The call was inevitable, but I still wasn't totally prepared for it.
"You know it's been tight since I've laid off. We have a house
payment due on the 15th. We e-filed our income tax return and should
get our refund by the end of the month which will more than cover.
Can I borrow $1500?"
I'm sure calls like this cause dilemmas to people hundreds if not
thousands of times a day. You want to be supportive of your friends
and family, but you wonder if by extending credit, you will be
subsidizing something that should not be.
You also know that nice Aunt Franny may not be the first creditor
your nephew is going to pay back. You don't have the enforcement
mechanisms of the mortgage company or landlord, the IRS, or the bank
who holds their car loan. You may be remembering the last time you
loaned money to a family or friend and it just didn't work out.
When should you loan money to friends and family? There is no easy
answer, but here are a few points to consider.
Just What Are You Funding?
Anytime you advance money, you are funding either a continuation of
a lifestyle or a change. Decide whether this is a change you want to
fund.
Does Junior need a new car because he goes six months without
checking the oil? Is this the second car this has happened with?
Maybe you need to get his attention in other way.
Perhaps, on the other hand, another Junior just got out of high
school. He did well and just got into a great local school.. He
doesn't have much money, but has some start-up needs (e.g. moving
expenses, new clothes, etc.) Financing some of those start-up costs
might be useful. He will have 2 part time jobs and go to school full
time. He has a history of handling money well. You might want to
give him a hand by helping him finance these startup costs.
People borrow money for all kinds of reasons, many of them not so
good. Here are a few situations.
Let's go back to Junior with the car. What Junior really needs is a
good lesson in how to take care of a car. You may want to ground
Junior's wheels for awhile, enroll him in a car care course, and
then help him pay for the repair of his car, either partly through a
gift or partly through financing. You might want to remind him once
he gets his car up and running what he needs to do to take care of
it. That way Junior has a skill.
Most people who are in a position to loan significant amounts of
money got there through hard work, investment, and thrift. You will
help your friends and family get there a lot more effectively
if
you pass on those skills , possibly with a little financing and
some gifts combined with counsel, than you will be if you loan money
that may or may not come back.
Some people always seem to need to borrow money because they don't
have financial skills. You are better off helping them learn those
financial skills than by bailing them out.
For the Truly Needy→GIVE
Sometimes you may have someone who is truly down on his or her luck
and in need through no fault of his or her own. Perhaps someone
sustained an injury that prevents employment for several months. I
prefer to give to those people rather than loaning to them. I would
help that person find some other resources that can be of
assistance, perhaps through a church or some other agency. I would
not want that person to have the burden of paying me back when
income just begins to come in.
It's tempting to take the easy way out when someone wants to borrow
a large sum of money from you. You can run the other way and have
nothing to do with the loan--sometimes appropriate if you feel the
person is not ready to face his or her problems constructively. Or,
you can assess the situation and see what combination of financing,
giving, counsel, or other solutions best serve everyone involved.
have
the courage to question & challenge the status quo... refuse to
accept "traditional" thinking and answers as fact....
~Kimlee
