How to say 'no' to loved one's money requests
Lending money may be hazardous to your financial and emotional health
nothing wrong with wanting to help a loved one in a financial lurch, but not if
it will derail your own finances.
money to family and friends can also ruin relationships. A study published in the
Journal of Economic Psychology in June 2012 found that lenders and borrowers
often have a different recollection of a personal loan's terms, and unpaid loans
can lead to lingering bad feelings between the lender and borrower.
many consumers have a hard time denying requests for financial help from family
and friends. In fact, a July 2012 study
in Britain found that children as young as 8 years old are breaking the piggy
bank to lend money to their parents.
One of the biggest
mistakes people make is they say "yes" without thinking it through,
says Kathy Virgallito, regional director of partnerships for Apprisen, a credit
counseling agency based in Columbus, Ohio. Many also say "yes" when they want
to say "no" because they are afraid they will be considered selfish
or they'll lose the relationship, says Maggie Baker, author of the book "Crazy
About Money: How Emotions Confuse Our Money Choices and What to Do About It."
Fear, however, should
not be a determinant of whether you lend money, experts say. And if you say "yes'' when you want to
say "no," you may feel resentment toward the borrower over time,
particularly if they don't repay the loan, says Linda Stiles, a Kansas-based
licensed clinical social worker specializing in financial issues.
Before lending money, determine whether you can
afford it, says Virgallito. Consider what other uses you had planned for that
money. "If it's in an account that you weren't going to touch for a while, it
may not impact you," Virgallito says. But if it's in your emergency savings account or a 401(k) account in which you'll be penalized for the withdrawal, lending
the money would put your own finances in jeopardy. Borrowing the money to lend
someone is also a bad move since it could lower your credit score and leave you
paying interest on somebody else's debt.
Jaime Catmull of El Segundo, Calif., worries not so
much about whether a family member or friend can pay her back as she does her
own financial situation. "I follow
one rule," she says. "Lend it thinking you may never get it back."
Another thing to consider before lending money is why
the person needs it. Has something
occurred out of the person's control, such as a job loss or an unexpected
medical bill? Or is the person simply financially irresponsible?
one rule. Lend it thinking you may never get it back.
El Segundo, Calif.
"Even if somebody is only asking you for $20, if
they're asking you every other week that can be a red flag," says Virgallito.
Helping a financially reckless family member may in fact be hurting them in the
long run as it is enabling a negative behavior, says Stiles. "Maybe bailing
them out will teach them that they can keep spending their money on things that
are not priorities."
If you do decide to lend the money, put the agreement in writing
outlining how much the loan will be, when it will be paid back and if there is
any interest attached to the loan. Brenda
Della Casa of New York once borrowed money from a friend and "we agreed to a
payment amount and schedule and I honored that," she says. "We also agreed not
to discuss the money at all ... and it worked out brilliantly."
But if it's in your best interest, whether financially or emotionally, to
say no, consider the following tips:
- Express empathy. Let the loved one know you understand they are going
through a tough time and that you believe they will be able to pull through it,
says Stiles. You can also offer other ways of support, such as a listening ear
or an invitation for dinner to mull over other ways to handle the financial
challenge, Stiles adds. Also, stay engaged with the person throughout their
financial troubles by asking them periodically how their situation is going and
letting them know you're still emotionally supportive, Baker adds.
- Reference your
financial obligations. People
who need a financial hand may point to all of the reasons why you should have
resources to spare. Let them know that even if you do have money, you already
have financial plans for it, says Virgallito.
- Offer advice. Depending on how close you are to this person, this
could be a teachable moment allowing you to give someone insight into better financial
management, Baker says. For example, a grown child who has an unexpected health
bill might benefit from a conversation about the importance of paying for
health insurance or the benefits of creating an emergency fund.
- Direct them toward
resources. If the person asking for
money has shown irresponsible financial behavior in the past, suggest places
where they can go to get a better handle on their finances, such as a credit counseling organization, a financial literacy class or even a personal finance
workshop at a church, suggests Virgallito.
- Expect to feel guilt. It's normal to feel guilt or stress for not being
able to bail your loved one out. Anticipate this and have someone who you trust
that you can talk to about your feelings as you move through the process,
See related: 7 best-to-worst ways to borrow $500, Don't hide debt problems from collectors, friends or family
Published: August 31, 2012