Financial Expert Advises: The One Time You Should Never Help Loved Ones--Even If They're Begging for It
By: The Simpleology Team
Priceless Reminder. Blood may be thicker than water--but things get pretty complicated when it comes to cash.
Ever had your older brother borrow a nickel from you back in fifth grade? It's likely that he never paid you back--and you never asked him to. It's either he forgot about it or he thought nothing about not paying you back since, well, blood is supposed to be thicker than money. But admit it. Though you love your brother, losing that nickel must've bothered you for some time.
Priceless Advice
"With three words, you can sum up the most common advice about lending money to your relatives: 'Don't do it,'" warns MSN Money financial columnist Liz Pulliam Weston. "People who've lent money to family members often complain about ingratitude, missed payments and strained holiday dinners. Even the borrowers grumble, especially when their benefactors start quizzing them about their spending."
You can afford to brush it off if it's just a nickel. But what happens when your relative asks for a loan that totals, say, half your paycheck? Again, Weston cautions: "Loans to your nearest and dearest usually aren't a good idea. But if you feel compelled, do it formally - and put it in writing."
Litmus Test
But if that seems too heartless to you, consider the words of Suze Orman, a personal finance expert and author of books like Women & Money: "Never loan money that you truly need. The best litmus test before you agree to give a loan is to ask yourself if you would be comfortable giving the money away as a gift." In other words, don't expect your loved one to pay you back.
Bank on This
Orman then lets statistics speak for themselves, citing the findings of Circle Lending, a company that helps formalize loans between individuals. As it turns out, about 14 percent of loans between friends and family end up in default, compared to just one percent or so for bank loans.
Think of those numbers when a loved one asks you for a loan. And, more importantly, ask yourself if you can afford to risk it.
Credits: Photo courtesy of Wikimedia Commons.
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Comments
This has to be the truest thing ever said. I once borrowed money from my brother long before simpleology days. It was indeed very strained. I landed up wishing he had never borrowed it to me in the first place.
If a loved one asks me for money and truly needs it for a worthy reason such as basic necessities, I am grateful I can be that money love gift. Giving and recieving are the same thing when you give you recieve back which enables one to give more. Giving money to help a loved one is giving someone the ability to do or have something they can use or need and fulfilling that if it is in you to do, they you should not withhold that blessing.
Loaning money is also a great feeling and I agree with you on only loaning money if you truly don't need it back at a specific time. This is true in any case of its being a tremendous feeling of gifting also. I love helping others and have learned to know the difference in beggars and those truly in need. The honest in need persons are such an inspiration with gratitude when help is extended to them.
My father has been saying that for years, "Don't loan it if you can't afford to lose it". Wise advice. There has been a few tense moments as others try to calculate my finances, but all in all, its a good rule and when you don't get paid back you almost feel good about it... like it was a gift.
I've recently gone through a MAJOR life crisis... and I've reached out and asked friends, family, and my community for donations ranging from $20 up to $3,000 to GREAT EFFECT~!!! I've been able to keep from "falling apart" and position myself in a full time profession that I enjoy to help stabilize my life. I've been able to keep my head above water for the last 5 months in a totally foreign atmosphere (I used to live in WY and had to flee to MA to get things back on track).
I've put my request in writing with a promise to pay all loans back with in a year (or when I stablilize) and it's one of the SMARTEST moves I couuld have POSSIBLY made in my situation.
I can't Underscore enough how ETERNALLY GRATEFUL I am for people stepping forward and graciously helping me out in my time of crisis...
I would also like to point out that I think it's down-right cruel when people have the money and refuse to help, simply based on principles like these...
There are good people out there that fall victim to misfortune and can sincerely use a helping hand. Everyone and every situation is unique... and they warrant one's full attention and discernment, in the moment the request for help is needed.
So I have to disagree with you Mark... I do however realize that my situation is most likely an exception to the rule... I come from a family of leeches and I've watched my brother and father mooch off of people for years anda NEVER repay the "loan." I've learned from their mistakes and I think that it really depends on the person and their situation... and their sincerity.
I advise people to consult their head and heart in such instances of loaning money to others... and only do so when both are in agreement.
Thanks,
B~
"never a lender nor borrower be" - wise words.
A written statement need to be signed by both parties and witnessed.
I totally agree with Suze Orman's comment on giving rather than lending and I was about to comment on the same thing before I read that part.
When it comes to family and close friends I always think, "If I can't afford to give it, I can't afford to lend it".
Often, when I give money to a friend or relative, I just say, "If I am ever in need help and you can afford it, you can return the favour then". After all, isn't that what friends and family are supposed to be all about? This was the way people lived in times past and it made out for far better relationships than in the money- and possession-oriented societies we live in today. I often wish we could all go back to that spirit of strong family bonds and neighbourliness that used to dominate ancient societies and combine it with the fantastic technological breakthroughs we have today (such as Mark Joyner relates to in his Constructs).
Some years ago, I received a phone call late at night. It was my niece, who with her husband was doing some seasonal fruit picking at the other end of the country and their car had broken down. They needed $200 to fix it, so could they borrow it?
I agreed to send the money but mentally wrote it off as the husband was a no-hoper but I couldn't leave my niece in trouble with no money!
Well, several years passed and I had just about forgotten the matter when my niece turned up with the money and fervently thanked me for the loan which she explained got them out of a very difficult position at the time! She had dumped the no-hoper husband and moved on with her life.
I'm sure that if he had still been around I would never have seen the money again!!!
It was a pleasant surprise as these were the only two occasions I had heard from my niece for many years.
What if its ur parents ? I mentally wrote off the money I borrowed to them. but its reaching a state where I can't afford it and they are still asking
I've been a borrower from my folks in the past - and had everything WRITTEN and SIGNED and WITNESSED to pay them back. I just paid them $97,345 yesterday. They were happy, so was I.
Advice: only borrow if you're committed to paying it back.
Only lend if the person CAN pay it back (Especially if it's more than a few pennies)...
I stay in a house which my father gifted me...for four years he kept asking for the loan amount though he dint need it.later on he told me that i have been gifted that house.even if i try to i wont be able to pay his GREAT DEBT.I LOVE MY FATHER V MUCH AND WISH A LONG AND HEALTHY LIFE TO HIM
Lending money to a family member is like lending a book: you will likely never see either one (the money and the book, not the family member; although on occasion, it also so happens).
I prefer to give both them away. It's not a loan, it's a gift.
Of course, if I cannot give that gift in that moment (because I'm in the process of reading it or I do truly need that money) then I won't do it.
My brother had been asking for money pretty much all of his life (right, starting from that nickel!) and I had been lending it, until last year when I said it was enough!
And, sure, the holidays were pretty tense.
My advice? Enjoy giving away your money -you'll get a lot more in return!
Jorge Pinkus
Your Maximum Success Coach
I leant a credit card to my brother for a short period of time. I was foolish to lend it in the first place, but he racked up a debt of $6,500 then refused to answer phone calls when my bank came chasing me. I was unemployed at the time, and it cost me dearly.
This is very true! I have had the bitter experience over and over several times. Now I know better.
Dear Mark,
What you have talked about is very valuable advice. I write from India. I thinak this is a phenomenon that is true for all people across the world.
this is something i have realised after loseing a lot of money, time and relationship.
Personally I have lost more than Rs.100,000 by "lending" to friends, colleagues and classmates. More than the monetary loss, it is the emotional pain that is killing, when I see these people again.
Probably calling it charity or gifting would have been been better atleast emotionally.
What about cosigning a student load for your child?
Sometimes it is a good idea a love one because their especially if they are going to invest it in a business venture because their success means your success. Consider it a charity and forget about it if you can. I have done that the rewards I recieved from our creator is greator than what money is worth. Money is not everything if you can make your love one happy and successful by giving it to them. May our creator bless us all.
If I lend money to a friend, I expect him to pay it back or he is taking advantage of the friendship. I also know I may have to confront this person because the loan is jeopardizing our relationship. It may not work for everyone but I found it strengthened my relationships and I usually got my money back. I don't lend to family. I choose my friends but I didn't choose my family.
Speaking from personal experience, including damage to a marital relationship caused by loaning money to a sister without informing or consulting the spouse, I agree with the opinions expressed in this article and those whose commonsense replies echo its sentiments.
Along a similar vein, and speaking again from personal experience, I would also advise against hiring family or friends in one's business. When things don't work out, the damage to a long term friendship or family relationship just cannot be calculated. Respect, from both parties viewpoints, is often the first thing to depart and usually before someone is even released from their job.
I found this fits very well:
"Hopefully, it is clear by now that lending--even lending at interest--is not unbiblical under most circumstances. However, there are conditions under which God would have us to give, rather than to lend. This principle of lending without any consideration for whether the money can be repaid is shown in Luke 6:34: "If you lend to those from whom you expect to receive, what credit is that to you? Even sinners lend to sinners, in order to receive back the same amount."
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