When Should You Help Your Family with Money?
Posted by Cap in Personal Finance on October 26, 2006 |
My sister’s car engine had to be replaced recently. With property tax due soon, she’s having difficulty paying all the expenses and the unexpected $2,000 car repair bill.
So instead of putting the cost of the engine replacement on her credit card (which already has a balance), I offered to pay the bill for now and she in turn can pay me back later in monthly payments — which should save her a hundred dollar or so in interest.
Of course, there’s always those generic problems of letting people borrow money. I have no doubt that my sister will pay me back, but I certainly don’t want to create any weird lender/borrower relationship during these months.
Another minor beef is that, in my opinion, my sister could be managing her cash flow a bit better. She could also spend a little bit less on buying crap, but whenever I try to mention that, my sister has a tendency to try to kick me in my genital area.
So even with some of those misgivings, I decided to help my sister out a little bit — after all, a loan is hardly a hand out, and she can definitely use the help this month.
Which brings me to the question above: At what point should you lend a hand, give some money or extend a personal loan?
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24 Responses to “When Should You Help Your Family with Money?”
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October 26th, 2006 at 10:48 am
Good question. For me, if it’s a friend or family member, I would only make a ‘loan’ with the mindset that I do not expect it to be repaid.
That is not to say that my fmaily or friends are all deadbeats! Just that, if the person to whom I lent the money turns out to be a deadbeat, I go in with a mindset to be prepared for this and deal with the possibility that I’ll have to write off the loan in order to maintain my relationship with the lender.
October 26th, 2006 at 11:09 am
Extend a loan? Never.
Once the lender/borrower stuff comes into play, you can never go back. You already think she should change her spending habits, and she knows you don’t approve. Now she gets to enjoy Thanksgiving dinner with the bank-man. She also gets to have a financial debt to someone who thinks she spends too much, how will she feel about a new sweater worn to a Christmas gathering with you?
A harsh picture? Agreed. So, can you still help? Absolutely.
One option is to let her figure it out. People have been making, and will continue making, poor financial decisions with or without your help. This trial may be the one that opens her eyes to a different way.
Another option is to just gift her the money. If you have it to loan, then you should have it to gift. And if she insists on paying it back, refuse and tell her to pay it forward. Have her find someone else, or a worthy cause and give it to them.
Imagine the holidays now: you are a generous brother who has seen a trial and made a difference–not another financial burden.
October 26th, 2006 at 11:15 am
I’d stay out of it unless it came down to a serious issue such as foreclosure, kids need food, medical or a seriously extenuating circumstance, like a bitch-on-wheels-soon-to-be-ex-spouse who left the relative with all the bills.
But in a situation like this, where the person is playing like the grasshopper (see the grasshopper and the ant), then getting bit in the ass with $100 of finance charges, that is his/her problem. Learn to save, learn to manage better.
Only step in to help out in truly desperate times.
October 26th, 2006 at 11:48 am
PS. I get nailed with $4000 in property tax each year. Why is property tax a “surprise” expense? It happens EVERY YEAR at the SAME TIME for about the SAME AMOUNT.
Tell sis to get out her handy dandy calculator, divide her tax bill by 12 and put THAT amount away each month into an interest bearing account.
I do mine into an ING account. Haven’t been surprised yet!
October 26th, 2006 at 11:56 am
I never loan money…ever. The reason is, you elevate yourself above that person. They OWE you. It totally changes the relationship. Even if they are related and yadda yadda yadda.
I would GIVE the money to her no strings attached. If I wasn’t willing to do that, I wouldn’t loan it.
I agree with Jason.
Also, as well meaning as you may be, she won’t see that when you loan her the money then TELL her how to manage he finances. Not a good dynamic for a relationship you would like to keep IMHO.
October 26th, 2006 at 12:44 pm
Unless its a major emergency, like a medical issue, I wouldn’t loan out any money. Hopefully being a little strict in this area would help your sister wake up and face the music. Maybe there can be a compromise where you won’t give her money but you’ll help her set-up a budget and plan on how to get back on track financially. Btw, does she read this blog?
