Don’t Lend Money to Friends and Relatives and Never, Never Lend to Your Children

You are a good person. You feel compassion for those less fortunate than you.

You give to charity, even when it isn’t tax deductible (Under current law, charity only is tax deductible if you itemize, and if your total deductions exceed your standard deduction.)

You are accustomed to doing for them. It’s what you always have done. 

If a friend or relative asks you for help with a project, you’re ready to get your hands dirty.

You are a good parent. You supported your children during the first 18, or 21, or 25 years of their lives.

You love them and you do your best to make their lives even better than yours was at their age.

Now, they are adults. They are out in the real world, and they want to start a business or improve the business they already own.

Or they want to buy a house or a car or furniture.

Or perhaps take an expensive vacation, go to a school, or invest in something.

They don’t have enough money right now, but soon will.

They ask you for a loan to tide them over.

You hesitate for only a second before you agree. After all, they are your children. You can trust them.

They’re sure to pay it back in a month or a year, or over time. You know they will do it. You love them. You would do anything for them.

You write the check. It’s for $1,000, or $10,000, maybe even a million or more — whatever they need.

Your children are so grateful. They smother you in “Thank yous” and hugs and kisses. You’re the best.

Eventually, repayment time arrives. You ask about the promised repayment, but things don’t work out as they had planned and promised. They don’t have the money. The repayment doesn’t turn out to be affordable. They need more time.

You understand and agree to wait a while longer.

Time passes. You ask again. They still don’t have the money, and now they are upset with you. “Why do you keep asking? Surely you must realize that if we could pay you we would.” And anyway, you have more money than we do, so why are you pressuring us?”

The “Thank yous,” hugs, and kisses are forgotten. Now your children don’t even want to talk about it. You are the worst.

The family is split. You don’t even get to see your grandchildren, who have been told you are selfish and mean.

What you thought was a loan has become a gift. Had you simply given them the gift in the first place, they still would love you, but because the loan became a gift, they resent you.

If you lend money to strangers, it’s documented in a loan agreement, and if they fail to pay, you can sue them. But they probably won’t fail to pay, because the vast majority of people pay their loans on time.

People generally pay their mortgages and their credit card debt without objection. It’s what people do. And when they don’t pay their debt, the bank or credit card company charges penalties and then sues. Credit ratings plunge. It’s expected.

Only when loans are given to family and friends, and especially to children, does not paying become a viable option. Only then does the borrower take umbrage that the lender dares to even ask about payment.

And that, dear friends, is why you shouldn’t lend money to friends and relatives, and never, never, ever lend money to your children.

If they ask you for a loan, decide whether you wish to make it a gift. If not, don’t do it, because it may become a gift whether you like it or not.

If you don’t mind it being a gift, you can be magnanimous and say, “Why don’t I simply give you the money. That way you won’t have a debt hanging over your head.”

Rather than the loan becoming a gift, you took charge of your money and made the loan a gift.

Oh, how the “Thank yous,” hugs and kisses will flow. You’ll feel good. They’ll feel good. And your family will bond even closer.

Yes, I know. You’re one of the few who had a good experience lending to your child. But, trust me, on this one: Don’t lend to family and friends, and especially don’t lend to your children. The risk isn’t worth the reward.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY