Have you gotten the call?
The phone rings, it’s your brother-in-law and he’s out of cash again. He needs you to spot him $2,000 bucks to make it to the end of the month and then he’ll pay you back “real soon”.
Should you loan him the money? Should you refuse since the chances of him paying you back are about as slim as Lindsey Lohan actually graduating from rehab?
It’s a trap! Either way, you lose. “Loan” him the money and kiss it goodbye forever, all the while harboring resentful feelings for your cheap relative. Or, refuse it and 1) he hates your guts, 2) your wife calls you a heartless penny-pinching miser and 3) no one invites you over for Thanksgiving.
Ouch. What if there were another option? The best option?
There is. In fact, your brother-in-law doesn’t need the money as much as he needs your help.
Let me say that again, and more forcefully:
Your broke relatives don’t need your money, they need your help
When you loan money to family members, bad things happen.
Lending to Family Changes the Relationship
First of all, there is a very slim chance you will see your money again. And even if you do get paid back, the relationship has changed.
Proverbs 22:7 says, in part, “The borrower is servant (or “slave”, depending on the translation) to the lender.” I don’t care if you deny the divinity of the Bible, that statement is true.
Once you loan money to someone, you are constantly watching over their actions, wondering why they bought a new toy instead of paying you back. Loaning money to family changes your relationship in negative ways.
Lending is Treating the Symptom, Not the Cause
In medicine, there are medications to treat the symptoms of an illness and medications to treat the illness itself. One makes the pain go away temporarily, the other goes right to the source and attacks the cause of the pain.
When you simply give/loan money to family members, you treat the symptoms of their pain. You are giving them a temporary fix for their misbehavior. The more effective solution is to treat the cause of their pain, to alter their behavior.
You’ve heard the saying, “Give a man a fish and he eats for a day, teach him to fish and he’ll start a chain of fast-food fish restaurants the likes of which the world has never seen.”
Or something like that, you get my point.
How to Treat the Cause of Money Pains
Let’s get back to that call from your brother-in-law. He needs help. He can’t make it to the end of the month without getting his electricity turned off. You’re a caring person. You’re not going to let him and his family suffer.
But what’s the right way to do it? You don’t want to ruin the family relationship and you don’t want to see him back in the same place next month.
Teach him to fish.
Instead of loaning money, gift him money with strings attached.
Give the money away as a gift with conditions. Tell him that you love him so much that you’ll help fix his immediate need (by gifting him cash) and his long-term need (money management skills).
How will you fix his long-term needs?
By attaching conditions to the gift. Tell him that he needs to visit with a financial counselor. Better yet, gift him a money management course such as Financial Peace University. Make him sit down and write out a monthly budget. Help him determine and fund his emergency fund. Help him create his debt snowball.
You get the idea. Teach him to fish!
I guarantee it will improve his situation lightyears more than “loaning” the $2,000 bucks and hoping he’ll repay someday.
What are your experiences with loaning money to family?
- The Best of Tim Ferriss
- Take It or Leave It! Improve Your Negotiating Skills Now
- The Johari Window: Almost Jedi Mind-Control