October 26th, 2006 at 12:44 pm
Yeah, what Chelee says. You are already down on their spending habits. When they buy the weird hat for 200 and only make the payment to you, are you going to mention that? I would sorely be tempted to have them return the hat and make more of a payment to me. And if they didn’t or I didn’t mention it, I would be quietly mad and it would wreck the relationship. Never lend more than you would be willing to give them. It might be a gift in the end. I give away lunch ($10 loan), and nothing more…
October 26th, 2006 at 1:12 pm
I tend to agree. Gift or nothing. No loan. At least, in this situation. Mostly because it’s a long-term loan.
For example, say I have a friend who needs to borrow $300 for one week. (Maybe he recently changed jobs and is between paychecks, and just needs it until he gets his first check from his new job.) Depending on the friend (And the only friends I have are good ones. Why bother with semi-friends? But I digress.) I would almost definitely lend the money if asked, knowing I would get it back in a week. (Because, again, the people who make my “friend” list are the kind who repay loans.)
But, in reality, it’s more likely that I’d just “gift” it anyway, knowing that some of my friends would accept it as a gift and others would pay it back whether it was a loan or not. Maybe the payback wouldn’t be in cash, but it would be in the form of picking up dinner tabs or things like that.
I think money between loved ones can be a very tricky subject. I also think that all relationships are different, just as our attitudes about money are different. What works for you and your sister, for example, may not be what would work between you and your college roomie.
October 26th, 2006 at 1:47 pm
Depends on the amounts. But only with family. Friends, if it’s more than ‘just pay for dinner next time’, then no. Too much baggage.
Genital kicking is the same as loan default. Then I call in Big Jimmy and his little friend… :)
October 26th, 2006 at 2:04 pm
see everyone made mucho good points, and the whole lender/borrower dynamics is what I don’t want to deal with. I certainly don’t want to get pissy when I see her spend money on a brand new hat, especially if she still owes me money.
Midnight does made a point that all relationship are are different, but you guys are right that as a general rule of thumb, lending money between friends and family is just a bad idea.
I honestly don’t think it’ll be an issue between my sister and I, as we are quite frank with each other. If I see her squander money while she still owes me money (or to someone else), I tend to open my mouth and complain.. she will in retrospect tell me to shove it (even if she owes the money to me). And we’re both fine with that.
What I’m trying to say is, the dynamics between our relationship most likely won’t change much. Yes, she’ll owe me money.. but she’ll pay me back regardless if she’s wasting money on the side or me bitching to her about her spending habits. We’re both well aware of that, and the relationship can’t honestly get any worse or better.
Still, you guys are right. I shouldn’t complicate things further by lending the money, if I want to help I should just gift it, which I think I’ll do.
It’s not like she asked for the loan or help, after all.
Thanks for the comments guys.
Also, the reason why I didn’t want to give money in the first place is because you don’t solve money management problem by throwing money at the person. But then again, this isn’t about fixing the way my sister spend money, it’s about whether or not to help.. and at what point should you help, and finally via what method.
Oh to add, Jonathan is right that it depends on the amount. I mean it’s one thing to give/lend 2k, it’s another thing to lend 20k.
October 26th, 2006 at 4:05 pm
If she drove a 300sd, none of this would have happened.
October 26th, 2006 at 4:52 pm
[...] “But then again, this isn’t about fixing the way my sister spend money, it’s about whether or not to help.. and at what point should you help, and finally via what method. [...]
What I hear you saying is that while you don’t approve of your sister’s spending habits and see how her habits have gotten her into this situation, you want to be of some assistance. It seems like you’re not crazy about any of the options you’ve considered — letting her learn by hitting her head against the wall repeatedly, reminding her that there’s better ways to handle her finances and having her ignore you/dismiss you/attempt castration, giving her money, or loaning her money — and would like some ideas and/or discussion on healthier ways to handle such situations which are beneficial for you as well as your sister.
Is this accurate?
October 26th, 2006 at 6:40 pm
exactly. when I was blowing money left and right, if my sister was to tell me to watch my spending, I would have given her the finger.
at the end my sister will most likely have to figure things out for herself, and she most likely will (hopefully). there are probably ways to approach a family member about their spending habit, but that’s a topic for another post… :)
October 26th, 2006 at 6:42 pm
“Neither a lender nor borrower be” says the old saying. Only in extreme situations would I provide the cash. As some others said, it does not “help” the person in the long run. It is a short-term fix for an “ongoing” situation. She needs to handle her funds better and maybe a bit of struggle is just what the doctor ordered.
