A Guide to Lending Money to Your Relatives

In every family, there always seems to be one or two relatives who always ask for money. Most of us are familiar with their overtures, too. It usually begins with a heartrending story about how life is so hard these days or how pitiful their situation is that it behooves you to offer a lending hand. These relatives can be very persistent in their quest to squeeze out cash, and they can no doubt drive you up the wall in no time. The problem is even worse if the person who has made you an ATM is your parent-in-law.

According to financial blogger Fitz Villafuerte, always saying “yes” to such monetary requests could invite a couple of disadvantages for both the borrowing and the lending parties.

“You could put your own finances in turmoil; and when that happens, who will help you? [Secondly], relatives could become lazy and dependent,” he says.

So what should you do if you think you are dealing with moochers? Well, you should first try to determine if you are really just being used by your relatives for your financial resources. Remember that people borrow money for any number of reasons. Some may be unwise about handling their finances and so run short of money all the time; others may be genuinely poor and have very little cash to begin with; and still others may be borrowing cash simply because they need to satisfy their caprices. This is the reason why you really need to run the problem to ground.

“Couples with in-laws and relatives who always ask them for money should assess the root of the problem. Even if they can afford it, it's always best to know why their relatives are in such financial difficulties,” Villafuerte says. “Doing so would not only put ease to their budget, but it would also give their relatives the true help that they need.”

 

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In deciding whether to lend money to relatives or not, Villafuerte advises couples to take into account three considerations: Can you afford to lend the loan? Will the money be used for a necessity? And is it okay if your relations don’t pay you back? If you answered all these questions affirmatively, then lending money as a short-term solution should not be a problem.


Ask yourself: “Can I afford to lend money?”

When a relative asks you for money, you don’t really have to say “no” immediately. After all, Filipino culture is very family-oriented, and one of the ways we show our concern for our relations is by offering them help whenever they find themselves in trouble, financially or otherwise.

Nevertheless, you have to ask yourself if you can really afford to lend cash. Take the emotion and sympathy out of the equation. Yes, you have to be open-minded, and you can choose to be solicitous over your relatives’ concerns, but you need to be pragmatic as well. You might be financially well-off at present, but you can never really tell if you will need the money in the future. If you are not careful, you may end up in a position wherein you are forced to rely on a loan yourself, like when you encounter a financial emergency.

Villafuerte advises couples to not just give money whenever a relation borrows some. “Ask for a couple of days to ‘think about it,’” he says. “This will give them an impression that money is important to you and not just something you can generously give away.”

For big loans, you should also consider getting a contract, especially if the purpose of the loan has something to do with business. Furthermore, you should also ask for a post-dated check or collateral. The latter will require the borrower to pledge a particular property so that you can secure repayment for the money you lent. Many people might consider it rude to put things into writing and to ask for a guarantee, but if your relatives really care about you and your spouse, they will understand. Borrowers should realize that even for the closest of relatives, money can be a tricky thing to discuss.

 

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Ask the borrower: “What will the money be used for?”

When your parent-in-law or relative asks for money, first ask yourself if the cash will actually help the borrower. If, for example, your mother-in-law needs to buy medicines or if your aunt needs money to pay for her son’s school tuition fee, then maybe the loan is justifiable. But if the relative only borrows money to finance his or her shopping sprees or vices, then maybe lending the money would not be helpful at all; you will just be perpetuating that person’s financial problems.

“If you truly care, you should help them become empowered with their own skills and resources, and make them realize that they can grow to likewise become financially independent,” Villafuerte says.

As an alternative, you can offer to help in other ways. One way is to finance financial literacy seminars they can attend, which can help teach them responsibility regarding the use of money. Another is to help them find other sources of income. Be sincere in your willingness to help, especially if they show they are also determined to help themselves and that they don’t simply ask for money whenever they can cadge extra cash.

After you asses your own finances and decide that your relative deserves the loan, Villafuerte offers a clever suggestion to make sure that your hard-earned cash will be used properly.

“Tell them that you want to make an arrangement to pay directly to their need. If it's for a
child's tuition, then pay the fee yourself, or make the check payable to the school. This will avoid misuse of the money you give them,” he says.

 

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Ask your spouse: “Will it be okay if my relations don’t pay us back?”

Before you lend money to your parent-in-law or relative, consider the possibility that the borrower cannot really pay you back. How would you and your spouse feel if this happened? The rule of thumb is to not lend money which you cannot really afford to part with. All loans should be treated as a gift. Period. With this in mind, then saying “no” is a practical option. Just explain your situation, and be sincere in telling the borrowing party why you cannot lend the money at this point in time.

Again, help does not always have to be monetary. If you cannot lend money yourself, then maybe you can offer to help the person apply for a loan in a credit union or a bank.

Another way to help is in the form of objects or services. If your father-in-law needs a coat and tie, maybe you can fish something out of your cabinet. If your brother and his wife need money to pay for a nanny’s services, maybe you can offer to help watch their kids until things ease up on them and they can already afford to hire someone. There is always a way to help; you just have to think out of the box and outside of your petty cash box.

But even if you do not expect to be paid back, Villafuerte says it is still best that you ask the borrower a specific date when they will pay their loan because this sends a message that money is important to you and not something indispensable.

“Try not to accept vague answers like ‘next month’ or ‘when I receive my money from whomever.’ If they can't give a date [yet], then tell them to [inform you later] because you want to plan your budget as well. Again, the key here is to make them realize that money is not something you can just be generous of,” he says.

 

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Blasé in appearance, spartan in essence

It can be difficult to deal with parent-in-laws or relatives who do not only borrow money when they truly need it, but appear to be surviving on every small bill they can scrape off the inside of your wallet. The problem may come to a head if not only one but many relatives end up asking you for money because you look particularly well-off.

The best way to solve this problem is to have an earnest talk with those people. Remember that you have all the right to tell them that you are not comfortable with lending or doling out cash all of the time. For one thing, your own family needs it; for another, money issues can seriously put a strain on your relationship with them, and you could end up being at loggerheads with them as a result.

Perhaps you can impress upon your relatives that your comfortable lifestyle is due to the fact that you are managing your finances with great care.

“I have a couple of ‘rich’ friends,” shares Villafuerte; “they have their own businesses, they travel a lot, and they look pretty much well-off. It would be so easy to ask them for a loan when you need one. But you'll have second thoughts if you truly know them because they're really conservative with their finances. They're pretty frugal, they're not impulsive buyers, and they always have tight control over their finances.”

Villafuerte says these people look particularly comfortable because they know how to save money and can afford brands which offer the best value for their money, and they have a travel budget which they constantly work on.

“This is what I'm trying to say when I talked about making your relatives realize that your money is not something you can just give. If your relatives think that you're just a careless spender, then they'll resent you for not giving them money. But if they know that you're a conscious budget planner, then they'll understand it when you tell them you can't afford to lend them what they need,” he says.

In a nutshell, be blasé in appearance, but be spartan in essence. And make sure the people around you know the latter bit.


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