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.
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.