Why You Shouldn’t Let Family Control Your Financial Decisions

Verify financial advice from family members, rather than assume it’s correct for you.

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Trent Hamm
Trent Hamm
They're familiar refrains.

My parents think we should buy a house, but I don’t think our finances are ready for that.

My grandfather says only fools invest in the stock market.

Uncle Lewis invests a lot of his money in gold and insists we should all be doing the same.

My brothers say buying a car that's less than five years old is a waste of money.

Family members and loved ones can be incredibly compelling. We trust them. We love them. We value their input. Sometimes, they frustrate us with their opinions, but we know it usually stems from love and concern.

How can we not listen to them? How can we not value their input? Here are a few things to keep in mind when your relatives start doling out money advice.

1. Relatives are not financial planners. The first thing to remember is that you don't necessarily know the basis of their statements and opinions. Financial moves should be based on raw data and real information, not on secondhand sources or media summaries on financial news.

Sometimes family members base their statements on what worked well 25 years ago. Other times, their information comes from sources with questionable motivation such as ads on talk radio stations or commission-based financial advisors.

Financial information is best from trusted sources who can back up what they’re saying with authentic data, not secondhand anecdotes. You should never take financial advice from anyone without verification of what they're saying.

2. Everyone views risk differently. Your brother's and grandfather's assessment of risk might be very different from yours. They might view some things as risky while you do not. On the other hand, they might be more willing to expose themselves to risk than you.

Uncle Lewis, for example, might genuinely believe the global economy is going to collapse tomorrow, and thus having any investments that are valued in U.S. dollar is a mistake.

3. Your family doesn't know your finances. Family members and friends don't necessarily know the specifics of your financial situation: your income, level of debt and the balance and interest rates on your student loans.

Without these essential pieces of information, no one on Earth can give you sound financial advice. It's just not sensible to suggest someone should buy a home without at least some idea of their income level, debt level, and credit history.

The bottom line: Unwanted financial advice doesn't have to be a source of disagreement or family discord. You just have to respond in a polite, respectful way. Simply saying, "Interesting! I'll look into that," or "We plan on doing just that when we knock our student loans down a little more," shows respect for the advice giver without having to accept the advice.

Remember, family members can be wonderful, caring people, but that doesn't make them financial advisors.

Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.