Lending money to friends and family often comes with a huge guilt burden rather than a feelgood factor for helping someone out.
You either caved in to pressure because you did not want to look mean or you feel bad because you did not hand money to someone you love or like and the relationship has turned sour.
Investors have a rule about not staking cash they cannot afford to lose, and the same should apply to lending money.
How people feel about family borrowing
Last year, American financial comparison web site Lending Tree looked at how people felt about lending to their family and found that just over one in four who borrowed or loaned money faced negative consequences from the transaction.
Those consequences ranged from bad feeling in the family (15%), seeing relatives less (12%) and even blazing rows (10%).
Others said they suffered resentment (14%), uncomfortable family get-togethers (7%) and irreparable harm to their relationships (5%).
In a few cases, resentment led to law suits (1%), while 25% of lenders say they will never hand over cash to their family again.
Golden rules of family lending
The survey has spawned three golden rules of family lending:
Don’t lend what you can’t spare –However much you want to help, leaving yourself short of cash is not the answer. You may feel bad about saying no, but saying yes may make you feel even worse.
Don’t bankroll your family –If they need the money because they are living beyond their means, giving them more cash may give some financial respite but won’t cure the underlying causes of their need to borrow.
Lending may only delay the inevitable consequences of spending too much and leave you with a debt that will never be repaid.
Don’t fall foul of emotion –Lending is a business transaction and you need to treat handing over money like a bank. Ask for interest, agree a loan term and regular repayments and accept you may never see your money again.
The best advice is to try and remove all the emotion from lending to your family.
Try to make the right decision for you both and don’t give a simple yes or no response, explain your reasons – especially if you feel you cannot help.
