By Sybria White on March 28, 2010
“Three reasons to think twice about lending money to Family”:
.jpg.aspx?width=75&height=75) We hear it all the time “blood is thicker than water”, sayings like these show how special family relationships are and the special obligations involved. These obligations are unspoken and sometimes may pressure us to do things like lend money to family members. Lending to family members isn’t necessarily a bad thing, it’s natural to want to help those you love in need, however if you are lending money it is important to take precautions first. Listed below are reasons that caution lenders to loaning money to family and following are precautions one can take to prevent mishaps.
- Sense of Entitlement. Familial relationships are special relationships that often cause family members receiving funds to feel as if they are entitled to money you may loan them. This sense of entitlement can sometimes lead them to feel as if they don’t have to pay you back. The relation to you is almost an entitlement to the money. In their mind they may have already paid you back by serving as a family member, be aware of this when lending in the future.
- Because you share an informal relationship with family it is less likely that you will document the loan in a formal manner. This could make reclaiming funds very difficult in the long run. Because you have no record of the money you lent, it is easier for someone to forget how much money was exchanged and when it was due for repayment. This can ultimately lead to tension between you and your family member, so keep this in mind the next time you lend.
- Another drawback that comes with loaning family members cash is the fact that a loan from family members often appears very low on their list of priorities. People are more inclined to pay back banks, other people, and institutions quicker because they fear the repercussions of failing to pay back funds. This fear and several other reasons are why paying back these people come first on most people’s priority list. People fear blowing off “real” loans because of the “real” consequences. Informal family loans just don’t produce the same sense of obligation as other loans from non family members.
To avoid the problems with lending to family listed above, it is necessary to have some formal record of how much money you are lending. Also communicate very clearly when repayment is due. Email may be a really useful for this precaution. A written record of the agreement will definitely help in the long run. Another helpful hint might be to pay the family member with a check instead of cash. I suggest this option simply because it is much easier to keep track of money this way, as opposed to cash. If you take these precautions and keep the problems listed above in mind, your family lending experience will most likely go smoothly. Always remember it is intuitive to help loved ones in need, however it can’t help to have tools to ensure that lending will end well. |