This article, which features John Girouard, originally appeared in HerMoney.com. Please click here to read the original version.
If your family is hurting financially, there’s no time like the present to dive in and have important family discussions about money and moving forward.
As the COVID-19 pandemic rages on, more than 40 million Americans have filed for unemployment, and across the country, budgets are tight. For some, several generations may now be living together under the same roof, or a financial need in your family may have come to light over the last few months that you feel you can no longer ignore.
Perhaps you find yourself in a position where you aren’t sure if you should be helping out a family member during these times, or maybe you’re worried about managing competing financial priorities until you’re back on your feet. We put together a guide for navigating this unprecedented financial time without overextending yourself.
SHOULD I HELP?
Whether it’s your parents or your children, if someone in your family has taken a financial hit during this time, you likely want to help. But should you? It depends.
“Part of being a parent is helping out, and part is teaching lessons, and sometimes they can be tough,” says Dr. Elizabeth Lombardo, a psychologist in the Chicago area. One way to clarify your decision is to think about what you would tell a friend if it was her child (or parent) asking for help. Sometimes that separation can help you be a bit more objective.
According to John Girouard, certified financial planner and president and CEO of Capital Asset Management Group, it’s easy to become a crutch for those you love, which is why continuous help may not be the best thing to offer your children.
“If you teach your kid to live beyond their means, they never recover,” he says. “It’s a huge mistake. If you want them to be independent, let them be independent.”
If you have young adult children (who may not have established their careers just yet) who may be struggling due to the pandemic, the best way to help them may be to simply let them come home — you don’t have to give them money, but you can help sustain them during these tough times.
TALK IT OUT
This pandemic is actually a great opportunity for some intergenerational financial planning, Girouard says. You can look at the entire family’s financial picture and make a plan together.
For example, you could start by asking your parents what they want done with their money in the future, and make sure that plan is documented. Or if you’re the parent of older children, you can give them details on your future financial plans, and/or help them walk through their long-term plans for the first time.
Of course deciding when to have these conversations is almost as important as the topic itself. Being uncomfortable is okay — but avoiding the conversation can cause more stress for everyone.
“Because there is so much emotion in money, look for opportunities to have conversations when stress levels are down,” Lombardo says. A good idea is to plan ahead for a conversation so that everyone can be available and prepared.
During these conversations, it’s important not to make accusations, but you also need to be assertive – meaning you should clearly communicate your wants and needs while still being respectful of others. You want to approach it as “Let’s get everyone on the same page,” as opposed to a me against you scenario.
“It’s us together benefitting our family,” Lombardo says. “That mindset can change anything.”
WHAT OPTIONS ARE OUT THERE?
Economic downturns can be an excellent time to get creative, and ensure that everyone in your family is educated on how they can set themselves up for a brighter financial future once everyone is fully employed, and the economy is back on its feet.
During times like these, parents would be wise to remember that personal finance is not taught in schools, Girouard explains. “Children learn from their parents, and if you do something wrong, chances are your kids will, too. Parents need to teach kids how to survive during the recession.”
With that in mind, Girouard says that no one should ever be embarrassed to file for unemployment. “That’s why it’s there,” he says. If you’ve lost your job, filing for unemployment insurance is the first step to getting back on your feet and getting a steady stream of money coming in.
But of course unemployment simply won’t be enough to keep many people afloat for very long, and many of us may be wondering where to turn to make up the shortfall. “No one plans to fail. They simply fail to plan,” Girouard says. “Right now, does it make sense to dip into this pot of money, versus that pot of money?”
One of the “least bad” options for filling the gap right now may be an IRA withdrawal, Girouard says. (But talk to your financial planner before you make any moves!) Thanks to the CARES Act, you can now take out up to $100,000 from your IRA with no penalty, and you have three years to pay it back before you incur taxes. Although it’s never ideal to draw down on your retirement accounts, this move is preferable to racking up credit card debt or taking out a home equity line. He suggests also looking to tap your 529 to pay for a child’s school tuition if necessary. (The Tax Cuts and Jobs Act of 2017 enabled families to use 529 funds to pay for up to $10,000 in tuition expenses at elementary or secondary public or private schools — previously the money was only eligible for use at the college level.)
SETTING BOUNDARIES AND LOOKING AHEAD
Beyond having tough conversations with your family, it might be time to have some tough conversations with yourself. What money mistakes had you made leading up to the recession that you’d like to correct once you’re able? What kind of budgetary reductions have you made over the last few months that you’d like to make a permanent part of your financial life? Even though money may be tight and your finances may be a source of stress right now, establishing boundaries and creating a plan can make a big difference in your financial health for years to come.