We all have the best of intentions when it comes to our families. We’re often willing to offer money to help each other out in situations when we would never do it for a stranger. But this also means that when we accept financial help from a family member, the rules can be very different than when we borrow money from a bank or some other impersonal lending institution.
The potential for problems resulting from a loan or a gift are very different when we’re dealing with family—to the point that it’s often better to just refuse the generosity even it seems like the easiest choice. Here are five scenarios where it’s probably better to politely say no.
1. Refuse the money if it isn’t clear whether it’s a loan or a gift.
Any time that the nature of the money being offered could be misunderstood, it probably will be. Due to the way many families interact, a relative who wants to make a loan may not discuss repayment or interest in an effort not to worry the borrower. But let’s face it, most people will eventually need the money back. Avoiding a misunderstanding with family is generally more important than getting an interest-free loan.
2. Refuse the money if there are strings attached.
Since many family members want what’s best for you, some may be willing to do whatever it takes to get you to go along with their version of what’s best. Offering money with the understanding that you’ll follow their ‘suggestions’ is just one strategy, and, even if you pay back the money immediately, those strings may last for years.
3. Refuse the money if your relative can’t afford to offer the sum.
Family members do things out of love and have been known to take that to an extreme, offering up more money than they truly can afford to. No one ever wants to put a relative in a bad financial situation. It can be tough to tell the truth of the matter, but make sure that if you’re borrowing money from a family member, it won’t eventually cause issues for them.
4. Refuse the money if repayment won’t be an option.
While money may be offered as a gift between family members, it’s especially critical that — if it is offered as a loan — you are sure you’ll be able to repay it without a problem. Just in case circumstances change, it’s generally best to try to put yourself in a position where you can repay gifts or help your family out yourself in return.
5. Refuse the money if there’s any potential for a problem.
You probably won’t ever see your lender at your bank in person after taking out a loan, but you’ll see your relatives at the holidays, at birthday parties and plenty of other occasions. Avoiding problems is usually worth going outside your family for financial help.
There are situations in which money matters among family members are routine. But it’s always important to remember the value of your family isn’t a question of dollar signs.
Dealing with money matters amongst family members is complicated whenever the amount is significant enough for the parties involved. Avoid it like a plague if at all possible.
If you really need help, make sure both sides understand the exact terms and how it will be repaid. Laying out all the facts at the beginning may sound like it’s breaking the family bond, but not understanding all the facts will for sure create tension later on.
{ read the comments below or add one }
The only time I recall not taking a loan we were very poor, so I refused the loan and told the lender we didn’t know when we could pay it back, so we couldn’t take the money. I’ve only borrowed money from an individual when I had a way and a clear agreement on paying the lender back. Money is not worth losing friends or family over, and I really hate feeling beholden to an individual. My daughter is the same way; my sons, on the other hand…
Great tips, I would only accept money from family if it hit all those you mentioned AND I was going to use it on investing and not just to buy something I dont need.
🙂
Good for you Alexander.
Follow your rule and there won’t be any problems becoming financially independent.
Yes, I can definitely see where problems can arise from borrowing money from family. Just being specifically clear as you outlined above should help with these issues and always, when in doubt, find another solution to whatever financial problem you’re facing. Awesome and recommendable advice, indeed!
Being clear about the terms can be a very difficult topic to bring up but it’s so critical in ensuring that the loan doesn’t cause a rift between the two parties later on.
Bite the bullet and start talking!
For us, it is an aunt that lately has been feeling very remorseful and depressed regarding consumerism and seeing many deaths in the workplace (takes care of elders). This has caused her not only to be overly-generous, but to refuse any gifts from others and selling her belongings or giving them away for free.
This one is really tricky…I don’t want to step on her good will and I know being unemployed and often paid min wage makes me think “Well, I Do have need of it” plus her household makes good income…..should I feel more guilty? I feel a bit of it, but I also feel like “it’s a gift and she’s not one to demand things of us and is going through a sort of grieving process…..why over-complicate it by rejecting her?”
It goes both ways. I think it’s important to not lend out money that you can’t afford or will feel resentment about and to be clear about the terms of how it will be paid back. Don’t just leave it open ended. It’s also important for the borrower to treat the loan as as important as their other bills even if late fees aren’t involved. Also use common sense, if you are unable to pay bills, but get fancy manicures, have daily Starbucks, and frequent the mall you may run into problems with resentful relatives.
The suggestion about not taking money if your relative can’t afford it is tricky because sometimes you don’t really know the financial situation of your relatives. The suggestion about “Refuse the money if there are strings attached” is a GREAT suggestion, though! There’s nothing worse than having to live under someone else’s rules, suggestions, thoughts, opinions, and ideas because you stupidly borrowed some money from them!!
The tips are good, but also if you are lending the money sometimes you are only enabling bad money habits and in the process become the go to person for another “loan”. Been there done that and it was harder to finally having to sit them down and say this is the end of being your bank.
These 5 tips are common sense. If you can’t figure things out like this on your own than you’re hopeless.
My family has had problems lending money to other family members…it has never turned out well. There is tension and we never get our money back…
I loaned money to a family member, but even though I was able to do it at that time. The repayment in turn can take any where to a month to six month but at the time they need the money it is always an emergency. I have a family of my own and this will be the LAST time I help my family out when I cannot get the money back in time. I learned my lesson.
Money and family are a combination that is often like oil and water – its best not to mix them. While the 5 points are certainly valid, you are probably more likely to overlook them since it is family.
Generally speaking, I would avoid taking money from family members except if it is clearly a gift – such as Christmas or birthdays.
As a recent college graduate and determined traveler, I have accepted family loans and financial gifts. In every situation I have made it clear with the family member whether it was a gift or a loan. When it was a loan, we immediately worked out repayment details (even before the money was transferred from one account to another). I think it often depends on the family, how supportive they are of your decisions, and how much they trust you. I have built a strong trusting relationship with my family, especially in terms of money. Many of us feel comfortable helping one another out when we can, and we are confident that repayment will be done at the earliest convenience of the borrower.
I think that because of this I have developed a strong sense of financial responsibility. I think that there are many people who do struggle with this. I would like to share a bit of advice. Online financial management tools are incredible. Personally, my bank provides online banking that helps me to save, budget, see where my money is being spent, and help me decide where I need to cut back. One really great tool that I have found is heaps.co.nz. It’s free, easy to use, and extraordinarily helpful.
Great post. This is a really sticky situation and it’s something many of us have come across before. I personally will only borrow from my immediate family and I always pay back even if they absolutely refuse to take it. I’ll find a way to repay them for their generous gift. However, I wouldn’t borrow from my extended family because I just simply wouldn’t feel as comfortable.
It also depends on the family and how close you are. My mom helped me out so many times in the last few years because I was in a position where I really needed it. Now I work full time and live with my mom, so I am using my income to help with house expenses, especially large amounts that are easier for me to afford because most of my income is going into savings. We don’t keep track of who paid how much (and didn’t even when I lived on my own). But this kind of relationship I can’t repeat with anyone else – I wouldn’t even ask any other family member for financial help because we are not close and would think twice about giving it since I am not sure I could trust them to pay me back.
This is a tough position to be in. On one hand you want to help your family, but on the other hand, you can be hurting yourself and your family relationships by giving these huge gifts. Another thing to mention is the gift of real estate, which can be even trickier than money.
the money that i was offered as a loan was from my mom and i made it clear that i would repay it with interest even if she was a little to giving me for free. It is not something i do so often, just something came up and i had no where else to turn. But all in all, i choose not to borrow cash from family members or relatives