Here at UKPF we tend to think that with a bit of time and effort, most people can learn to manage their budgets and investments themselves without needing professional advice. You may be surprised to hear that we absolutely do not extend that philosophy to finances other than your own.
Helping someone else manage their money is a very different matter to taking charge of your own. There are good reasons why people working in this field need to pass exams and take out insurance.
This is not to say that you should never help someone research investments, set up a budget, or simply answer a question they have. We love doing those things! But you should be cautious and bear in mind that the more involved you get, the more risk you’re both taking on.
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What kind of help do they need?
Some kinds of help are straightforward. For example:
- Discussing personal finances concepts such as budgeting or investing
- Sharing useful resources such as this wiki, other websites, books, videos, etc
- Helping someone with a specific task they want to accomplish but aren’t confident in, e.g. setting up a spreadsheet or new bank account
However, this is vastly different to telling someone what they should do with their money, or giving or lending them money.
Questions to ask yourself before getting involved
Having read the above, you may still feel that you need to offer more in-depth help and hands-on support. In this case, ask yourself the following questions and be sure you are comfortable with the answers:
- How would you both feel if you give them inappropriate/inadequate guidance, which leaves them worse off?
- What if they aren’t comfortable disclosing all the information that you need to fully understand their situation?
- What if they’re trying to achieve something that isn’t possible or safe, e.g., ‘risk-free’ get rich quick schemes, or retiring with insufficient savings?
- What if you spend lots of time and effort trying to help, but they don’t follow through?
- What if they hold you responsible for their financial situation, whether they followed your suggestions or not?
- What if they or another family member accuse you of giving biased, self-interested advice?
- If you lend them money, what if they don’t pay you back?
It is quite possible that well-intentioned involvement could lead to resentment, relationship breakdown, material financial losses, and even legal troubles.
Beware overconfidence
It’s very flattering to know that someone thinks you’re good with money and wants your help. However, it’s important to understand the limitations of your knowledge.
If you’re reading this, we assume you are not a qualified financial planner. Your personal finance knowledge was likely gathered doing research for your own personal education, influenced by your personal circumstances.
When someone is in a different situation to you in terms of wealth, income, and age, or even just temperament and life goals, they are also likely to have different financial needs.
The gap between you may be larger than you realise. It’s very easy to give suggestions that would be right for you, but are not right for them.
The UKPersonalFinance subreddit is full of scary posts from people who didn’t know what they didn’t know, and were trying to get their family members to take various actions which did not actually make sense for them in context. If in doubt be very careful, and if not in doubt, consider whether you should be!
Even if your parent (or friend, etc) prefers to talk to you, it would be entirely reasonable for you to prefer they spoke to a professional. We have more information on this at the end of the page.
Common scenarios
My sibling/niece/parent/colleague has £x, what should they do with it?
The difficulty with this question is that there isn’t a single right answer, even given some basic information about the person. For different people the answers might be any combination of keeping it in a bank savings account, investing it in their pension or an ISA, using it for something they value, and giving it away. It will depend on their personal goals and preferences, as well as their age, income, existing savings, and more. You can’t assume that what works for you will work for them.
This means that to make a solid plan, you need to thoroughly understand someone’s financial situation and life goals. For many people this isn’t something they’ve really organised and articulated to themselves and may not be comfortable talking openly about.
The more you can give them the tools to make their own decisions and compromises based on their own priorities, the better.
Our flowchart is designed to help people work through the process of allocating their money to their goals, and to find suitable accounts and investments for those funds. There is also additional guidance in the lump sums page.
Helping with retirement planning
We get regular posts from people trying to help their parents or other older family members with retirement planning. Retirement planning is a particularly complex area which shouldn’t be treated casually, especially if most of your previous research relates to building savings and investments while earning.
To accurately plan for retirement, you need a solid understanding of the person’s:
- Current income and outgoings, assets and liabilities
- Desired budget and minimum acceptable budget
- Goals for the future, including any planned spending and potential inheritance
- Housing situation
- Health and potential longevity and accessibility needs
- Attitude towards risks around retirement income and investments
- Willingness to manage more complicated approaches to their retirement income, vs preference for a low maintenance system
It’s not something that can be addressed in a few minutes or paragraphs, it will take careful consideration and research.
Free guidance is available from PensionWise, and information on finding specialist advice can be found on our Financial Advice page.
