How to Solve 6 Tricky Family Money Problems
My husband lost his job six weeks ago and we're having trouble making ends meet. We try very hard not to discuss finances in front of our children, but they're clearly worried. How can we reassure them without revealing too much?
"The biggest mistake people make is to try to protect kids by keeping them in the dark," says Neale S. Godfrey, author of Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children. "They can always sense when there's a problem and will assume the worst." With kids 7 and under, you don't need to say much beyond "Daddy's looking for a new job" -- and that's only if they ask. For kids 8 to 12, add another layer of detail, letting them know how this new reality will affect them: "We have to save money, so we can't do ballet lessons this year." And if you have teenagers, use the current economic situation as a "teachable moment" to explain what's happening and why you need an emergency fund.
With older kids you can also encourage frugality. Ask a middle schooler if he's willing to save his lunch money and pack a sandwich instead; a teen might volunteer to downsize her allowance. "In difficult circumstances, the kids who adjust best are the ones who feel they're doing something to help," says Godfrey. Hold a family meeting every few weeks or so to keep the kids in the loop. That way, if you end up having to make a major change (like getting rid of one of your cars or moving to a smaller house), the news won't completely sucker punch your children.
The wealthy parents of our 12-year-old daughter's best friend have asked her to join their family on a European vacation, even volunteering to cover her flight. We can't afford to pay our daughter's whole way but feel strongly about contributing something. What's the least-awkward solution?
"Your discomfort in this situation is completely natural," says Dave Ramsey, author of The Total Money Makeover: A Proven Plan for Financial Fitness. First, figure out the amount you can afford to chip in. Perhaps it's the price of your daughter's airfare or $500 toward the overall cost. Then call the parents -- or, better yet, ask them to dinner -- and explain that you appreciate their generosity but need to pay something in order to feel okay about the trip. After the girls return, treat them to lunch and a movie or perhaps a day at a skating rink. By making a contribution -- regardless of how much -- and repaying the favor, you've changed the spirit of the relationship, so you're not cast in the role of freeloader, says Ramsey. And by talking to the parents, you'll feel more relaxed about the whole arrangement. Finally, keep in mind that the invitation might not be entirely selfless. After all, the parents are getting a playmate for their daughter out of the deal. On a seven-hour overseas flight, that can be priceless.
My sister-in-law is buying her first house and has asked if she can borrow $5,000 toward her down payment. I want to help, but lending money to family members seems risky. What's the best way to handle this?
No rule says you have to lend her money -- and the fact that she hasn't saved enough to make the full down payment suggests she might not be financially ready to buy a house. Even if you unequivocally trust your sister-in-law, the situation can be tense, says Ramsey, who recalls that he once borrowed money from his father-in-law and never truly relaxed about the debt until it was fully paid off. And what if your sister-in-law doesn't pay, or puts it off until after she's bought a sofa and built a deck? Then you've got a major drama on your hands.
If you decide to help, Clark Howard, author of Clark Howard's Living Large in Lean Times, suggests drawing up a promissory note that both parties sign. (Sites like LawDepot and RocketLawyer provide templates.) Agree on a simple payment schedule, say $100 per month plus interest over 30 months. For the interest rate, use a number comparable to what a local credit union or bank charges for a personal loan. If you feel funny charging a relative market rate, go ahead and lower it, but experts agree that you should charge something. "This sets up the expectation that this is a real loan that must be paid back," says Howard. Still, you should be prepared for the possibility that you'll never see the money again, so don't dip into your retirement savings for that $5,000.