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Four Tips On the Issue of Money and Family

By Erik Folgate

Brothers Don't Shake Hands, Brothers Gotta Hug!When I was in college, my first car had finally broken down. I needed another car, but I didn’t have any money to get another one. I didn’t want to go to a bank to get a loan for a car, because I was didn’t want to pay all of the interest and I didn’t want the possibility of it getting repossessed if I could not make the payment. After several discussions with my dad, he agreed to pay for the car and I would pay him a set amount each month until the loan was either paid off, or he felt that I had paid enough towards it for him to give me the title. I didn’t have to pay any interest, and if I was a few days late, I wouldn’t be penalized. It seemed like a sweet deal at the time, but once I started driving that car and paying payments to my dad, it just didn’t seem right. He wasn’t a jerk about it, and he didn’t hold it over my head, but I didn’t like the idea of owing my dad money. I thought to myself, “My family shouldn’t feel like my bank.” At some point in your life, your money and your family will mix together. You may not want it to, but it will. However, you can choose how you deal with money when it comes to you and your immediate and extended family. Borrowing money, lending money, and starting business from family can be very alluring, because you are close to that person and you feel like you can trust them. I understand why families borrow money from each and start businesses together, but I am going to give you a few reasons why you should not do it and how to avoid it.

  1. Don’t Borrow Money From Your Family. I have adopted a rule to never borrow money from my family. Granted, I know there may be dire situations when you are going to lose your house, have a medical emergency, or some other tragedy occurs where borrowing from your family might seem like the only option. If they are your last resort and the situation is life or death, then borrow from your family. But generally speaking, I don’t think it’s a good idea to use your family as your bank. You shouldn’t have to sit at the Thanksgiving table wondering if your parents, brother, sister, uncle, or grandparent is wondering when you are going to pay them back. It’s a horrible feeling. The best way to enjoy your family is by keeping your borrowing habits to yourself. Lord knows that most families have enough issues and money would just complicate them even more.
  2. Don’t Lend Money To Your Family. This is the same concept as above. If you’re not going to borrow it from your family, you shouldn’t lend it to your family, either! Dave Ramsey likes to quote a famous proverb in the Bible that says “the borrower is slave to the lender”, and it is so true. Do you really want your family member to feel like they are a slave to you? Well, I know some of you wouldn’t mind your in-laws feeling that way, but you know what I’m saying.
  3. Give Money To Your Family. I’m not a cold-hearted person, so if your brother, parent, or other family member really needs some financial help to get out of a bad situation, my suggestion would be to just give them the money, no strings attached. You’ll show them a lot more love by just giving it to them rather than “loaning” them the money. Watch out for enabling that family member, though. If you know the family member habitually gets into bad situations, makes bad situations, or has an addiction, don’t keep shelling out money to them. The worst thing that you can do for a family member is continue to enable their bad habits and decisions. But, if your sister just went through a divorce and she needs help with her rent/mortgage payment just one time, go ahead and give her the money rather than loaning it to her.
  4. Give Financial Advice With a Loving Approach. You may have a family member that is completely screwing up their finances, and you don’t want them to keep falling into the same financial traps. If it’s your parents, they may never listen to you about money, because they don’t want to hear advice or criticism from their children that they raised. If it’s your sibling, cousin, or any other family member, the best way to approach them is with a loving and empathetic attitude. If you attack them and tell them how much they’re screwing up, you’ll never get anywhere with them. They’ll shut down, and you won’t get anywhere. Start the conversation by telling them a story about how you were not on the right path with money but how you turned it around. Show them that you were in their shoes a few years back. If you take this approach and show them that you genuinely care, rather than come down on them, they’ll be more susceptible to your advice.

Family and money just don’t mix. If you mix them, you’ll have quite a sticky situation on your hands. Consider these four tips when it comes to money and family. If you’re on the right track with your finances, you can be a light to your family members who are running their finances into the ground, but lead by example first. They will appreciate you much more for it, rather than spouting off at them at every family reunion.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://cashmoneylife.com Patrick

    Great advice. I think this can also apply to very close friends as well, because let’s face it, they can be just as close as family sometimes.

