Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
Michelle Singletary and her husband regularly loaned money to friends, until an incident “taught us a lesson,” she said.
They lent money to a couple in their circle, but they did not pay it back on time. “Then we went to a party at their house and noticed this new big screen TV. And we thought, ‘so you can buy a $1,500 TV but you can’t afford it. our money back?’ ”
Singletary, personal finance columnist for The Washington Post, doesn’t like the fact that she spies on her friends. “So my husband and I decided we would only give money that we didn’t need back.”
Lending money to friends and family is a difficult job. It can unite people in difficult times. But it can also complicate relationships, especially since “so many of our financial decisions involve emotions,” says Singletary, the principal. author of several books about money management, incl What to do with your money when a crisis hits: A survival guide.
When a loved one asks to borrow a significant amount of money, she says, you’ll have to consider your own budget — and your relationship, too. What is your history together? How do you know if you’re ready to help? Financial experts offer guidance on this topic – including how to say no without feeling guilty and what to do if you’re asked to co-sign a loan.
We want to hear from you: What do you think about lending money?
DO NOT lend money. Give it away
Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
The experts we spoke with all agreed on this point: don’t lend money to others. If you have money and want to help, give it as a gift instead. That way, you don’t have to worry about the borrower paying you back – or what to do if they don’t.
“As individuals, we are not in the business of lending money,” Singletary said. We don’t know what to do because there are so many emotions involved.” “That’s why this should be left to the financial institutions.”
Avoid being in a situation where a borrower wants to “sign a contract or set the terms” on his or her loan, the financial educator said. Berna AnatThe author of Money Out Loud: All the financial things no one taught us. They imply a contractual obligation, which can put a strain on relationships.
For that reason, Anat said “if I give money, I consider it a gift. That money will not be returned. So on my part, I know it is money that I am willing to lose. ”
DO let your budget guide your decisions
Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
“Ask yourself: Am I truly willing to donate money right now?” speak Wendy De La Rosaassistant professor at the Wharton School of Business.
If you have extra money to share then by all means give it. But if you have to withdraw money set aside for important expenses like rent, a car payment or taxes, “you’re doing it at your own peril,” she says. It also puts you in a financially vulnerable position if the borrower doesn’t pay you back.
DO create boundaries around the people you support
Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
Guilt can play a role in deciding whether to give money to relatives, De La Rosa says — especially if you may be subject to a higher tax rate than the tax bracket in which you grew up. You may have received some help during that time. and may feel a responsibility to give back somehow.
If this sounds like your situation, De La Rosa recommends making a shortlist of people you’re willing to give money to. Maybe it’s just your immediate family or just your close group of friends. You can’t use all your money to help people.
Don’t forget to talk about those boundaries with your partner, says De La Rosa. “I was born in the Dominican Republic. A lot of people sacrificed to get us here. My husband grew up in Texas. When we got married, we had to be very clear about the people in our circle.”
DO offer other ways to help
Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
You’ve examined your finances and realized you can’t afford to give money to anyone. How do you say “no, but I still care about you?”
Our experts say come up with other ways to help. It won’t be easy. If someone comes to you for money, it’s probably not their first choice. Perhaps they are in a bad situation and have no other way out. They are vulnerable. And if you reject them, you will be hurt.
De La Rosa had to say “no” to an extended member of her family. “It’s painful,” she said. But instead of giving them money, she helps them manage their budget. She listed their debts, created spreadsheets, and came up with a plan of action to help them get out of trouble. “They see me there with them. And they really appreciate it.”
So, think of other ways to support your loved one during this difficult time. Offer to bring them dinner. Help them take care of their children so they can pick up a few extra shifts.
DO NOT cosign a loan
Photo illustration by Becky Harlan/NPR
Photo illustration by Becky Harlan/NPR
If a friend or relative asks you to co-sign a loan, don’t do it, our experts say. Co-signing a loan means you agree to be responsible for the other person’s debt. If the primary borrower defaults on the loan, you must repay the loan.
That also means the debt is on your credit file, Singletary says. “That could prevent you from getting a loan or make the loan you need more expensive.”
Early in his career as a journalist, Singletary asked his grandmother to sign a car loan contract. And her grandmother said to her: “Let me get this straight. So the bank, which has more money than me, turned you down? Now you want to place Mine What’s going on financially?”
“That was the end of the conversation,” Singletary said. Finally, she realized her grandmother was right. “I took the bus until I could save enough money to borrow.”
We want to hear from you: What do you think about lending money?
Have any friends or family members ever asked to borrow money from you? Tell us about the moment you decided to get involved — or the moment you had to say no. How did you make your decision? We may feature your answers in a story on NPR. Email [email protected] with the subject line “Lend Money”.
The digital story was written by Malaka Gharib and edited by Meghan Keane. The visual editor is Beck Harlan. We’d love to hear from you. Leave us a voicemail at 202-216-9823 or email us at [email protected].
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