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Hello Delta and welcome to the family! I'm so sorry you're in this position and I'm equally sorry that there aren't any solutions to this problem.
Why? You're dealing with three generations of mental illness and entitlement, and cutting off one hurts all three. Normally, if we were only talking about the daughter or the granddaughter, then we'd advise to help them see that they must move on from the cycle they're currently in. But when it's three people completely co-dependent on others while refusing to even try to make ends meet, then no amount of help will ever be enough. They'll simply spend the money and expect more.
Hopefully you can see here that the problem isn't money. They just want money so that's what you hear about. The real problem, however, is mental illness and entitlement.
Let's get to your questions, and I'm going to start backwards since your most important question is last.
What kind of help would be beneficial? That's easy, get the youngest out of there, get her into therapy in a balanced home. But here's the problem with that, only she can decide what is best for her. If she wants to stay in the chaos, she'll stay and there's nothing that anyone can do about it.
What's best for the daughter? The answer is exactly the same and it has the same limitations- only she can decide that for herself and her kid.
What's best for grandma? I'm not sure. This could possibly be an elder abuse scenario so I worry about the wellbeing of all three. Yet grandma still gets to decide what's best for her.
Can you see the pattern here in these answers? You can't do ANYTHING to make this situation better unless they actually want things to change. They're not asking for that though, they're asking for more money.
So they want your money, you want to help, but you want to be the adult in the room as well and figure out a way to instill some boundaries. What are the boundaries when it comes to money? In other words, "I will help you with $xxx when you __________________________ but I won't help if you _________________________________."
That's an actual boundary and it's for you. They are the ones making the choice to respect your boundary or ignore it. If they respect it, you go with the first part of the above sentence. If they ignore it, you go with the latter half. The boundary is the only thing you can actually control.
I understand you feel guilty. We all want to help friends and family. They must be willing to help themselves, however, and it doesn't sound like they're doing that. Giving them money only ensures that it will be another month, another year, before they even consider doing something different. Because here's the thing- unless you're filthy rich, you're not the only one. Many, many people are supporting them as well and they are so used to it, it feels like an entitlement.
The answer here is to make a very clear boundary about when you will and won't help. And maybe you don't want to be that involved in their lives, I can understand why. Maybe this is a family conversation instead of a "you thing". Hopefully you can see though that you don't owe them anything and you've been taken advantage of for a very long time.
"Cutting them off" is honestly the most compassionate thing you can do because it forces them to make tough decisions...do they become homeless, or do they try something different? There's no reason for them to try anything else when family is making it easy. And if everyone did cut them off, then maybe the teen would end up in a much better position in life with a different family member.
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