October 26th, 2006 at 7:02 pm
I was stuck for $10k to one family member and $18k to the other. I made all of our lives miserable. We ended up going through the bank on the whole deal.
Cap, sorry, bad decision.
October 26th, 2006 at 7:05 pm
yeah this isn’t exactly an extreme situation and it’s probably not the point where someone should step in and help out.. still, I thought about it and well, the point of trying to be financially independent is to be able to take care of yourself and your family.
this seemed like an appropriate time for me to lend a hand. after all, car engine deciding to crap out is beyond her control (sort of).
yes Max, everyone should be pudding around in a turbo-diesel 300 SD like you. :P and yeah that’s a big amount. if that was the situation here then things would definitely be different…
October 26th, 2006 at 7:43 pm
$1500 loaned to my sister-in-law 1 month ago, with a promise that they would repay $300 per week. 4 weeks gone, $0 re-paid. No phone calls with explanations or apologies. Wife called once, but they were too busy having a party to talk… Shame on me though, I knew they cant even get a checking account. But I have 3 nieces and nephews, and they were getting kicked out of their house. What do you do? Anyways, never, never, never, loan money to family if you can avoid it. This will be an awkward holiday season.
October 27th, 2006 at 6:54 am
wow I wouldn’t even give a 2nd though to let family borrow money. Granted by family I just mean my parents and brother, but I’m surprised so many people just flat out wouldn’t help family and prefer them to “DEAL with it”.
October 27th, 2006 at 9:31 am
Irene: I think you may have missed the spirit of some of the comments. I did say never loan money, but I am not opposed to gifting money to someone in need. If we stick with the case of Cap, I think he should help with the car repair–in the form of a gift, not a loan.
All of this has got me thinking about a shift in my finances. I currently maintain an emergency fund for my own unexpected, financial challenges, such as car repairs. Perhaps I should expand my list of approved emergencies to include those of family members. Isn’t that what my fund is for, emergencies? Just because they are my sister’s does not make them any less of an emergency in my life.
Or maybe I have another fund that is for other people’s emergencies. We keep a little fund for small charity requests like kid’s school fund-raisers and short-term missions; perhaps this could be an extension of that.
October 28th, 2006 at 2:44 am
Great idea, especially if your budget allows for it.
October 30th, 2006 at 12:26 pm
If you loan money to family or friends, you should consider it a gift. Oh, you can loan the money and set repayment terms, etc., but in the end you should keep in the back of your mind that there is a fair chance this person will not repay you and if you don’t want to destroy your relationship, you should be ready to just write it off without anything being said.
Personally, I don’t think you should loan your sister the money. Catastrophe will not strike if you don’t. She will just put the car repair bill on her credit card and then pay them off instead of you. That will be her lesson to start keeping an emergency fund and start budgeting better. Maybe she’ll spend less because there’s not much credit line left on her card?
October 31st, 2006 at 6:26 pm
Abraham Lincoln wrote this letter to his stepbrother, John D. Johnston, who had written Lincoln that he was “broke” and “hard-pressed” on the family farm in Coles County, Illionois, and needed a loan. Lincoln’s offer of a matching grant was a recognition that “this habit of uselesly wasting time, is the whole difficulty,” and that getting into the habit of working was far more important to Johnston than getting a loan. I’m certainly not claiming your sister doesn’t work, but it’s still an interesting letter Lincoln wrote:
November 2nd, 2006 at 7:19 am
“I’d stay out of it unless it came down to a serious issue such as foreclosure, kids need food, medical or a seriously extenuating circumstance,… Only step in to help out in truly desperate times.”
I completely agree. Who’s to say that she won’t blow the $2000 that you give her on crap too? Credit card payment or lots o’ shoes.. you tell me which she’ll do. Perhaps she’ll pay it off, but it’s not like she’s getting evicted. She’s coughing up $100 on interest. It’s her problem. Big deal.
November 2nd, 2006 at 7:20 am
“Anyways, never, never, never, loan money to family if you can avoid it.”
Right. Let them take their own falls (pending dire circumstances, anyway).