Family is complicated enough, but adding in money can be a disaster. Last week on The Pete the Planner Radio Show on 93 WIBC, I talked about how to repair financial wounds at the holidays. Maybe you’ve owed your aunt money since the 90s or maybe you just took out a loan from your parents, regardless you are going to see those people in a few weeks and I have suggestions on how to handle the situation the financial wellness way.
Whether or not you are already in debt to family members there is something very important you need to remember about financial wellness. Your financial problems should never become someone else’s financial problems. I know what you are thinking, ‘it’s not like that because we are family and we take care of each other.’ But that doesn’t change the fact that you just borrowed money from them and now all of your interactions with that family member are laced with guilt and shame.
There are two types of people you borrow money from in your family:
1) The family member that you have a special connection with. They are understanding and empathetic and you know that once you told them of your financial woes they would gladly let you borrow money from them.
2) The family member that has the means to loan you money. Maybe you and Uncle Rick haven’t been the closest but you know he has a good job and can afford to loan you $1,000 so your mortgage isn’t overdue.
The problem is, that in either situation you have damaged the relationship. Don’t believe me? Here is how these two types of relationships are affected:
1) You had a special connection with this family member but now money is involved and regardless of how well you guys get along, now all they are thinking about is how you owe them money. The financial stress of money will affect this relationship.
2) Sure Uncle Rick has a great job, but you don’t know his true financial situation. Maybe he lost his pension but didn’t want to share that with his family. Or you borrowed money 10 years ago when Uncle Rick was doing well but he has since taken a pay cut and he doesn’t know how to ask you for the money back.
Here is what I want you to remember about borrowing money from family: just because it doesn’t accrue interest or have a monthly pay back plan doesn’t mean you shouldn’t make it a priority to pay it back.
I’ve seen this scenario a lot in my time. People come to me and tell me they are doing well, they are working on getting out of credit card and student loan debt, they call it financial progress. But when I dig a little deeper I find that they owe money to family members and they have not even attempted to pay that money back. It becomes the last item on the debt checklist.
This will not do. That is false financial progress. You are paying off other debts for fear of your credit score but neglecting to pay back money that is threatening your relationships. Stop lying to yourself. You are not making financial progress if you owe money to family and are not actively paying it back.
So, how can you move forward and correct this situation? This holiday season I want you to make the first step toward financial wellness and a good relationship with your family. Here is how you do it:
1) Be subtle. Pete the Planner wisdom: Bragging about doing something you should have already been doing isn’t commendable. Pull your aunt aside this holiday season and tell you are sorry you haven’t made progress paying back the loan but now you are going to make more of an effort.
2) Then hand her a card. Arguably, greeting cards are not worth the ding in your budget, but this is a special occasion, you are taking responsibility for your debts and your aunt deserves that $3.75 greeting card with glitter. In the note, write that you now realize your financial problems aren’t the responsibility of others, thank her for her patience, and lay out your pay back plan. Also, don’t forget the check. Maybe you can only afford to make payments of $25 but no matter the amount, you are on the right track toward financial wellness and familial reconciliation.
This is a side note but DO NOT wait to pay someone back until you have the full amount saved up that you owe them. Maybe your debtor told you to wait until you had the full amount, but don’t. The bank would never ask you stop making mortgage payments so you could save up and pay the full $100,000 “when you have it.” If you owe your grandma $500 make $25 payments until it is paid off, don’t wait until you have saved up $500.
Financial wellness is treating all debts like debts and working toward repaying them. Don’t let money be a factor in ruining your holidays (there are plenty of other things to do that for you).
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.