Lending Money To Friends And Family

J.D. at Get Rich Slowly recently shared a tough story from one his readers about lending money to family. Twenty year-old Rachel wrote in to ask for advice on helping her mother and sister with living expenses after a divorce and her father’s gambling addiction led to severe family financial problems. I read many of the comments from readers and the underlying theme was to take a tough stance on loaning any more money to the mom. That part I agree with; money given to family members should be treated as a gift, with no strings attached. I just don’t like the idea of lending money to a friend or family member – the whole “borrower is slave to the lender” is a game I would avoid when it comes to family.

Charity Starts at Home

If I were in this particular situation (and I have experienced something similar) it would be very difficult to turn my back on my mother and 14 year-old sister. After all, mom inherited this mess because of her ex-husband’s lack of responsibility with money. Now she is stuck trying to raise a teenager with no income, and thanks to the IRS, no child support. I’m sure her mother is looking for paid employment, but assuming she stayed at home to raise her children it may be difficult for her to immediately enter the marketplace and replace her ex-husband’s income. All of these factors would lead me to help my mom and sister. Maybe it is because I was raised by a single mother, or because our family has always “circled the wagons” in times of need.

Helping Without Enabling

Many would argue against Rachel helping her mom because it violates the idea of respecting healthy boundaries where parents and grown children keep finances separated. Perhaps there is some truth to that logic, but I couldn’t turn my back on my mom and sister knowing they were about to be kicked out of house and home. Instead, I would offer to provide as much assistance as possible to help my mother get back on her feet. Things like stocking their cabinets with food, helping with utilities, and covering a few of the normal “teenager” life expenses such as clothes and school supplies, etc, for my sister would be perfectly acceptable, in my opinion.

It might even make sense for Rachel to cancel her relocation plans and move back in with her mother and sister during this time so they can all focus their combined incomes on keeping up one residence, instead of paying for two. Either way, Rachel has a duty as a member of the family to help her loved ones become self-sufficient. Financial help does not have to be a permanent solution, rather an offer of temporary assistance until self-sufficiency can be re-established. After all, it doesn’t take as long to teach a man to fish as it does to give him fish for a lifetime.

Retire With Dignity

This story reminded me of the importance of saving for both rainy days in the short term, and for retirement in the long term. It isn’t entirely the mother’s fault that she has now become a burden on her children, but unfortunately many parents are becoming a financial burden to their kids. By failing to adequately save and reject the spoils of today, many parents have squandered away savings for their future and must now rely on their children for financial assistance. I do admire Rachel for sharing her story, and I hope the comments from J.D.’s readers provided some helpful ideas.

What would you do if you were in Rachel’s situation?

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  1. I think you’ve hit the nail on the head about paying for groceries and similar help. That gives a concrete way of helping while not making mom feel like a charity or like she’s draining her kids.

    I’d worry less about throwing money their way and more on getting mom the job skills to either get a better job or a raise. There are tons of free programs out there to give divorced women better skills. Also, with an adult learner grant (among other grants), mom could end up going to college for a pittance if not free.

    I’d also talk to the sister about getting a job to cover both extra-curricular activities to relieve some of mom’s burden and to start saving for college since mom isn’t going to be able to help much.

  2. Healthy boundaries are hard to establish when money is involved between friends and family. That being said, I believe helping someone no-strings attached is perfectly fine.

    It has to be hard for the mother in this situation to be in such a position, so just smiling and telling her you love her would be the appropriate thing. She’ll probably feel horrible if she feels like a burden.

  3. I agree emphatically. I know that bailing out family members is not good financial practice but this hardly qualifies as a “bailout”.

  4. As a rule I wouldn’t lend to family and friends. If you’re going to give them money don’t expect to get it back. In this case it sounds like it is more of a situation not of the person’s making, so I think I’d be more inclined to help. But just remember – money has a way of changing and in some cases destroying relationships. Be very careful.

  5. Frugal Dad,
    Very interesting article. I agree with you 100% that you should not be giving money to family as a gift. The last thing you want to do is have it be a problem with family. I think if anything, I try to avoid mixing money with friends. I think it can be awkward and difficult at times.