With the holidays approaching, it’s normal to feel the anxieties and pressures of upcoming expenses and bills. As a result, you may consider loaning money to family if the need arises, or similarly, find yourself in the position of asking family members for a small loan to get through to the New Year. This can be a delicate situation for many, and the famous quote “neither a borrower nor a lender be” may ring loudly in your ears. But what is the right thing to do, and how should you handle the situation if it arises? If a family member asked you for money, what would you do?
Understanding the Nature of a “Loan”
Probably the first thing to consider is whether a “loan” really means a loan or if it’s just a convenient term being used for “no intention of paying back.” Money has the potential to divide the best of friends and family members, and no one wants to feel taken advantage of. If a family member asks you for money and you have it to give, it might be good for karma’s sake to lend it to them—provided some terms are expressed.
The idea of adding interest or establishing payment terms may seem excessive for family members, but it largely depends on the borrower. If the borrower is someone you trust and believe will pay you back when they are able, most people would suggest leaving it at that. On the other hand, if the borrower is your consistently unemployed brother-in-law, who spends his money on cigarettes and beer rather than paying his electric bill, it may be best to just say you don’t have it to give. This way, there won’t be any issues or underlying resentment when you see him with a new iPod while still owing you $500.
Loaning money to a family member is something that should be done with care, especially if kids are involved. From time to time, many families will experience financial dilemmas, and you have to realize that the fact they even asked shows the importance of the matter to them. While it is polite for the borrower to explain why they need the money, it’s often best not to ask. Normally, answers like these will express themselves in time. For most people, the need to borrow money from family is embarrassing and comes with a feeling of failure long before they ask. Be considerate of their feelings.
Establishing Clear Terms
Some good advice when loaning money to family is to always give it without expecting it to be paid back. Sure, chances are that if your family member has integrity, they will repay you, but many people borrow from family with the silent understanding that it’s the last financial obligation on a long list of many. Again, setting terms from the beginning may be a good idea if you really want to see your money returned. If you don’t establish terms or make some sort of amicable payment arrangement, the borrower may take that as an indication that the money is actually a gift.
There are plenty of people—whom you probably know—who borrow endlessly! When it comes to these individuals, you should live by the motto: “Fool me once, shame on you! Fool me twice, shame on ME!” Use common sense, and you can always say no. If simply saying “no” doesn’t feel good, you might consider making up a financial commitment of your own that is pressing and requires your attention.
The Limits of Family Loans
While loaning money to family in a time of need can be a nice and familial gesture, it should never become a habit. You don’t want others to see you as an endless fountain of money, and there comes a point in everyone’s life when they need to become financially responsible. Keep in mind that what your other family members do is really none of your business. If your aging grandmother always caves and lends money to everyone who asks her, it’s not your place to try and put an end to it. If she’s being taken advantage of, chances are, as long as she is in good health and has the means to give, she is okay with it on some level. Staying out of it is often the best option all around.
Perhaps the biggest borrowers are grown children. They may see their parents as an endless well of money and, instead of learning how to make difficult choices, they depend on their parents to bail them out. While it’s difficult to see your child struggling with debt, it’s probably wise to help them once or maybe twice. After that, you are not doing them or anyone else in your family a favor by continually loaning money. Of course, if a family member has just lost a job or suffered a traumatic event, and you sincerely care about them, helping them pay a bill or two is a kind gesture that ensures the money is going to the right cause rather than something else.
People are not banks. While giving $5 here and there may not hurt anyone, being used for financial gain doesn’t feel good, no matter how you look at it. If you have something to offer or give, you may be inclined to lend money. But if you don’t, it’s best to hold onto your checkbook and take care of yourself first. Otherwise, you may find yourself needing money from family members. Consider that your family may have other options, such as taking out a formal loan or asking for a co-signer if they need assistance. This may be a safer option than withdrawing money from your own accounts. Financial experts suggest that people who take money out of savings with the full intention of putting it back rarely do! If your nest egg is just beginning to grow, offering or loaning it to others could be a catastrophic mistake for both you and your family.
While no real question has been definitively answered here, the bottom line is this: Pay attention to how you feel when asked for money, and consider the money as never being returned. Try to own the feelings you will have afterward and ask yourself whether you will feel resentful later. If you can live with it, then helping family is a great thing to do, with no strings attached. However, if you can’t live with it because you feel the borrower is unreliable or irresponsible, excuse yourself from feeling guilty and just say no. No matter what you choose, money comes and goes, and it’s always from Peter to pay Paul. That being said, money should never stand between the hearts of people.
