The Pros and (Awkward) Cons of Lending Your Family Money

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It’s 3 pm, on a weekday. You’d normally be at work, but this week you’re on a much-needed vacation after working really hard this season and hitting your savings goals too! You’re crushing this #adulting thing!

Your phone dings. It’s a text coming through from a family member. “Hey, I’m sorry – I know you’re on vacay but do you think you could lend me $200 until next week?

You might be thinking that it’s not a big deal because you’ve got $200 to spare and helping your family is one of your values. Well, think again. It is a big deal. And you’ve got to consider the pros and cons first before making this decision. Let’s start with the bad news first:

CON: When you lend money to anyone, not just family, you better be prepared to never see that money again. This is especially important for the average person who lends money without discussing the terms of the loan and documenting this somewhere drawing up any legal agreement or contract to hold the borrower accountable for making payments. I know, I know – this sounds kind of ridiculous. I mean, who would make their little brother or sister sign a contract to borrow a couple of hundred bucks? The answer is a person who is not OK with the possibility of not seeing the money again and not being able to take action that might get you the money back.

CON: Say you’ve got loads of money and lending the money out won’t hurt you financially. Then you should consider the emotional side effects that could come from lending someone money and not getting it back. Just because it won’t hurt your budget, doesn’t mean it won’t hurt the relationship you have with that family member. One of the top reasons why relationships fail is because of trust issues. If this family member committed to paying you back and never did, what type of person have they become? It’s not like a random friend that borrows money and then never pays it back and disappears. This is family – so you’ll be seeing them every so often at family gatherings and you might begin to resent them for taking advantage of you. All the little things they do that you dislike will become exponentially intolerable!

CON: There’s a saying that goes “Feed a stray dog, and he’ll keep showing back up at your house.” Keep this in mind when lending money to family or friends, because they may think that since you lent the money once, you’ll lend it again and again. If you choose to lend money out, you need to make sure to discuss the terms that make you comfortable lending first. If you’re only comfortable lending money out for emergencies, then you need to communicate that. A simple text or call to say “I’m not really comfortable lending money out like that. If it’s an emergency, I’ll help just this one time, but let’s talk about how to get your savings up.” Offer to sit down with them and look at high yield savings accounts they could open, or setting up a credit builder account which can improve your credit and also set you up with a nice little emergency fund.

Lending out money is not all bad, so let’s take a look at a few pros that come with being there for your family when they need your help financially:

PRO: Money is such a taboo in so many families, and if someone borrowing money from you opens the door to some money talks in your family, then I’m all for it! Many parents don’t take the time to talk about money with their children at home and we all know that financial education isn’t even happening in the large majority of American schools. Make sure you schedule a very real and raw conversation about money with your family member before popping into that venmo or cash app, y’all!

PRO: So many studies have shown that giving to others can make you feel good. Those who help others report feeling more gratitude, joy, and happiness in life. This is why so many philanthropists use their money to do social good in many communities because it helps those in need and improves their own quality of life too! If you have the money and you can afford to lend it, but choose not to then you might feel guilty later on. You may find yourself wondering what that family member is going through and how whether or not they got the financial resources they needed or not. Giving can help you avoid those feelings of guilt.

PRO: You may even be able to make a little profit while simultaneously helping out your family member! If they have really bad credit they’ll pay double-digit interest rates for credit cards or worse – payday loans! You can offer a 5% or 7% interest loan and kill two birds with one stone! Help them and help yourself a little too!

Like most of the decisions you’ll have to make that relate to your personal finances, this decision is ultimately personal! This list is meant to function more as guidelines to help you think through the choice that feels right for YOU!

And remember – no matter what decision you make just make sure you can find it in your heart AND in your budget!