It’s no secret that Canadians are struggling to keep up with the rising cost of living — more than half are describing themselves as “financially paralyzed.”
Survey after survey is finding Canadians’ financial well-being is suffering — half are reporting they’re spending all of their income on essential bills and expenses.
For many, the financial spiral has them turning to family for help.
A recent RBC report found that nearly a quarter of Canadians have asked relatives for money amid eroding cash flow or even moved back home to save on rent. Meanwhile, nearly three in five parents said they expect to financially support their children into adulthood, with the majority feeling unconfident in their ability to do so.
Whether it’s a bank or your most-trusted family member, asking for money or a loan can be scary if not downright embarrassing.
“This falls under the topic of difficult conversations,” says Janet Gray, an Ottawa-based advice-only financial planner. “It’s not just about the money and it’s not just about the repayments, but it has a lot of consequences and a lot of emotion.”
Here’s how to navigate this tricky situation if you’re thinking of asking family for financial help.
When should you go to family for money?
Asking family for cash should be a last resort, according to Jason Heath, a Toronto-based advice-only financial planner.
While there are benefits to going to family over a bank for a loan — you might get the money faster and the borrowing terms might be more favourable — there are drawbacks. You could offend a relative if you start missing payments, Heath says. Or an argument could ensue if they see Instagram photos of your beach getaway show up in their feed, damaging personal relationships.
“You run the risk of them questioning, ‘Well, why did I lend them that money? Why am I paying for that vacation?” Heath says. “I think you’ve got to be really careful and think about it.”
Gray says that, in her experience, families are generally willing to help their relatives financially, particularly when it’s a child going to a parent for assistance.
“In most cases, parents are going to do whatever they can to help their kids,” she says, adding she has worked in recent years with parents who have offered to pay some of their child’s student loans or down payment on a home.
Asking family for money? Come prepared
Coming into the conversation with talking points, and even a presentation, can go a long way in showing you’re serious about your request and that you’ve put thought into it.
“Make your case with something very structured so they feel safe and comfortable that there’s hardly any room for error because everything they may be worried about you’ve already thought about in advance,” says Jessica Moorhouse, a personal finance expert and author of “Everything But Money.”
Melissa Leong, author of “Happy Go Money,” recommends mentioning what you’ve tried to do before reaching out to family, whether that’s cutting back on expenses or seeking assistance from a professional.
“Have a transparent conversation with your family member or friend by explaining your situation and why you’re asking for help,” she says.
Preparation can also include creating a budget or financial plan to show you’ve considered how you’ll pay the money back, and that the loan you’re asking for isn’t an arbitrary amount.
“If you’re asking family for help with your down payment, do the homework, research the housing market and the costs,” Leong adds.
Pick the right time and place
When it comes to having the money conversation, it might seem easiest to bring it up on a call or during a family dinner. But Gray suggests giving people a heads up that you want to have a talk.
“When it’s just like, ‘Surprise, I need some money,’ that’s not always helpful,” she says.
It is also better to talk in person and somewhere that is “neutral ground.”
“You don’t want to do it in the living room with all the family photos on the wall,” Gray says. “That’s just too much. There’s already a lot of emotion built into that location, so have a separate location.”
Speaking in a separate, public place could also help keep the conversation civil, Gray explains, since people are less likely to yell or get upset with strangers around.
If you need to ask your family for money over the phone, Gray recommends setting up a video call.
Treat it like a business transaction
The money might be coming from a family member, but you should still treat the loan like a business transaction. This means setting clear borrowing terms that you can realistically follow, and writing them down.
“I would 100 per cent want to have the terms written down regardless of which party I was in that transaction, because then there’s no confusion later on,” Heath says.
Heath suggests that the terms include the interest rate on the loan, the monthly payment amounts and what happens if someone were to die. Have a lawyer look over the agreement if needed, he adds.
The terms should also include how the two parties should communicate with one another, Leong says.
“Nothing annoys me more than when people borrow money and then they never speak of it again. If you borrow money, stay transparent and in communication about how things are going,” she says.
Be prepared for ‘no’
Another rule to coming prepared for the conversation is being ready for your family to turn down your request.
Moorhouse acknowledges that it can be a hard thing to hear, particularly when it feels like you are in crisis. But she says that you need to accept the answer rather than challenge it.
“You just have to move on and find another way and don’t bring it up again,” says Moorhouse.
Gray suggests reassuring your family in your ask that you would understand if they said no and that it won’t impact your relationship.
“Let them know it is totally their decision and you’re fine with whatever they decide. Fingers crossed they say yes, but you don’t want to alienate them.”
Whatever you do, don’t be passive aggressive.
“Reassurance is huge,” Gray says. “You don’t want any parting words to be, ‘Don’t worry about me,’ or ‘You can visit me in jail.’ ”
