How you can help your loved ones become more financially resilient

With many people’s finances being squeezed due to the cost of living crisis, you may be concerned about how your loved ones are coping financially.

In the face of sticky inflation and rising interest rates, your son, daughter, or parent may have revealed to you that they feel financially insecure. This may simply be due to the pressure of rising bills or could indicate a lack of understanding about their finances.

According to a recent study by Standard Life, 1 in 10 UK adults were concerned their relatives had made poor financial decisions, resulting in some form of financial loss.

The study also revealed that 37% of those with relatives who had made poor financial decisions believed this was due to a lack of knowledge or understanding. 31% said their relative lacked access to proper advice or guidance.

Fortunately, there are plenty of ways you can encourage your family members to foster a better relationship with their own money, without necessarily offering them a payment yourself – although this can be a viable option in some cases.

With that in mind, read on to discover how you can help your loved ones become more financially resilient.

Help them identify their financial goals

Identifying and understanding financial goals can often help to focus a person’s mind and help them become more mindful about how they spend their money.

For example, your son or daughter may just be starting out in their career and want to understand suitable ways to save and invest for the future.

Whether they’re looking to put money aside for their first home or they just want to save up for a holiday with their friends or partner, understanding and identifying their financial goals and how much money they’ll need to achieve them could be beneficial.

If you’re offering them advice and support, it’s important to understand that their goals may well be different to yours. And while a decision may be right for you, it might not be suitable for them – so ensure you’re making suggestions, rather than taking over how they manage their money completely.

Stress the importance of building an emergency fund

While your loved one may not be in the position to start building an emergency fund at this moment, understanding the importance of having money saved for unexpected costs could help them in the future.

Whether your child or grandchild has recently started a family of their own or has just changed jobs, helping them understand the benefits of having an emergency fund could make a huge difference.

While the size of their emergency fund will vary depending on their monthly income, expenditure, lifestyle, and dependents, it may be wise to suggest they put away at least three to six months’ worth of expenses.

Suggest to them that they keep their emergency fund in an instant access savings account. By doing so, they’ll be able to access their cash whenever they need it.

Moreover, knowing that they have money set aside for unexpected expenses can also help them –  and you –  to sleep more soundly.

Educate them on the benefits of both short- and long-term saving

When money is tight or you’ve just started out in a career, it can often be easy to focus on the present. However, by doing so, your loved one could make it harder for them to maintain their lifestyle or do all the things they want to do in the future.

For instance, your son, daughter, or grandchild may have recently become employed for the first time. Receiving your first payslip is an exciting time, and it can be tempting to spend all your hard-earned money immediately.

Similarly, an older relative who is taking their pension could feel worried about having enough to last the rest of their life due to cost of living pressures.

No matter your relative’s circumstances, it could be a good idea for you to educate them on the benefits of short- and long-term saving.

This may encourage them to save some of their wealth in an account they can easily access if they ever need emergency cash.

Plus, your guidance could help them understand the power of compound returns and the benefits of long-term wealth accumulation through ISAs or an investment portfolio.

For example, ISAs offer a tax-efficient and easily manageable way of starting an investment journey. Not only will your loved ones pay no Income Tax on the interest or dividends they receive from an ISA, but any profits they make will be free of Capital Gains Tax (CGT).

Additionally, your loved one will be able to take advantage of their ISA allowance, allowing them to save up to £20,000 into their ISA in the 2023/24  tax year. They can even split their allowance across the different types of ISAs by paying £10,000 into their Stocks and Shares ISA and another £10,000 into their Cash ISA.

Provide financial support when suitable

Your son or daughter may have recently lost their job or divorced and may need some financial support. Or your elderly relative may require some assistance if they’ve seen their pension income reduced due to market volatility or the cost of living crisis.

You may be keen to help them financially and get them back on their feet, whether that’s through a one-off lump sum or ongoing support.

There are two things to consider here.

One is how your loved one may react to your offer of financial support – perhaps broach the conversation carefully, without applying any pressure.

The second aspect to think about is whether helping them out could affect you financially – in both the short and long term. It’s important to understand the potential effects that giving your wealth away could have before moving forward.

Speaking with a financial planner could offer real value. We will use cashflow modelling software to help you understand how offering financial support to your loved one could affect your financial plan and any goals you have.

We’re happy to talk through your family members’ finances with them too if they wish.

Suggest that they consult a financial planner

A report by Citywire has revealed that around only 8.3% of UK adults receive professional financial advice. This is often due to Brits thinking advice is not appropriate for them or believing it to be unaffordable.

However, financial advice is suitable for anyone looking to increase their future financial security and achieve their goals.

As a client of a professional financial advice firm, you could highlight how you’ve benefited from financial planning, and encourage your loved ones to do the same.

Get in touch

If you are concerned that your loved one is struggling with financial stress and believe they could benefit from seeking tailored financial advice, we can help.

Our experienced financial planners can help your loved ones identify their financial goals and put plans in place to achieve them. Plus, we’ll give them the peace of mind of knowing they have professionals in their corner.

To learn more, please email info@harperlees.co.uk or call 01277 350560.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate cashflow planning.