Do you often find yourself trying to resolve the financial difficulties of your friends and relatives? From personal experience, I know this is a difficult situation. At times, it can seem more difficult than solving our own financial problems.
There is no right way to deal with the financial problems of other people. It will depends on the nature of your relationship with them. However, here are a number of suggestions to bear in mind.
1. Should I lend money to my friends?
“Neither a borrower nor a lender be;
For loan oft loses both itself and friend, ”- LORD POLONIUS: From Shakespeare’s Hamlet, 1603
Lending money to friends and family is a potentially awkward situation and can be the source of conflict in a relationship. Before lending money to friends, ask yourself these questions:
- Is s/he likely to pay me back or default?
- If s/he fails to pay the loan back, how annoyed will I be with that person?
- Could this loan damage our relationship ?
- Is there another alternative which avoids having a loan from me?
- Do they have outstanding debts with other people?
If you do decide to lend money to friends then:
- Make a written contract.
- Make it clear when it is to be paid back.
- Make sure you feel happy with the situation.
2. Offer Advice
Advice is free to give. Often what our friends need is not money, but information about how financial matters work. I once had a friend who kept getting charged £50 for going overdrawn by less than £1. He would just get mad at the bank and assume there was nothing he could do. However, I was able to suggest that he write to the bank and ask them to reconsider. It’s surprising how receptive banks can be to a polite letter with a believable excuse.
3. Don’t Assume anything.
If you are reading this, chances are you have a broad understanding of credit ratings, interest rates, and penalty charges. However, remember that your friends may be clueless. There is no financial education given at school and some people have no interest in learning. For example, some people may pay credit card debt at 17%, even though they could easily transfer to a lower interest bearing account. Therefore, it may be possible to make a big difference just through suggesting minor changes in their financial affairs.
4. Do I help those who don’t want it?
Quite often, people making big financial blunders are the least receptive to help. This is a difficult situation because we want to help, but it can cause resentment when we intervene. One question worth bearing in mind is: who will have to bail the person out when things go really bad?
If it could be you, then it’s worth offering a clear choice. Suggest two alternatives: Either do this suggestion and I will help you; or go your own way, but this will happen and you are on your own. This leaves it up to the other person to accept your help or not. At least they know where they stand and what to expect in the future.
5. Detachment
No matter who you are dealing with, it is worth trying to maintain an attitude of detachment. This means you can offer impartial advice, possibly even lend them money, but at the end of the day it is their responsibility and not yours. You should never feel guilty if someone creates their own financial mess.
Remember the old saying, “You can lead a camel to water but you can’t make it drink.” It’s the same with finance. You can offer good advice, but you shouldn’t feel it is your responsibility to make them change their attitude. From personal experience, some people are very unwilling to change their attitude towards money. I have stopped trying to change them and it is much more peaceful.
This article is based on personal experience (some quite painful). Generally, I have good solid finances, but I seem to attract friends who are hopeless in financial matters. It’s not easy, but whatever you do, the most important thing is to make sure a friendship doesn’t suffer because of disputes over money.
Tejvan Pettinger studied PPE at Oxford University and now teaches Economics at a school In Oxford. He updates a blog about debt and financial advice at www.mortgageguideuk.co.uk/blog.
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[...] I think the best way to deal is give some sound advise indiscreetly. I’m not saying the moment someone asks you for money you go into your alert mode; sometimes the need is genuine and unavoidable. But if you feel there is a pattern developing, then start telling that person how he or she can manage his or her finances better. A post at Pick The Brain tells you how to do that. [...]
Hello Tejvan,
Good article. The main thing I do differently is don’t set up any business relationships with friends or family. If they ask for financial help and I want and am able to give it, I do, but without any expectation of ever getting the money back. If they give the money back, great. The idea of a loan calls up too many expectations and will, whether you want it to or not,poison the relationship. Friends and family are too valuable and rare to lose.
I agree, Rick. It’s better not to put yourself in a difficult situation in the first place. Business requires making tough decisions (i.e. firing people) that is hard enough to do without your personal relationships being involved.
Good idea, Rick. I was just about to say the same myself. If I’m ever able to help a friend in need, I do so without any expectations in return. That way our friendship lasts and there is no awkward feeling dangling over our heads.
It’s great to be able to give to friends without expectation.
However, we have to be careful that we don’t start with this attitude, but, later kind of regret our initial generosity. Basically, never act on impulse.
On the same point, if a friend offers to help us unconditionally, bear in mind, they may change their attitude at a later time
- With family it is perhaps easier to do things unconditionally.
Great article, and on a subject that doesn’t get enough coverage.
When I was a financial counselor, there was nothing sadder than meeting with parents who bankrupted themselves by constantly bailing their adult children out of financial problems. As this article suggests, the real problem is rarely a temporary need for cash but is a cry for more education.
In essence, teaching friends and family about money and shrewd financial management will help make both parties richer, while lending money to friends ultimately ends with both parties losing money.
[...] How to Deal With Friends Who Need Financial Help [...]
This is a touchy subject for a lot of people but I remember reading something from one of Jack Canfield’s books about this. He kept it simple by saying “I’m not a bank” and therefore does not lend to friends (I don’t know if he lends money to family members or not) but I think his advice is very good. Because otherwise it’ll lead to uncomfortable situations down the road, especially if you 1) don’t write out that contract like you specified in this article or 2) loan the money with the expectation of a return.
After church services one day, a bunch of us were going out to lunch and one guy who normally goes with us said, “I’m broke.” No one offered to pay for his lunch except me. I felt funny afterwards and tried to forget about it by telling myself, “Don’t worry about it. So what if he doesn’t pay back?” Well, he did pay back a week later but I learned a lesson. My intution told me not to lend him money because I’m not a bank therefore others should not expect me to be. My philosophy is he’s broke, it’s because he didn’t handle his money properly.
Cold? Callous? Maybe. But I’m not a bank. And neither should anyone else. It’s different if you want to DONATE money. But to loan money? No.
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You state, “There is no financial education given at school”. This is not true. The ifs School of Finance offer a GCSE in personal finance at around 300 schools and are pushing government to ensure all schools offer their students the chance to learn about personal finance – an uphill struggle I would guess!
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I am a real estate agent and am always advising people on investments and finding them beautiful homes they can afford. When it comes to friends, I always use to say YES when they were in need of money. Some friends you know will pay you back and others you know deep down that they might not be able to. Of course, I did not listen to that and got screwed over. It sure did ruin our friendship but I learned an important lesson.
Great advice!
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