What Are the Best Alternatives to Lending Money to Loved Ones?
Mums for whom family is the core of their lives can feel confused regarding which road to take when loved ones are going through a hard time financially. On the one hand, we can feel tempted to help them out of their bind by lending money: on the other hand, money can change relationships in ways we may not foresee. In this post, we look into ways we can help kickstart our family’s financial future.
Lending is Not the Only Answer
Lending may arise from a caring place and a desire to be supportive, but it nearly always changes the relationship between lender and borrower. Those who borrow may feel so grateful that they may lose their voice; i.e. the relationship can become less ‘equal’ than it used to be.
Asking for money back can also be problematic in the case of non-payment; we are not simply creditors but also family members and we can feel incredibly guilty about requesting payment of the debt.
Finally, by simply handing out money every time a child or other family member is in a financial bind, we are depriving them of learning important skills such as how to save, calculate interest, or invest. Also, life may not always have been easy for us; we may have had to take on a second job or lead a more frugal life when we were younger, yet these were vital in terms of teaching us about the value of money and effort.
There are many ways that we can help family members improve their financial situation without making a loan. One is to give occasional monetary gifts (which are very different from loans); another is to help them become more financially savvy.
Helping Loved Ones Clean Up their Credit
Sometimes, family members think they will never achieve a loan because of a poor credit score. To raise this score, there are various steps they can take. In one interesting article, the Crediful explains how to clean up your credit report. It points out that sometimes, there may be inaccuracies. Help your loved ones comprehend their credit report in detail, with a view to spotting any possible mistakes. Any such errors should be disputed, especially if they negatively affect their credit score.
Once you have checked this report, suggest other ways to improve their score. For instance, they should try to keep their credit card balance low, and set reminders to ensure credit payments are made on time. They should draft a payment plan that puts most of their budget towards credit cards with the highest interest rates first.
Devising a medium- and long-term financial plan is also essential.
Giving Your Time
A part-time or second job may be the solution to your family members’ problems, yet they may have young children or other circumstances that take up their time. If you can, try to free up a few hours for them a week by babysitting, doing a few chores, or even helping them out with transport; anything that can make additional employment a little easier for them will be appreciated.
Invest in Education or Training
Consider the investment in training or education, which will enable your family member to secure well-paid employment. Courses with a strong financial/business focus will be useful regardless of the road your family member ends up taking since it will teach them important skills such as financial responsibility, saving, and forward planning.
Whether or not you decide to give a loved one a helping hand is a personal choice; it is important to remember, however, that money is not a thing you can give. Kickstart their financial freedom with a monetary gift if you wish, but more importantly, make sure they understand important concepts such as credit, savings, and personal responsibility.