What I have to say applies to close friends as well as family, but it’s a theme that I’ve had a lot of experience with over the years, and posted about the latest not too long ago on my own blog. Here, I’m thinking it over with most of the emotion stripped out.
I was just mulling over the struggle we experience when relationships with family and friends intersect with money. We see some of this all the time: the subtle dynamics of ” my sibling the rich one” vs. “my cousin the poor one,” the profligate vs. the saver, the haves vs. the have-nots. Generational money (or lack of it) adds another layer of complexity to the picture, as does the responsibility factor: who should or must step up when times get tough? And how?
Today, more than any other time in my almost four years of blogging, this question carries an urgency thanks to the economy we’re facing. With an all-time unemployment high, stringent credit throughout the market, and businesses still staggering under the pressure, it’s no wonder that people will need a helping hand from time to time. Things happen, life happens.
It’s critical that as a possible resource, you make sure that your finances are in order. It’s a mistake to lend money that you cannot afford to lose. In this case, learn to say no. It can be tough.
If you can afford to lose it, and decide that you are at ease with the idea of losing it, if you choose to give a family or friend a loan, seriously consider making it a gift. I’m not encouraging giving the recipient a free ride, whether or not you choose to tell the person in question that it’s a gift is up to you: every situation is different and perhaps the person is a younger sibling or a friend or a child who needs the opportunity to take responsibility. That’s fine, but for the sake of your sanity, make it a gift on your part.
Early on, that suggestion didn’t make sense to me, but it’s starting to now. After many years of quietly resenting that the sibling loans I made, and after giving myself countless nights of heartburn when the money never materialized, it dawned on me that I honestly couldn’t afford to give that money away in the first place. The loan wasn’t a permanent solution, and beyond that, it was causing me more harm than good.
Even when I could afford to let go of the money, the unfulfilled expectations were driving me Crazy. Thus, in our most recent debacle, the verbal message to my father was: pay me back. In my heart though, I just let it go, and on my desk, my budget was reworked. Adios, money!
It’s still irritating to be out that money, but it’s not keeping me up nights fussing about what else he spent the money on or why he failed to repay the loan. It’s less personal, in a way. And in the grand scheme of things, a good night’s sleep is more important than $500 that won’t put me in the poorhouse.
[Hi! My name is Revanche, and I normally write at my own PF blog: A Gai Shan Life.]
Wow, very well said and something I’ve learned to adopt as well. The last thing I want is someone I love to feel in debt to me, if I have the money and the need is there, I’ll give it. If I don’t have the means or I’m not comfortable with the gift then the answer’s no.
Borrowing money between family members is hard on everyone. Back 12 years ago, I borrowed $1,200 from my father and mother so I could move my family out of state to a new job. I was hounded for repayment by my mother who didn’t support our move but at the same time, my little brother, who borrowed $27,000 from them and never paid it back, was never questioned.
I have never given a loan to any of my family members, and if I did, it’d be a gift that I could afford to let go.
It is just so much harder to think about money when it comes to family and friends.
I borrowed money for grad school from my mom, and paid her off promptly in installments as soon as I landed a job. It worked out well because I was more anxious to get the debt paid off than she was to get the money back(!).
She has helped my siblings in similar ways at various points. As far as I know, those loans all went well, and got repaid too.
She told me up front, “I’m happy that I can help my kids, and I’m not going to bug you about this. Pay me back when you can.” I think she went into it with the same attitude that you’re suggesting.
The attitude of the party on the receiving end of the loan is important, too. I treated the loan the same way I treated my car loan from the bank. I think Mom was even a little sad when I paid her off (after about 16 months), because each month I put in a little note with my check saying how things were going. (I guess I didn’t treat the loan EXACTLY like a bank loan…)
Which reminds me…think I’ll go drop Mom a line now!
Paul: Thanks for weighing in!
Ron: Yes, inequity in lending and the power transfer involved are other potential sore points I didn’t mention. There are nuances in every familial relationship that make lending/giving a bit of a minefield.
FB: Absolutely.
Sarah K: Now that is a fine example of gracious lending and repayment. Your mom did a great job, as did you and your sibs!