Lending money to friends, family: survey shows risk

“Neither borrower nor lender is; because the loan often loses himself and his friend.

In Shakespeare’s Hamlet, Lord Polonius leaves this wise advice to his son Laertes on his return to Paris. Many Americans would do well to follow the bard’s 420-year-old advice, because lending money to family and friends is fraught with pitfalls.

It’s hard to refuse an urgent request for help if you have the means and value your relationship with the person concerned. Adding to the pressure is some people’s assumption that their loved ones will bail them out if they live beyond their means or start having money problems. This can lead to financial abuse. When family members financially benefit from a parent, especially an elderly or disabled parent, the results can be tragic and heartbreaking.

Bankrate.com recently surveyed people about their lending and borrowing habits and found that most people who have loaned money to family or friends have lost one or both of them in the past. process.

Never been reimbursed

Six in 10 of 2,490 Americans polled by the financial site said they loaned money to loved ones in the hope of being paid back, but nearly half of them reported a negative result.

  • 37% of those who loaned money said they lost the money.
  • About one in five said the process had damaged their relationship.
  • Some said their own credit scores had been damaged.

About 35 percent reported no harm from the transaction.

Of course, parents often co-sign their children’s college loans or help them get their first car. Many people see it differently than a loan to an irresponsible friend or the perpetually broke “cousin Eddie” of the family, but there can be consequences when the child does not take responsibility or there are expenses. unforeseen.

For some, these responsibilities extend much further into adulthood than before. Twenty-nine percent of those surveyed said they co-signed a loan for adult children.

Dinner with friends, credit card headaches

Another topic explored in the study was when people collect a bill for a group and expect a refund, such as having dinner with a group of friends at a restaurant. Some people really like to do this because by putting the bill on their own credit card they can accumulate reward points. But it can be risky: About seven in ten people who have done this at least once said they never received a refund. And more than a third of older millennials (between 30 and 38) said it happened frequently.

To avoid potentially regretting the decision to lend money to a family member or friend, it’s a good idea to avoid it altogether, said Ted Rossman, industry analyst Bankrate. This is especially true if you are in a difficult situation yourself.

Offer only what you can afford to lose

However, few of us want to refuse to help when we can afford it, and there might be other ways to help, such as helping the person get a secured credit card. But if the person is financially irresponsible, bailing them out with money will only make the problem worse and you are doing them a disservice by doing it.

If you have to help, suggests Rossman, only do it if you can afford it, and consider giving it as a gift rather than a loan to repay.

“If you really want to do it, only offer the help you can afford to lose,” he advises. “In your mind, assume it’s a gift and you won’t get your money back. Let that sink in ahead of time so that a negative experience doesn’t hurt your relationship as well as your account balance.

To learn more, visit www.bankrate.com/credit-cards/lending-money-survey-2019/.

Contact Bill Moak at [email protected]

Troy M. Hoffman