Should I lend money to a family member?

30 years ago, my Mom taught me a great lesson about lending money to people.

Before we get into the rational details here, let me say that I have been the recipient of loans and gifts by some of the most generous people on the planet when I have desperately needed help. Giving and lending often comes from the heart and not always based on rational deductions, which is what makes it such a tough subject.

Here are the pros of lending money to a family member:

• You are a hero for 5 minutes
• …..
• ….
• ….

I can’t think of any others.

Here are the cons if it is not paid on time or not at all:

• Your spouse is angry with you
• You relative avoids you
• You get angry
• You begin to resent them
• Other family members get caught in the middle
• Family gatherings become awkward

If you think about it – why have they come to you to borrow money?

Because they cannot borrow money from a regular, traditional source such as a bank or credit card company. If these other organizations would not lend your family member the money, there is probably a good reason for that. Why then would you think that they will be able to pay it back to you?

Sometimes though there are good reasons for the need and there could be a good case in favor of lending the money.

The lesson from my Mom?

Years ago, I learned that there is only one way to lend money to family members that will not cause any issues – In your mind, GIVE it to them as a gift!

That way there is no obligation to pay the money back.

There are so many cases of families who have been torn apart because of borrowed money.

Obviously a soft heart is something that is to be admired, and I have personally lent money to many people, with some having been paid back and others not. The thing I need to consider in this decision is what the emotional repercussions might be and to decide if I can live with those.

Just one last thing to consider – If I decide to GIVE them the money, then I really need to know in my heart that I see it as a gift and do not retain hopes of repayment, because this will still cause me to be anxious.

If I cannot gift it to the person, then perhaps I should carefully consider before granting a loan.

What if they do pay it back?

This way, EVERYONE is really happy, because this transaction has exceeded everyone’s expectations.

Let’s Talk

Please feel free to contact me if you would like to discuss how we can help you with your family’s plan either in person, over the phone or on Zoom

About Dave

Dave Coen is a Financial Advisor with SageView Advisory and the CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.

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