Much of the news over the past couple weeks has been dominated by the financial markets, specifically the $700 billion bailout plan proposed by the current administration. There are many personal finance lessons to be learned from the recent bank failures, and the regulations pushed by the last two administrations, both of whom are largely responsible for this mess. One of the most important lessons is to avoid lending money to others in an effort to bail them out of their own problems.
Abraham Lincoln Set a Good Example
The story of Abraham Lincoln’s refusal to lend his step-brother money is well documented, and it emphasizes the idea that others should first try to dig out of their own mess. In Lincoln’s letter he advises his stepbrother to find an honest day’s work, for which he will reward him by matching his earnings.
Apply that same logic to today’s fiscal crisis makes a lot of sense. Perhaps if these companies that are folding right and left cleaned up some of their own mess by asking for the millions paid to outgoing CEOs back, and using it to write down at least a portion of the losses, this bailout could help clean up what’s left outstanding. As it is, many of the top dogs are bailing out in golden parachutes while taxpayers are going to clean up the mess they leave behind.
Lending Money to Friends and Family is a Bad Idea
I don’t like the idea of lending money to friends or family in need. However, that doesn’t mean I’m against giving money to loved ones in troubled times. When we give we should expect nothing in return. When money is loaned there is an expectation of repayment, and that creates a debt between the lender and the borrower–not a good relationship to have with a family member or friend. Like Dave Ramsey says, “Thanksgiving dinner just doesn’t taste the same.”
If you decide to give money to someone to help them out, be sure to set the proper expectation that this is a one-time thing. If not, the person may come to expect the money on an ongoing basis, and then it will only serve to further enable their bad habits.