Dealing with financially irresponsible family members refers to the strategic and empathetic approach of managing problematic financial behaviors exhibited by relatives—such as reckless spending, repeated borrowing without repayment, or over-dependence—while minimizing personal strain and preserving familial relationships. It can be awkward to mix family and money issues, whether it’s loaning money to a struggling relative or dealing with competitive or irresponsible spending. Feeling frustrated by family-related financial kerfuffles? We created this helpful guide for dealing with financially irresponsible family members, including financially irresponsible parents, who seem chronically unable to get their financial act together – without creating a lot of unnecessary drama. Understanding financial irresponsibility is key to addressing these issues effectively, and in some cases, consulting an estate planning attorney may be necessary for long-term financial security.
The Braggy In-laws
They live in a bazillion-square-foot McMansion, and they drive matching luxury cars that they seem to replace every year or so. They just finished remodeling their kitchen and their master bath. They’ve been Instagramming their latest exotic vacation all week. This would be fine – if they could afford it. But they’re drowning in debt, and they’ve borrowed money from family members on more than one occasion, potentially becoming financially compromised beneficiaries in the future.
Why it’s a problem:
Their conspicuous consumption can be annoying, but they’re still family – and it’s hard to watch them spend their way into bankruptcy and a lifetime of financial woes. Their impulsive purchases often lead to long-term financial instability, which may eventually require trust administration or the establishment of a spendthrift trust to protect their assets.
What you can do about it:
Don’t reward or encourage their excessive spending. Un-follow them on social media. Don’t engage in financial one-upmanship. And keep in mind that, although they might seem oblivious, they may be very aware that their lifestyle is not sustainable. It’s likely that they feel overwhelmed, insecure, and anxious, so tread lightly and avoid outright criticism. For example, instead of saying, “You bought another new car? You can’t afford that!” try something like, “I’d love to have a new car eventually! The husband and I want to pay off our student loans first, though. We’re focusing on our financial security.” This approach gently promotes financial responsibility without being confrontational.
The Frivolous Freeloader
This is probably one of the most difficult financially irresponsible family members to take. It is the family member who unabashedly asks you for a loan to make ends meet, then immediately posts Facebook photos of themselves out partying, shopping, or hitting up the nearby casino. A month later, they ask you for money again because they’re having trouble paying their next round of bills. In such cases, considering controlled distributions or even an irrevocable trust might be necessary to protect family assets.
Why it’s a problem:
Either this relative truly doesn’t get it, or they are taking advantage of your generosity. Unfortunately, your financial support isn’t helping them get on track – it’s enabling their irresponsible spending (and possibly supporting some destructive habits)! This behavior often leads to them becoming a financially irresponsible beneficiary in family financial matters.
What you can do about it:
Once you give someone money, it’s near-impossible to dictate how they use it. If you don’t feel comfortable with how they’re using your money, you have the option to turn down their next request. If you want some say in how they’ll use your money, you could offer them a gift card – say, to Target or a nearby grocery store – instead of cash. Additionally, you might suggest they attend a financial literacy course or seek financial counseling to address the root of their spending issues. In more severe cases, consulting with a professional trustee about setting up incremental distributions might be a viable solution.
The Spendy S.O.
In a perfect world, you’d budget to the last penny, with no frivolous purchases or unnecessary expenses and plenty of funds going toward savings, retirement, and – of course – a solid emergency fund. Your significant other, on the other hand, likes to play fast and loose with finances: They buy what they want, when they want, often throwing an expensive wrench into your carefully laid plans. This situation might call for comprehensive estate planning to ensure long-term financial stability.
Why it’s a problem:
When it comes to relationships, attitudes about money can be deal-breakers (according to one study, money is a leading cause of stress in relationships). Ignoring the problem can make things worse and hinder your journey towards financial independence and security.
What you can do about it:
If you love your S.O., you’ll need to find a compromise that works for both of you in the long term. This could mean anything from having separate checking accounts to creating a monthly budget with built-in “fun money” that you can each spend (or save!), no questions asked. Open communication about financial goals and priorities is crucial for maintaining both financial and relationship health. Consider discussing the possibility of setting up a revocable trust for shared assets to provide a framework for managing finances together.
The One Who Will Pay You Back
Your nephew’s car was smashed by a hit-and-run driver, and he needs $500 to cover repairs until payday. Your son-in-law asked for a couple thousand dollars to sustain his struggling small business until things pick up. Your sister was laid off six months ago; her refrigerator just went out, and she has asked if you could float her a loan to buy a new one – she’ll pay you back, with interest, as soon as she finds a new job. You’d like to help, but you’re a little concerned about getting your money back. In such situations, considering controlled distributions or seeking advice from an estate planning attorney might be prudent.
Why it’s a problem:
Family members and loans are a tricky combination that can create tensions that can last years. This is especially true in cases where, for whatever reason, the borrower is unable to pay back the money they owe you. Lack of financial transparency can further complicate these situations.
What you can do about it:
If you want to avoid years of uncomfortable family get-togethers, you’ve got two choices: You can simply refuse to lend money to family members – no matter what. Or, if you truly want to help (and you can truly afford it), you can simply gift the money, with no expectation of repayment. If you decide to lend money, consider setting up monthly allowances or a structured repayment plan to maintain clarity and avoid misunderstandings. For larger amounts, consulting with a professional trustee about establishing a formal lending agreement might be beneficial.
The Too-Dependent Dependent
Like many in her age group, your 25-year-old daughter graduated college with crushing student loan debt and is struggling to find a full-time job. You’ve been sympathetic so far, inviting her to move back home and helping out with some of her expenses while she gets on her feet. But it’s been almost a year. You love your kid, but you can’t pay for her car insurance and groceries forever. It’s important to be aware of filial responsibility laws in your state, which may impact your obligations to support adult children.
Why it’s a problem:
There’s nothing wrong with lending a helping hand – but not when it threatens your own financial well-being. You don’t want to drain your retirement funds to help cover your grown child’s expenses. Dealing with a financially irresponsible child can be particularly challenging, especially when it comes to managing adult children financially.
What you can do about it:
Talk to your daughter. Explain that while she has her whole adult life to save for retirement, you are getting close to the end of your working years – paying her way isn’t sustainable in the long term. Work together to come up with a solution: Perhaps she can continue to live at home, as long as she agrees to work part-time and pay for her own groceries, phone bill, etc. Encourage her to take steps towards financial independence by creating a budget and exploring career opportunities. Consider consulting an estate planning attorney to discuss how to structure your financial support in a way that promotes responsibility while protecting your own financial security.
Don’t let any of these situations bog you down. If you need guidance for dealing with financially irresponsible family members, we’re here for you! Whether you’re trying to help a family member get back on track financially or address some of your own spending, saving, and budgeting issues, the friendly advisors at American Credit Foundation are always happy to help. We can provide credit counseling and financial counseling services to assist you and your family members in achieving long-term financial stability. Remember, comprehensive estate planning can be a valuable tool in managing family finances and ensuring the financial security of all involved parties.