    I did lend my brother $2,000 once though, and he paid it back. The situation was a little different because his pay got messed up and he was without rent money. I got it a week later. $2k is a little more than I like to hand out. ;)

  • http://www.businessgeeks.org/ Noel Nuguid | Businessgeeks

    I find this quite true especially since me and wife are living in a place quite near my in laws. There should always be a good way to teach finacial intelligence

  • http://hisnher.blogspot.com/ yeehaa99

    I would add – talk about finances to family members only when they ask for it. most people including family members dont like to discuss finances…..

  • Jacquelyn Hart-McCoy

    Very wise. I never lend money to anyone unless I can afford to never see it again.

  • http://www.livingoffdividends.com/2007/08/04/a-better-way-to-lend-money-to-friends-family/ Living Off Dividends

    always use prosper.com, even if its family.

  • SJean

    It sounds like good advice. Actually it *is* good advice.

    But it just doesn’t/hasn’t worked that way in my life. My dad owes me about $900 which he pays (with interest) $250/month. It was originally about $3000, a loan that was in my name. I could not afford to just give away 3k, I’m just starting out. Well, I could afford it, but at the expense of my roth/other goals. But I trusted the payments would be made, and I could afford to help. I wish I could follow the advice, but it just isn’t so simple.

    Also, I would add NOT to cosign loans, or at least to understand it is the same as giving them the money.

  • author

    no, i understand there are situations that cause you to go against what conventionally isn’t a good idea. It’s your family, and you should help them out, but my point is to not make it a habit to be loaning out money left and right to family.

    Also, great point about co-signing. It’s a horrible thing to do, and you might as well give the money to the person, because you’ll end up paying off the loan, anyway. If they could pay for the loan, they wouldn’t need a co-signer.

  • http://cheap-as-chips.blogspot.com/ tehnyit

    I can’t agree with you more on #3. I feel that family are the closest thing you can ever have, so show some love and just give them the money, if you can afford it. If you can’t afford it, just let them know. Real family members will understand.

    • Sarina

      That is ok once in awhile but what about those family members who can’t budget to save their lives and just keep asking for money. Unless you’re rich, there is no way you can afford to support yourself and them. JMO…

  • author

    Yes, you make a good point. Only give the money if you can afford to give away money. Otherwise, you’ll need to learn how to say “no”. Some people don’t have a problem saying “no” to their family, and others do have a problem saying it. But, don’t ever give away money if it will cause you to get behind on bills or expenses.

  • http://www.lendingkarma.com Michael

    Sorry to disagree Eric and hopefully this comment can make it past moderation but lending to friends and family can be a great win-win for everyone if done properly and responsibly. Many billions of dollars a year are lent this way but you’re right that it’s not for everyone.

    Cheers!
    -Michael

    • Erik Folgate

      Hey Michael,

      It’s definitely okay to disagree with me. We never delete comments simply because they disagree with our point of view.

      I will personally never advise someone to lend money to a friend or family member even if it’s done properly and responsibly, because it creates a whole new dynamic in that relationship that shouldn’t be there between a friend or family member.

    • Sarina

      I feel like I am the “Go to” person for loans for one person (Sister in Law) and she continuously takes advantage of that. Loans are either paid back late or not at all… all the time! Its always one excuse after another, “I didn’t get my money/as much as I thought”, “I’m a single parent” blah blah blah. So today when she asked me YET AGAIN I refused. Meanwhile, my Sister hardly ever asks me for a loan and she pays back when she says. My Brother I stopped loaning to him years ago (and he stopped asking finally) because he takes forever to pay back too. S-I-L put a bad taste in my mouth for helping people and my Mom says I am only enabling her anyhow. So, lending to family can sometimes be okay IF it is once in a blue moon; otherwise, you’re setting yourself up to be paying for everyone elses lifestyle that they can’t afford with hardly a chance of getting it back. Mind you, I say that if you do the first loan and they are asking for another before the first is paid or come up with excuses on pay day. My husband says give a small loan ($20) one time and don’t loan anymore until its paid back and I think that’s a smart move. I lost a car trying to help out “family”. Its not very nice especially when they “forget” and still nag for more loans. :( That’s just my opinion from my personal experience.

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