Borrowing Money from Family
June 17, 2010
Borrowing money from family has kept people out of the cold for thousands of years. It hasn’t always taken the form of borrowing money directly but the family structure has offered food, shelter, jobs, and loans to brothers, sisters, parents, and all manner of family members.
Lending money to people you know is always tricky, a loan can wreak havoc on a relationship. Add family dynamics in on top of that and borrowing money from family members can cause tensions for years down the road.Ã‚Â However, as I mentioned at first, family bonds are an important part of our society so I wanted to look a little at why it is we sometimes borrow money from our brothers and sisters.
Everyone in your family has different skills; some people are skilled carpenters, talented teachers, knowledgeable doctors, brilliant attorneys, computer geeks, etc.
Some of us are really good at managing our money and others never did learn the skill. It’s like learning to play the piano, two siblings can take lessons together. One might get really good and go on to play for the rest of their life while the other isn’t interested and can’t even put a few notes together.
Of course, the difference is that money management is a vital skill that can make your life much easier, or harder, depending on how well you learn it.Ã‚Â So you can certainly argue that everyone SHOULD learn best money practices but the fact is that not everyone does.
So while it doesn’t matter much 15 years down the road if your sister is a much better piano player than you, it obviously makes a huge difference in your daily life if your money skills are much weaker.
Often times in families we’ll share our skills with each other. We may ask our dad to fix a lamp, our father-in-law to help build a patio, or our brother to fix our computer.
For example, I’m not the best fixer-upper and really appreciate it if my dad or father-in-law can fix something around the house for us.Ã‚Â My area of expertise is writing computer software, so if they need help with their computer, email, or something along those lines I’m happy to help.
So if your brother can come work on your deck or your cousin will come fix you computer why can’t you go help a family member in need to manage their money?Ã‚Â In some relationships this will work but in others it probably wouldn’t fly. This is because money is a sensitive subject and there are a HUGE number of emotional triggers tied to it.Ã‚Â You can read the book “Why Smart People Make Big Money Mistakes” to help understand why you and your family make the money decisions that they do.
Swapping skills to help your family manage their money may work in some cases but if family members won’t let you see inside their financial bubble then your money skills won’t do them much good.Ã‚Â However, since you do know how to manage your money you’ll likely have some saved up so your parents or siblings may come to you and ask to borrow money.
Even if your brother or cousin does give you a peek at their finances, it doesn’t mean that they’ll listen to any advice you have to give.
For example, my dad is a family practice physician and has given out his fair share of medical advice to our family over the years.Ã‚Â Recently he talked to me about how I should lose some weight and even helped me calculate a plan on how many calories to eliminate per day.Ã‚Â I know he’s right and he gave me the information I need to drop some weight but I have yet to implement it.Ã‚Â It certainly isn’t the first time he’s given medical tips to his family that were heard but not followed.
The same goes with money, you can explain savings, budgets, and debt until you’re blue in the face but if they don’t listen and take action there’s not much you can do.Ã‚Â Of course, since you know so much about money, you may be one of the first people they turn to when they’re looking to borrow money.
Lending Money to Family
So if your brother or sister has horrible money skills and won’t take your advice, what can you do?Ã‚Â Unfortunately, there’s no good answer; we’re torn between helping our family and letting them learn their lesson and hoping they’ll change their ways as a result.
If you do decide to lend money to family, it’s often best to make it a formal contract by using a peer to peer lending service like Lending Club or Prosper to facilitate the loan.Ã‚Â You can read more about those options and some other things to consider when lending money to family.
All posts by Ben Edwards