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Maneki-neko The maneki-neko (招き猫, lit. 'beckoning cat') is a common Japanese figurine which is often believed to bring good luck to the owner
Loaning money to family or friends is a situation almost everyone has experienced - Good Luck!

History tells us there are some places even angels fear to tread — and for good reason.

Perhaps lending money to friends and family is one of those dangerous places.

Odds are somewhere in your family tree or circle of friends there's someone you care about who's not good with their money. They might carry multiple credit card debts, short-term loans (are probably addicted to After Pay buy-now-pay-later credit) and still somehow afford UberEATS food delivery services - when they absolutely can't get out of the house.

Eventually, they may even end up on the slippery slope to ruin, of Payday Loans.

  • The reality is you can’t lend money to everyone and for the sake of maintaining your relationships, it might be best not to.

Read in this article

Lending money to people we know can be hard work

signage: don't ask for credit as refusal often offends

The reality is you can’t lend money to everyone and for the sake of maintaining your relationships, it might be best not to.

As a kid at my local corner shop, I remembered a familiar sign next to the cash register I never really understood its purpose: it read, Please don't ask for credit as refusal often offends. As the years passed I soon learned what it meant.  For many people, managing requests for money from others is not as easy as ‘just saying no’, and here’s why.

When was the last time somebody asked to borrow money from you and how did it feel?

Nobody wants an unpaid private loan creating an awkward situation or rift between friends.

But at the same time, often refusing someone's request for financial assistance can create an equally uncomfortable situation. It can soon feel like you're damned if you do and damned if you don't.

  • Asking to borrow money with no intention of ever repaying the loan creates conflict for both Borrower and Provider.
  • The request relies upon the emotional connection to extract a financial outcome at the expense of another.
  • Like it or not, this intentional behaviour can be described as a kind of low-level coercive behaviour. (read on if you want to know what this behaviour metastases into).

When faced with such a request the key is already having a plan for you and your money

In relationships with people and with money, when healthy boundaries are not recognised (or routinely ignored) and crossed, this creates a future relational problem with an attached money problem. *sigh*

Can your friendship survive a request for money that goes unpaid?

Let's agree there is a big difference between these two scenarios:

  • a friend financially helping a friend or family member out when life trips us all up, and
  • a family member or friend who decides to leverage their emotional position with us for a financial handout, that's usually never repaid.

"I’ll pay it back this time… I promise"

Not doing what you say you would do, feelings of entitlement, or feeling taken advantage of are all volatile emotions that can tend to lie just below the surface of the very human condition of repeatedly asking to borrow money - and not paying it back.

One of my favourite children's picture books as I was growing up, was, The Boy Who Cried, Wolf!  The story is from the collection of the classic Aesop's Fables, from 620 BC and the lesson of this particular tale continues to bite its listeners today.

  • The storyline is about a shepherd boy who for fun repeatedly fools villagers into thinking a wolf is attacking his town's flock, by running around crying out, ‘Wolf, Wolf,’ when there was no wolf.
  • The lesson of the story comes alive when finally a wolf does appear and the boy calls to the villagers for help again. But because the boy's earlier deceitful behaviour effectively desensitised the listeners to ever trust him again, the villagers dismissed his call for help as just another false alarm - and the wolf eats the boy and his sheep.

My takeaway lessons from the tale? Do practice being honest and straightforward. Don't say what you don't mean and do keep your promises; otherwise, how will you ever be able to explain ‘this time it's different’, when you really do need help?

Why lending money to family and friends can be particularly, um — awkward

We all want to live in relative harmony with those we love and care for.

But money and relationships don’t always mix easily. That's because we all have our own money habits, behaviours and different (often competing) expectations.

Lending money to another also requires more effort from the provider to understand what's going on and to avoid becoming part of a potential problem, enabling more of what's not their responsibility to fix.

  • If you constantly place yourself in the centre of their financial affairs, more likely than not you damage the relationship as well.
  • It's never easy to watch someone self-destruct from the sidelines - let's be honest there is no pain-free answer to this difficult question, only suggestions on how to manage the awkward tension of a disaster in waiting.

Blurry boundaries and unspoken expectations

Loaning money to family or friends is a situation almost everyone has experienced at one point or the other - all with varying degrees of success and anxiety.

  • When expectations are not set, met, or even talked about, problems are going to arise.
  • The hardest money decisions are those that have both a financial and emotional cost.
  • This is partly because we help create the problem.

The hard truth about lending money to family and friends

Complex feelings of obligation may be involved because you want to help out.

