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Lending Money to Family and Friends, Part 1

Money is an emotionally charged issue that has torn apart many a relationship. To that end, there are some things to keep in mind when deciding whether to lend or not to lend to a friend or loved one:

  • Just like in Vegas, don’t risk more than you can afford to lose. Loaning money to friends or family is a gamble, so never make a loan if it’s going to put your own financial situation on the skids. However well-meaning the individual is, none of us knows what tomorrow holds. Only loan the money if you’re comfortable with the idea that you may never see it again.

 

  • Do not dip into your retirement account. Loaning money is not a good idea if it means that you have to risk your retirement savings. Protect this nest-egg as though you were the mother hen, and don’t let any of your chickens touch it.

 

  • Involve your spouse/partner in the decision. Communication could not only save you money, but could save your marriage or relationship. If you and your spouse don’t agree on making the loan, it could result in significant stress on your relationship.

 

  • Evaluate the impact the loan will have on other family members. If you loan money to one child, you’re setting a precedent. What if other children are not as responsible, and the risk of them repaying a loan is greater? Be prepared to deal with the potential strife such a situation could create within the family.

 

  • Consider the reason the borrower needs the money. Do they want the loan because of an emergency like loss of job or unexpected medical bills, or because they made poor spending decisions? Will it be used for something that will improve their life, like a down payment on a home or education?

 

For more tips on lending money to friends and family and a whole host of other topics, visit the Consumer Tips section of the NFCC Web site by clicking here.

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