this case (a real Laser Financial client, I might add), Mom decided to stop helping after nine months, and coincidentally following her annual review meeting with yours truly. Guess what? The home was foreclosed, Son is now renting a smaller house and still owns his beloved SUV, but he’s able to support himself. As for Mom, she wishes she could get back the money her emotions drove her to sink into the house trying in vain to save it.

Situation 2:

Daughter asks Mom to pay the tuition for her 7-year-old granddaughter’s private school. A few months earlier, Daughter decided her family of three needed to upgrade her perfectly running car for a 6-seater SUV, increasing her payments to more than double the monthly payments on her previous car. It’s important to note that Son-in-Law also drives a huge SUV.

Don’t you think it’s every parent’s responsibility to make sensible sacrifices for the betterment of their children? Just because Grandma has been retired for four years and is now receiving additional income from Social Security does not mean she should pay the private school tuition for her 7-year-old grandchild whose parents are living irresponsibly large.

Personally and professionally, I believe that before you jump into assisting someone financially, you must understand their lifestyle and be sure that they really deserve the help. Then, there must absolutely be a plan of action to improve the situation so that they can eventually become self-sufficient. Sure, we are one another’s keepers – but we all have to learn to live responsibly. And sometimes, pain helps in that department – a lot!

Call 301-949-4449 for your complimentary consultation or visit us on the Web.

1 comment:

  1. thanks for such straight forward thoughts. i agree that it's better to teach them how to fish... so there has to be a plan to get them out of the situation in the future.


Chime in with your comments or questions: