Will lending family money hurt your relationships? Via Shutterstock.
Recently, one of my friends came to me with a dilemma. Her boyfriend, who is an engineer, was asked by his parents for $3,000. They’d recently bought a summer home and were having trouble affording renovations and the new mortgage. While his new job pays well, he barely makes enough to cover his rent and loans (like most recent college grads) so giving them money would mean cutting back on his loan or credit card payments. The boyfriend wants to help because he is grateful to his parents for helping him through college, and life in general, the request puts him in a sticky position.
Should he lend them the money?
7 things to consider when asked for money
What CAN You Afford? – If you do want to help, figure out what you can afford to give. Look at all of your expenses and separate needs and wants. This will help you see if you have the extra money to help your parents. If you look at your expenses and find yourself choosing between vacation and dinners out or helping your parents that’s a doable sacrifice. What you don’t want to do, is find yourself unable to pay your own bills because of your loan or gift.
Alternative Ways to Help? – In this case, $3,000 may be too much to ask. Harming yourself financially to help another (even your parents) shouldn’t be an option. But, that doesn’t necessarily mean you can’t help at all. Think about how you can help without sending money. In this case, offering to help with renovations is a good way to help without throwing yourself into debt.
Where Did Their Money Go? – What was their own money spent on? If you’re loaning your family member money the last thing you want to do is see it wasted. If you know your family member has spending problems offer to help without putting cash directly in their hands. Paying for rent, utilities, or even car insurance directly (instead of making the check out to them) is a great way to help while still knowing that your money is being used wisely.
Is This The Only Solution? – Don’t be afraid to talk to your parents about their situation. Ask your parents if this is their only option. Have they done everything possible before coming to you? Talk through your concerns and be open with your parents about your own financial situation. This will help you determine if the loan/gift is necessary and if they have other options.
Is This A Loan or Gift? – Make sure you and your family member are clear on the terms of the agreement. Putting the agreement in writing will help make sure both parties know the nature of the agreement. If it is a loan, make sure the interest rate and payback terms are included.
How Will This Affect Your Relationship(s)? – Lending money can create tension, especially if loans aren’t paid back. If you’re giving your family member a loan consider how this could affect your relationship if they do not pay it back. Will they constantly ask you for money? Will you be angry if they fail to pay you back? Also, think about how your spouse or significant other will feel about this loan. Lending money can be tricky, so you want to think carefully about it.
Pressure To Say Yes? – Saying no may seem impossible but sometimes you have to. If you’re only saying yes because they’re your parents, you may regret this decision later. Consider what your parents are asking for money for. Do they need money for car repairs to get to work? Do they need help paying for groceries? Or, do they want help funding a vacation or a luxury item? Say yes only when you truly feel your help is necessary AND are comfortable with the decision.
Children often accept extra help from parents, so children helping parents in their time of need makes sense to me. Even when your parents or family member ask for help, they still want what’s best for you. That’s why it’s important to make sure you’re not living beyond your means. No one wins if you end up in debt as well! If you do decide to loan money, be sure to read our tips on how to lend or borrow money from close ones. What do you think?
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price.
Lending money is immediate money and may not impact cash flow. Is your money in a bank earning next to nothing (saved up birthday money)? Is it your rainy-day fund or would it be coming out of your monthly earnings, which would impact cash flow.
Can the renovations be put off until later (new roof vs new carpet and paint)? Three thousand dollars can usually be put on a credit card (the parent’s) unless they are totally tapped out which means that they bit off more than they could chew and may have additional problems going forward paying the mortgage on the second home as well. Are the parents just in a minor cash-flow bind of their own (money tied up in CD’s that will come due in a couple of months?
If he does lend the money, get it in writing with terms for it paying back with some interest. This will give the guy some standing in recouping his money later on or in having to write off a bad debt. If the parents are responsible, not only will he get his money back but he will get to enjoy the summer home for years to come and the appreciation in value will come back to him in his inheritance.
WOW. You are cruel. Its YOUR parents. I would lend as much as I can. You sound like a selfish person in real life.
@Nick I disagree. I don’t think a blanket rule – always lend money to family if they ask – is a good policy. In this case, the boyfriend doesn’t have $3,000 readily available, and so he is right to think about other ways he can help. Perhaps a smaller cash loan, or help doing repairs, as Dacia suggested.
@Myke You point out a lot of good things to consider! I think whether he should lend the money comes down to the other aspects of their financial situation. Do they have credit card debt? Are they generally responsible with spending? Have they paid back personal loans in the past? It seems strange to me that they would do repairs when they are having a hard time making mortgage payments, so I suspect a lot more is going on that we know. The boyfriend should have an honest conversation with them before he makes his decision. Hopefully, the relationship will not be harmed whatever he decides.
In this case, I would say no. A summer home is a luxury, not a necessity. It would be entirely different if they had just had some financial catastrophe. As Myke says, they can put it on a card, or delay the improvements. Or…maybe your friend’s boyfriend can help out with some labor on the project.
@Diana Well said. My hunch is that it would be better to offer non-financial assistance.
Generously loan the money – if you can. During childhood, teens and even into adulthood a parents focus is on her children, providing for them in many ways. Be thankful and be generous, you never know if another opportunity will come along.
Well said Theresa. Its only $3000. Lend as much of it as you can without comprising your financial situation. You don’t need to make it hard for them.
@Theresa Very true! So many of our parents are incredibly generous and helping them out is the least we can do. But in this situation, I’m not sure loaning the money is the best idea. Have you ever loaned family money?
I find it distracting that this article has errors that would have been caught by an editor and/or proofreader. The plural of parent is parents – no apostrophe. Was the money supposed to be $3,000? I can’t tell since it’s written with two commas and two zeroes. I don’t know if there any more errors since I couldn’t read any further.
@Joanna Thanks for pointing out the typos. Fixed the first one, but don’t see the second one. Perhaps your screen was acting wonky?
You should lend your parents money if you can afford it, simple as that really.
@Vault NW Liverpool IF you can afford it, yes. But it’s not clear that he can afford to.