If you are not familiar with the quote “Neither a borrower nor a lender be, For loan oft loses both itself and friend”, from the Shakespearean play Hamlet, then surely you would be no stranger to colloquialisms like “money and friend doh mix” and “rum done, money done, friend done”. There seems to be much advice mounted against lending money to family and friends from all quarters, and from as far back as you care to look.
But why is this so? Why is lending money to family looked upon as a bad thing? After all aren’t we supposed to care more about our loved ones than our bank accounts? This is exactly why guilt can make you do financially disastrous things, but there are considerable advantages to the borrower.
When you borrow money from family, there is usually no interest involved; you can take your time to repay the principal and there are no penalties if something else happens and you can’t make a payment when you had previously arranged to do so. You can’t exactly go to the bank cap in hand and say, “I wanted to pay you back some money this month eh, but things real hard and I had to fix the car”. However, a friend or family member might accept this excuse and swallow their disappointment, at least until you leave and they allow their rage to come to the surface.
“Family doh treat family so”
The advantages, therefore, stack heavily on the side of the borrower, while the lender is left to deal with feelings of anxiety that the money won’t be repaid, guilt over the anxiety (because this is supposed to be family and “family doh treat family so”), and regret over the entire arrangement because now everything is a reminder of the money that stands in the middle of the relationship. Everything, including the fact that your family can afford to take a trip to Tobago and buy a new outfit, but they haven’t seen it fit to make a little payment towards the loan.
If this scenario sounds all too familiar and you have witnessed the misgivings of lending money in your own circle, or even firsthand, how do you examine if you should take a step back? For some people ‘advantage never done’ and if given the opportunity they will take it for all it is worth. This is certainly not fair to the person being used. How then do you know when enough is enough?
Well, for one thing, you can start to assess the situation without bias. If you realize that you have become the family bankroll, and you are the first point of contact when someone needs to get a little financial help, then that is definitely a red flag. You may be the most financially stable, but that doesn’t mean that you should be taken advantage of repeatedly. In fact, when you lend money to others, you can start to slide on your own financial commitments. You may not lend to the point that you are unable to meet your debt obligations at the end of the month, but you certainly won’t be maximizing your investment potential.
“When family comes knocking on your door for a loan it can be extremely hard to turn them down”
Undoubtedly, when family comes knocking on your door for a loan it can be extremely hard to turn them down. This is not to advocate putting money above your family or making money your central concern, but there is a difference between helping someone who is genuinely in need, and becoming an unofficial safety net to a family member who has poor financial management skills. If you are repeatedly asked to loan money when outstanding loans have never been repaid, you may not be doing this person any favours and you just might join them in their financial suffering as a result of your inability to say no.
One way to handle this situation is to offer to take a look at the root of the problem instead of simply agreeing to throw money their way. This might be viewed as interference, but at the end of the day you have the right to refuse to lend more money unless you can be assured it will be repaid. Making some suggestions with regard to how money is managed might help to change the dynamic for the better.
You need to take heed of the several warnings surrounding the issue of lending money to family and friends. While once or even twice might be alright, three times can signal the formation of a habit, and then you have a situation that has the potential to threaten your relationship and your finances, if it is allowed to continue.