Loaning Money to Friends and Family

When a friend asks for money it usually puts you in an uncomfortable position.

There's an old joke that goes: if your brother-in-law borrows $100 and doesn't talk to you again, was it worth it? The answer, of course, is the same as the joke about what it's like to date older women: depends.

Joking aside, lending money to, or borrowing from, family and friends is one way to make sure the relationship sours quickly because people who need to borrow money and cannot do so from a bank probably should not be borrowing at all, and you should not be lending to them.

There are some exceptions, but this article will help to explain alternatives to borrowing and lending while also exploring the train of thought one should take toward considering the options.

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Why Does This Person Need Money?

When a person asks for money, it may be an urgent matter, such as his auto or life insurance will lapse, or his children have been eating Ramen soup for two days and he has been trying to find work because his hours were cut a few weeks before.

However, for a person who's auto insurance is going to lapse because of skyrocketing premiums that are the result of multiple DUIs, it might be best to allow that person to use public transportation. For the family who needs groceries, it may be best to take them grocery shopping rather than give them cash not only to ensure the money is spent on groceries, but also to have some quality time together, because it is likely that there is more going on than just being short on dough.

The answer of whether or not to help someone out, though, is easier to find when you think through this process and ask yourself, 'why me?'

Why did he or she ask you?

Naturally, we want to help those close to us, but many people have an inclination to do good deeds for those who are nothing more than acquaintances. After all, helping others feels good, and gives one a sense of importance. However, before giving it is crucial to know why this money is needed.

Not only does a person being asked for money have a right to know why the money is being asked for, but she also has a right to ask, 'why are you asking me?' when there are relatives and closer friends who should be willing to help.

Has this person burned those bridges already and you are the next stop on the toll road of broken promises? Or are you just a very nice person who makes people feel comfortable asking for favors? Are you wealthy? If so, does this wealth and/or generosity make it okay for you to be targeted in this kind of situation?

It is best to have a close friend or loved one discuss this thought process out loud. It will shed light on how you feel and what you think. And if you do want to/can afford to give, what is appropriate?

How Much can you Afford to Give?

Upon deciding that this person needs or deserves help, it is important not to put oneself at risk of being short of cash in order to help someone else. After all, would you advise someone to pass over buying his child shoes so that he can give a little more to someone else?

And if this is a loan that will carry interest and potentially make money, would you advise that same person to postpone buying shoes for his child to reap a potential 10% gain?

If a person needs $1,000 for a doctor's bill, but you can only give $200, then it is okay to only give $200, just as it is okay to give nothing. And the keyword here is give, not loan.

Giving Gifts Instead of Loans

Giving a loan can be okay so long as it is in writing, but among close friends and family it is best to just give a gift. Getting back to the joke at the top of this page, it would be terrible if a good friendship was disrupted over money, but it would be difficult for it not to be if you came to question the character of a person who promises to pay you back but then finds that she cannot, or simply forgets.

When giving money to loved ones, give what is comfortable. And then help the person beyond what they ask for; this may truly help you see how much this person wants to solve the problem they are facing.

Offering Constructive Ways to Help Raise Money

Nothing solves problems like problem solving. If a person needs money and calls you, then you have a right to help them brainstorm ideas about getting money.

Do they have anything they can sell or return? Can they work weekends? Are they willing to come over and do some housework in exchange for the money they need?

This is important to do because a person who has 10 pairs of Air Jordans probably does need money, but needs to be asked why are they not selling the shoes they have from ten years ago in the original box if they need money so badly?

Regarding working extra hours, this is crucial because a person who is short on money today who does not change his or her situation will be short tomorrow, and sometimes it's not a case of overspending, but of under-earning. And while some people cannot work because they cannot afford a sitter, maybe they can make money watching another person's child. But for those without children who say "I need my weekends," it is apparent that they do not need your money.

Lending money to those close to you should be left to a bank. If you do feel a need to help someone, it is best to do so out of charity.