Lending family members money can hurt the relationship.
Dave Ramsey advises against loaning money to family members. The relationship becomes awkward because the power dynamics change. When sitting down to eat with someone who owes you money or you owe them money, Thanksgiving dinner tastes different.
Dealing with family and money can be a dysfunctional process. A sibling who asks for a loan because they are in a desperate situation, then spends it on a vacation. Parents who give a loan to the newlywed couple for a down payment on a new home, then find out they missed a house payment after leasing new cars. Loaning money to your father, who assumes he doesn’t have to pay it back because, well, “we’re family.” When it comes to dysfunction with family and money, it usually is not a financial issue, it is a boundary problem.
This is the eighth blog in a series based on the book, Boundaries. This week, we will be looking at “Drawing the Line” with money. I first heard of the Boundaries book when listening to the Dave Ramsey podcast about personal finance. There was a theme that centered around fuzzy boundaries and family money drama.
Ramsey recommends a couple of boundary options when being asked for a loan by a family member:
Option #1: Gift the money. If it is a one-time transaction, consider “giving” the money as a gift. Dave Ramsey says, “Giving money to a friend or relative can be a nice thing to do if it helps them out, but when it turns into a loan, it turns into trouble.” The gift frees the borrower from being a slave to the lender. Giving avoids the awkward questions, “when are you going to pay me back?”
Option #2: Deal or No Deal. If the loaning process is continuous, then more drastic measures are needed. “Help them change their life, not live in denial.” When your mother-in-law lives a life of luxury that is financed on credit and comes begging for “help” to pay her BMW car payments, you have a boundary problem. The asking will never end. The “helping her out this one time” turns into a monthly conversation.
Throwing money at bad habits doesn’t fix the problem. One of Dave Ramsey’s solutions for someone who is perpetually a financial victim of life is to make them a deal. First, there will be no more “loans” of help. Second, the borrower must agree to the plan-of-action to make the problem stop. The borrower will attend Financial Peace University to learn about how to live within their means and managing money effectively. Third, the giver can provide an incentive program for effective money management. Dave recommends a “matching” program. For every “X” amount of money that is saved, he matches it (up to a certain amount). Instead of fixing the short-term problem, Ramsey recommends family members help their loved ones to change their relationship with money forever by encouraging them to install positive habits of money management. “Drawing the Line” is placing boundaries around what you are willing to offer and to protect yourself from making decisions that will lead to resentment. If the perpetual borrower doesn’t agree and follow through with the terms of your boundaries, then No Deal.
If you are thinking about asking a family member for a loan, consider the shackles that will be placed on your relationship. The dynamics change and the lender will be watching how you spend the borrowed money. You will be inviting someone else to be invested in your money management choices.
The next time a family member asks to borrow money AGAIN, say no. Start a discussion of what you are willing to do and how you can “help” them without providing a loan. Lending money to family members can hurt relationships. “Drawing the Line” with money will help protect the taste of Thanksgiving dinner.
Reflect & Share: Which option (gift the money or help change bad financial habits) are you most likely to follow?
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Other Blogs & Articles
Ramsey: “The Danger Zone: Why loaning money is anything but funny” (article)
“When financial problems are really boundary problems” (blog)