It's Really OK to Say, 'I Can't Afford That'

Many people would rather struggle to pay off a large credit-card bill then utter the phrase “I can’t afford it.”

Feelings of shame, embarrassment or a desire to avoid conflict are just some of the reasons folks just won’t say no.

But being honest about what you can and can’t afford can reduce financial stress and boost your financial health.

Below, therapists, financial advisers and parenting experts give tips on how to say the dreaded phrase (without actually saying it):

1. Set limits, decide later

When clients in their 20s come to see Carl Sword, a New York psychoanalyst, they often have more than $20,000 in credit-card debt—in addition to thousands of dollars in student loans. Most of these young adults worry how they’re going to pay off the staggering debt—some of it racked up from pricey nights out with friends. Yet, they can’t bring themselves to say “no” when their friends extend another invitation they can’t afford.

“There’s a lot of peer pressure in our society to spend,” Mr. Sword says.

When presented with an offer, folks can alleviate some of that pressure by using a phrase such as “Let me think about that and check my budget,” he says. Doing so may help them avoid a snap spending decision, weigh the offer in light of their finances and feel less on the spot with their friend, says Mr. Sword.

2. Warn them in advance

Instead of telling his friend he was on a restricted budget because he was concerned about getting laid off, a client of Brad Klontz’s would make up excuses about why he couldn’t go out.

The client’s friend began to feel rejected and the relationship drifted apart, says Mr. Klontz, a certified financial planner and financial psychologist from Kapaa, Hawaii.

It’s no surprise that hurt feelings, resentments and misunderstandings arise when friends don’t communicate honestly, he says.  A casual talk about money can prevent some of these misunderstandings, says Karol Ward, a New York psychotherapist.

Telling friends in advance can prevent them from feeling rejected later on, she says.

Ms. Ward says when most clients have this talk with their friends they’re pleasantly surprised and realize there’s nothing to be ashamed of.

“Especially in this economy, most people say ‘Yeah, I totally get it,’ ” she says.

3. Teach the kids

When your teenager is whining that “everyone else has one,” it can seem easier to just buy the toy or latest electronic gadget to keep him or her quiet. Not to mention, despite their own financial challenges, most parents don’t want their children to feel deprived.

As a result, telling a child they can’t afford it is something many parents will do their best to avoid.

But not saying “no” can have disastrous financial implications for the family and fails to teach the kids financial responsibility, says Neale Godfrey, chief executive of the Children’s Financial Network, which teaches parents and children about money.

She recommends parents avoid the phrase as it’s usually not entirely true anyhow.

Instead, after reassuring the child they’re loved, the parent could say “I choose not to spend my money on that,” says Ms. Godfrey, who is based in Chester, N.J. This can trigger a conversation with children about how money is made and let them know that once they too have money, they will have some choices on how to spend it.

If it’s within the parent’s budget, some negotiation may be possible, she says. The parent could offer the child the option of, say, skipping popcorn and a soda at the movies in order to save up for a videogame.

This teaches kids how to save and delay gratification, Ms. Godfrey says. “It’s about empowering the child and not creating a sense of entitlement.”

4. Blame your adviser

The adult daughter of Lauren Lindsay’s client expects her mother to pick up the tab when they go out to eat and shop. She also expects her mother to baby-sit free, even though the daughter is married to a wealthy man.

While the Covington, La., certified financial planner’s client could afford to treat her daughter in the past, a recent divorce left her with a limited pension. Now, she must work to supplement her income and carefully watch her spending.

Reluctantly, the client recently explained her new financial reality to her daughter. The daughter hasn’t challenged her mother yet, but if she does, Ms. Lindsay is ready to provide back up.

“I told her to blame me” if the daughter objects, she says.