While lots of promises can be made regarding when and how the loan will be paid back, the trouble is a good percentage of the time when you lend money to family or friends, the repayment is either delayed - or you never get your money back.

  • The issue is not the request for money - that's straightforward - the issue is in its repayment, the lender's expectation of repayment, and the borrower's expectation of the right not to repay it.
Borrowed money usually creates animosity and divisions - when it's not paid back as agreed.

The emotional side of lending money to friends and family

For most of us, how we use our own money usually says something about us and what we value.

After all, we've exchanged part of our very lives for the money we earn and we’ve already had to make decisions about what to forgo to make it, be that time with our family or friends or the freedom not to work long hours.

  • Simply put, earning money has an opportunity cost we all pay in many personal ways.
  • So is it any wonder when loaned money is not paid back as agreed, it first triggers a feeling of disrespect for our personalities and then a devaluing of our beliefs and personal standards.

And in a bizarre twist, it also seems that asking for its repayment can trigger defensive feelings of animosity, shame, and the right to inflict punishment, (with a hint of judgment) in the mind of the borrower.

Three viewpoints of the same elephant in the room

When borrowed money and relationships interact, there are usually three points of view in play.

From the viewpoint of the borrower:

Nobody likes being chased for money, especially when they cannot pay it back. That just adds to their stress levels - all these bills and you want your money back now? What kind of friend are you?

From the viewport of the lender:

What kind of friend are you taking advantage of my generosity? Do I look like your piggy bank or your mum to you?

From the view of an outsider:

What a mess! Why did you ever lend them money in the first place?

Some people get mad when they are supposed to be embarrassed. Anger may just be their way of masking embarrassment, or a side effect of their inability to express it appropriately.

Long term dangers of constantly lending money without first thinking carefully

If you continue the financial handout, at best, are you going to create an unintended financial dependency — or at worst even compromise your own financial future and security?

  • Even our good intentions can end up fostering shame and avoidance, and no good friend or family member wants that.

Before you think about loaning it, have a long term goal for your own money

One of the keys is knowing how - and whether - to come to a friend or family member's financial aid, is to take a longer term look at your own position and your own money goals, first.

If you don't yet have your own goals for your money - stop right there - that's the first problem to fix so you can start to think about what your response will be when someone asks for your money.

Why we all need to have better conversations about money matters

I’ve written previously about the need for us all to begin talking with our parents about money and what happens when you avoid talking with your partner about money matters too.

We allocate so much time earning and spending it surely, it's time to work to normalise more of our conversations about it.

Recognise everyone spends money differently

If you don’t define your own spending culture values early, other people will do it for you.

  • If you don't have well-defined personal and financial boundaries, others will assume they either don't exist, or don't apply to them.

For insights about ways to safeguard significantly bigger financial gifts and family loans, read A Better Way to Lend Money to Family Members and using documented Family Loan Agreements.

The growing need for more, money, self responsibility and self reliance

The Australian Government’s long term retirement strategy is to push us toward a privatised retirement model where increasingly more individuals will be required to provide for their own retirement income and manage their own investment strategy.

Whether this is through mandated increases in employers' compulsory Super Contributions (also referred to as SG), imposing an annual land tax on the family home, to the expectation people will now need to learn to make their own investment decisions for what could be an anticipated retirement of 20–30 years, as the eligibility for the government's aged pension and its benefits continues to decline, if you expect to retire comfortably, you need to upgrade your financial literacy now.

The longer term destination of broken boundaries, promises and persistent requests for money

An often jarring reality of unrestrained requests for borrowing money with no intent to ever repay is where that behaviour leads an individual over the course of their life.

  • The first indication of a heightened risk of future elder abuse is a constant request for a loan of money without the intention of ever returning it.

What to consider when you insist on lending (or giving) money to family or friends

You don’t have to talk to many people before you’ll find someone who will remind you, ‘never loan money to friends and family you don't need to get back’. Still, others will take that reminder further and suggest, ‘never loan money; only give it with no thought of it ever being returned’. How does that change the way you might think about lending money to friends or family?

5 Steps to follow if you still want to lend money to friends or family

If you've decided to lend/give money to family or friends, here are some ideas to help smooth out the bumps.

1. Check-in with your personal goals first

Before you start writing cheques or giving out significant amounts of money to friends and family, check in with your own financial goals and personal beliefs about money matters, first.

2. Next check in with your personal values

Are your money values aligned with the person who's asking you for your money?

