Helping clients navigate loan requests from their family members is tricky. The decision to lend or give money to family or friends is extremely emotional and very personal. This article on lending money to family members is unlike most you will read. It isn’t going to tell you to emphatically always say “No.” It will not provide you with definitive reasons as to why you should put your wallet away. Furthermore, it will not provide you with tips on how to say “no” decisively and promptly.
While, I don’t feel pounding the gavel and saying “NO” is always bad advice, it isn’t often realistic nor is it likely in your heartfelt interest. What I hope to do, is make you more mindful about the situation and the request for money so you can determine if it’s a good idea and in the best interest of the receiver.
Saying “Yes” to Family Members Who Ask You For Money
Let’s start the topic of lending money to family or friends on a positive note. It often works out perfectly fine.
For example, there are structured loan agreements that require a formal payment schedule with interest. There may be signatures and consequences for unrepaid loans.
However, it’s often a conversation with a family member over a cup of coffee. At least that is how it was for me at age 22 when I asked my parents to lend me $10,000 so I could buy my first home and become independent. A dear friend of mine would not have been able to adopt a baby girl without a loan from her Grandmother. Charles Schwab himself had to ask for a $100,000 loan from his Uncle Bill to keep his business First Commander growing (First Commander was reincorporated as Charles Schwab & Company, Incorporated in 1973 – P.S. Make sure you pick up a copy of Charles Schwab’s book “INVESTED – Changing Forever the Way American’s Invest.”)
I think all were great investments of generosity and trust by family members. And, if you are like me, you can list countless other situations in which lending money to a family member was the best decision you have ever made.
Mindfulness Tip #1: Trust Your Gut When It Comes to Lending Money
However, before you go out and open that wallet, I implore you to weigh the request for money verses what your gut is telling you. You must think with your head, not just your heart. I understand that you want to say “yes.” You care about the person asking you for money and want to see them happy and successful, but you must make sure you can financially afford to make the loan / gift.
Furthermore, the habits your generosity are reinforcing must be given a close eye. Are you supporting your adult children who just can’t seem to hold down a steady job? Possibly, you are constantly bailing your sibling out of another bad decision. While wanting to help is admirable, you must trust your gut whether writing a check is the best thing for you and for the recipient.
Mindfulness Tip #2: Consider The Money You Lent a Gift
Don’t loan family members money and expect to receive a penny back. If your loan is repaid, consider it a bonus. When you agree to loan money, mentally (and secretly) recharacterize the “loan” as a “gift.” With the right perspective, and internal acknowledgement of your gift, not loan, your lighter checkbook will not put a damper on family and social gatherings. If your good intentions aren’t repaid as promised, you may be disappointed, but you weren’t expecting your money to be returned in the first place. Furthermore, there will be no need to have difficult and uncomfortable conversations with family members asking them to pony-up on an unpaid loan.
Remember that the answer to “Can you lend me money” is not typically as clear as a line drawn in the sand. You must trust your gut and make sure you can afford to be financially generous. View your loan as a gift and take pleasure in your financial kindness and generosity.
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