Helping someone who you consider to be making poor choices
Often, it’s best to avoid giving people unsolicited advice on what they could be doing better with their money.
The recommendation here is to provide an empathetic ear, ask them to explain their financial decisions with genuine interest, rather than judgement, and at most try to gently encourage them to consider alternative routes or viewpoints (this can be helped with questions like “how would you feel if you saw a friend or family member making these decisions”).
If you want to, you can certainly let your friend or family member know that you’d be up for helping them set up a debt repayment plan, budget spreadsheet, investment account etc. Do this once only and don’t keep bringing it up after that, as that is more likely to alienate someone than make them feel supported.
Lending or giving money
People can sometimes need a bit of help, and the ability to lean on friends and family can be vital, especially in an emergency situation. However, lending between friends and family can also become a source of serious friction and difficulty in your relationship.
If you are considering lending someone money, it’s important that you understand there is a realistic chance you may not be able to get the money back.
Before offering to lend anything, it is best to treat any informal lending as a gift, and be pleasantly surprised if it is repaid. Taking this attitude will also require more critical thought about whether lending the money in the first place is a good idea.
If the sums are larger, or you want the lending to be more formal, consider writing a simple contract which includes how much is being lent, the repayment schedule, when should the loan be fully repaid by, what interest is chargeable if any, and both sign and date it. Be prepared to take the matter to court if you need to enforce it.
Regardless of which route you choose, it’s important that you and the person you are lending or giving to are clear as to whether it’s a loan or a gift, and what the repayment terms and schedule are, before any money is exchanged.
MoneyHelper have an excellent guide on lending and borrowing money, which covers both the lender’s and borrower’s sides.
Helping a family member get a mortgage
We get frequent questions from people considering putting their name down as an additional borrower on their sibling or parent’s mortgage.
In many areas of the UK, someone buying alone would need a high income to be able to qualify for a large enough mortgage to afford a property, and it is much easier to achieve with two incomes.
It’s often assumed that buying property is always a ‘good investment’ and therefore will be win-win for both parties. However, the reality is more complex.
- Even if you and your family member agree between you that they will pay the mortgage payments (or on some share where you each pay a certain amount), legally you are both responsible for the full payments. If your family member stops making payments, or loses their income and becomes unable to pay, the bank can come after you for the full amount owed.
- If you are a first time buyer, you will use the benefits associated with that on this purchase, making your own future purchase more expensive for you than if you had not helped.
- You will find it difficult or impossible to get a mortgage on a property for yourself while you already have an outstanding mortgage on the property owned with your family member.
- If your family member is unable to borrow enough to buy unless they can include your income on the application, they’re unlikely to have the ability to borrow enough to buy you out from your share in the future. This means it’s likely that the only way you can get your ‘investment’ paid out is by them selling their home to a third party.
It is important to think through all these implications and that you can agree on a realistic exit plan for this arrangement to even seriously consider it. How will you be bought out? Who can decide when the property will be sold? What if either of your circumstances change? How will you share any positive or negative equity?
Lasting Powers of Attorney
You may be asked to help a family member with their financial affairs using something called a “Lasting Power of Attorney” (LPA). This establishes a legal right for somebody to act on behalf of somebody else, typically in order to help with day-to-day management of finances like paying bills.
This is a big topic, and largely outside of scope for this wiki. The Office of the Public Guardian (the government department responsible for dealing with LPAs) has lots of information for attorneys on their website, and Citizens Advice offer independent guidance too.
How to find professional help
Pointing your friend or family member in the right direction could be all the help they need.
If your friend or family member is struggling with bills or debt (including mortgages), StepChange offer free advice and assistance.
For help with benefits and welfare grants, turn2us offer advice and support.
For dealing with investments, pensions, and lump sums, there are broadly two types of help available: ‘guidance’ and ‘advice’.
Guidance services will provide you with information about your options, but should not recommend any particular option to you. Guidance is available free of charge, online and over the phone, from organisations such as Money Helper and Pension Wise.
Financial Advice in contrast can recommend specific investments, accounts and asset allocations which suit your needs. This will almost always cost money – for more information see our Financial Advice page, which explains the types of financial advice available in the UK, how much they cost, and how to pick a suitable adviser to work with.
It is worth noting that your friend or family member might have access to discounted or free advice and guidance services via their workplace employee assistance program or union membership.