3. Next check in with your personal liquidity needs

Are you in a position to give the money and do you have extra ‘money room’ in your money cash flow?

  • Do you know how many hours you had to work to create that amount of money? (this answer will help clarify the first question's answer)
  • Is constantly financially supporting your friends or extended family members going to impact your longer term goals and financial security? Remember; you can't pour from an empty cup.

4. Set terms and expectations all parties agreed to

Don’t have unspoken secrets; ask the question upfront every time: 

  • 'Just so we are clear, is this a gift or a loan?'

If your loan/gift is to help someone develop a new behaviour, you might tie your loan/gift conditional on some particular outcome (especially if your family or friend member is a repeat financial offender).

Some examples of conditions clients have used when lending money to family and friends have included;

  • Agree not to use the money gambling (while this may seem unusual for some people serial money borrowers sometimes try to fix their short term problems by ‘investing’ in the poker machine)
  • Agree the money goes to a specified bill or identified need, and not others
  • Agree they speak with a financial counselor for some third-party feedback from The National Debt HelpLine.
  • Agree they don't use the money for discretionary disposables like alcohol or cigarettes etc. (but focus on the agreed need at hand).
  • They don't give funds to another person who is bullying them or an abusive spouse or partner. (I recall a sad time when a distant friend from childhood asked me for an urgent loan one Friday afternoon. It was only upon my asking did she mention, 'it was required asap because her current boyfriend was going into weekend detention and needed a carton of cigarettes' – and made her call every one of the friends she had ever had, to support his addiction).

5. Ask if they actually want help with that loan/gift?

Regardless, a healthy solution to a person's money problems may be to recognise someone who's actually struggling to manage their money (regardless of the reason) may not want your help - just your money.

Butting in uninvited on the money life of another person is sure to risk alienating your family or friend from your life. Your only way to know if they want help is actually asking.

Pro Tip: Try to remember this is not your problem to fix but you could encourage them to connect with a third party to privately talk about their money issues with a credit counselor at The National Debt HelpLine.

Having an independent person to talk to can often help decompress their thinking and give them a new outsider view on their inside challenges.

If you don't intend to give the money for the loan the money makes it clear all the way.

6. Recognise we all feel overwhelmed at some time in our financial lives

Most of us have expenses we forget to budget for. Finding ourselves in a tight spot financially is part of life's learnings that force us to make unplanned and occasional adjustments, as needed. 

But when this becomes an uncomfortably common experience, it can be an indication some more permanent adjustments may be needed.

  • The first step to any helpful money conversation is to set small achievable goals that help change money mindsets and behaviours.

Don't expect someone who slipped into using Payday Loans to suddenly produce a weekly budget, pay off high-interest debt first and increase their superannuation savings - all at once. You'll never see people making a wholesale change to their life overnight - especially if they're made to feel guilty or stupid.

If you're addicted to a lifestyle you can't afford, it's going to take a while to unwind from an entrenched habit.

Insight: A note about better understanding wants and needs. We take a contrarian view of the traditional idea that, ‘if an expense is not necessary for survival it's always a want and therefore expendable and cut out of the family budget’.

We believe many of our perceived ‘wants’ are actually driven by some level of non-financial needs in our lives. That could include social connection, belonging, freedom or self-agency, beauty, respect or meaningful time with people we love. Therefore, our contention is, that simply taking a razor-gang approach to slashing all but survival expenses from your financial life, is not helpful without also seeking to understand many of the drivers behind our money behaviours.

All human needs are universal but the individual strategies we use to meet them are different for every person.

  • So why is it important to understand the wants and needs distinction when it comes to our purchase behaviours?
  • Because you can risk running out of financial resources trying to meet non-financial needs. Meeting emotional needs with financial strategies is very, very expensive.

We all have a need for social interaction - using expensive meals out as our sole strategy to meet that need, can become incredibly expensive. And simply ignoring a need doesn't make it go away

Finding peace in our financial lives comes from creating better strategies to meet our needs, not depriving ourselves of them. Learning to distinguish between a financial strategy and a need is important for your financial health and can be helpful for resolving conflicts over money matters in a relationship.

Becoming more deliberate with your money

There's no correct answer as to how to live your money life.

But we can certainly become more deliberate and intentional about the benefit our money can create and aware of the damage it can do too — and that includes loans to family and friends.

  • Helping another human being is a very human trait and one of the most endearing parts of humanity.

Becoming better at giving a hand up rather than a hand out is perhaps the next money lesson we'll have to learn whether that be for family or friends.

author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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