Sunday, 16 October 2011

Should I lend money to friends and family?

I've lent to family and a friend in the past.  They were having a bad bout of luck in this tough economy and I thought: What kind of friend or family member am I if I can't help those close to me in their hour of need?

My family member told me he would pay me back as soon as he started working.  Even though his employer went under it wouldn't be difficult for him to land another job, because he was well qualified and highly skilled.  I should have no problem getting my money back from a well paid professional, I thought.  My friend was newly retrenched and he needed the money to make his rent for the month.  He was in the process of cashing in his retirement savings and within two weeks he would pay me back, he promised.

Well, I've lent both of them a total of about $5,000 since 2008.  Today they're both employed in well paying posts.  My family member has been employed for just under two years now, while my friend found himself a job at the beginning of this year.  The money they owe me as at today, excluding any interest, is $4,500.  My family member initially paid me in drips and drabs after I repeatedly asked him to last year.  Then one month he phones me to say he can't make the payment just for that one month, and promised he would continue paying me back the month after.  That didn't happen and I haven't received a cent since.

When I look back I still feel I didn't make a bad choice in lending these two chaps money.  I've known my friend since 1993 and my family member for my whole life.  I was and still am close to the both of them.  But I cannot deny that I prefer a bit of distance from them now.  Since lending them money, the conversation became stifled and awkward whenever I talked to them.  Where we used to freely talk about any car or toy we just bought or plan on buying, my counterparts had to now be careful about what they told me, lest they gave off the impression that they had money.  

I'm upset at them not because I want my money, but because I know they could have both paid me back if they wanted.  It's just that they don't prioritise paying me back high enough on their to-do list.  It's as if they have chosen to blank their debt to me out of their minds.  Maybe they think it's okay because I am not a bank and they know I won't have them liquidated, much less send a debt collector to their doors.  Maybe they justify spending on themselves as a sort of just reward after going through a period of being forced to live lean.  But I'm disappointed at them nonetheless.

I've read plenty about the perils of lending friends and family money.  My dad would warn me about lending money to others from the age of ten.  But this will be different, I thought.  These are my boys.  We talk for an hour every week.  I know they will keep their word.  We will die for each other; what's a few grand?  

All I can say is if you're going to lend money to someone you know, write the money off or you could be in for a frustrating, disappointing time.  If you can't really afford to part with the money but you're doing it under the promise of getting your money back soon, you're making a monumental mistake.

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