We’ve all had the situation where we must decide about loaning or lending money to friends and family.
You are talking to a friend (or a family member).
You are enjoying the conversation.
Little do you know, there is a question that is floating around in the back of their mind.
They may be battling back and forth about whether they should say what they are thinking.
Some don’t hesitate…they know that you have what they need and they are just going to ask for it.
Either way, the words come out.
“Can you lend me some money?”
Where did that come from?
What do you do?
Do you loan them the money?
Did you lend them money before?
What was the outcome?
Today, I began reading a new book called The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey.
I am a firm believer that you can always learn more so I’m always reading new books. I know that a lot of people follow Dave Ramsey. I’ve watched some of his videos but I wanted to get an idea of his views on finance.
He is a leading expert and I’m not too proud to listen and learn.
At the end of the day, my goal is to learn from different perspectives and make my own decisions.
Hopefully, this is your goal as well.
Dave Ramsey’s thoughts on lending to friends and family
So, I just started this book today so I haven’t gotten too far. But, there was a part that caught my attention about lending money to friends and family. Dave also mentions this on his blog…
He begins with a joke.
“So the old joke goes: if you lend your brother-in-law $50 and he never talks to you again, was it worth the investment?” (Dave Ramsey)
Then Dave discusses more about lending money to friends and family.
“It is okay to give money, but loaning money to someone with whom you have a relationship will lead to broken hearts and broken wallets.” (Dave Ramsey)
He also adds the details of a survey that was conducted.
“Check out the statistics from a recent money-etiquette survey:
- 57% of people said they have seen a friendship or relationship ruined because one person didn’t pay back the other.
- Almost 50% have loaned $100 or more to help out someone, but 55% don’t get repaid.
- 71% lend money to immediate family members, 57% to relatives, and 54% to friends.” (Dave Ramsey)
When you look at this information, it seems like the obvious choice is not to lend money to family and friends.
Yet, many people still do.
Why is that?
My thoughts on lending money to friends and family
I think it is because of the connection and the good feeling of giving. Your emotions are what get to you in that moment. You may be seeing someone suffering that you care about. You know that you can help them and you will feel better about the situation if you lend them the money.
At that moment, it “feels” like the right thing to do. You are trying to think clear when you are in an emotional state. You are empathizing with what the person is feeling so that makes you sad. And most people would rather feel happy.
So, what would make you happy?
In that moment, it would make you happy to lend the money because it would make the person happy and you will feel good by giving.
Yes, it does feel good to give. The problem comes when it’s time to get the money back. You lend the money thinking that your friend or family member are just down on their luck. Maybe this will help them and they will pay it back quickly.
Then they don’t pay it back.
Maybe because they are still struggling.
Sometimes they are doing better but they still don’t pay the money back. And these situations can cause a rift in your relationship.
When it comes to lending money to friends and family, my philosophy is to either give it or don’t. I don’t lend to friends and family.
I give it whole-heartedly or I don’t give at all.
For me, lending is not an option.
I have loaned people money in the past and they didn’t pay back.
So then you have to decide if the amount of money owed is worth more than your relationship. Because if you pursue the money that is owed to you, you risk destroying the relationship.
So, I decided a long time ago, either I give it whole-heartedly or I don’t give it at all.
I cannot give and want it back.
Because if it doesn’t happen, I don’t want to have the negativity towards the person every time I see them.
And I don’t want them avoiding me whenever they see me.
How to deal when friends and family ask for money
You must determine your values when it comes to lending money to friends and family. Then you must be firm in your values and your decision.
Donna Freedman at Money Talk News offered these ideas to help…
- Make a policy of saying “no”
- Try to help in other ways
- If you must lend, be smart
Lendedu mentioned some ideas to consider…
- What’s more important – repayment or the relationship?
- Are you helping or enabling?
This is all sound advice. Donna basically meant to have a plan in place for what you will say if someone asks you for money. By being prepared, you are more likely to stick to your values.
Just because you cannot help by lending money, that doesn’t mean you cannot help. You can offer other ideas and solutions that could help the person. This can also show you if the person really wants help or a handout.
Lastly, Donna is referring to if you have to lend, do it wisely. Set up a contract to ensure you are paid back. If someone wants to borrow money and promise to pay you back, they should have no problem signing a contract.
Even though your heart is in the right place for wanting to lend money to friends and family, the plan often goes off course as the survey stats show above. Stay true to your values and follow the guidance above when it comes to lending money to friends and family.