Do you often find yourself trying to resolve the financial
difficulties of your friends and relatives? From personal experience, I
know this is a difficult situation. At times, it can seem more
difficult than solving our own financial problems.
There is no right way to deal with the financial problems of other
people. It will depends on the nature of your relationship with them.
However, here are a number of suggestions to bear in mind.
1. Should I lend money to my friends?
“Neither a borrower nor a lender be;
For loan oft loses both itself and friend, ”
- LORD POLONIUS: From Shakespeare’s Hamlet, 1603
Lending money to friends and family is a potentially awkward
situation and can be the source of conflict in a relationship. Before
lending money to friends, ask yourself these questions:
- Is s/he likely to pay me back or default?
- If s/he fails to pay the loan back, how annoyed will I be with that person?
- Could this loan damage our relationship ?
- Is there another alternative which avoids having a loan from me?
- Do they have outstanding debts with other people?
If you do decide to lend money to friends then:
- Make a written contract.
- Make it clear when it is to be paid back.
- Make sure you feel happy with the situation.
2. Offer Advice
Advice is free to give. Often what our friends need is not money, but
information about how financial matters work. I once had a friend who
kept getting charged £50 for going overdrawn by less than £1. He would
just get mad at the bank and assume there was nothing he could do.
However, I was able to suggest that he write to the bank and ask them to
reconsider. It’s surprising how receptive banks can be to a polite
letter with a believable excuse.
3. Don’t Assume anything.
If you are reading this, chances are you have a broad understanding
of credit ratings, interest rates, and penalty charges. However,
remember that your friends may be clueless. There is no financial
education given at school and some people have no interest in learning.
For example, some people may pay credit card debt at 17%, even though
they could easily transfer to a lower interest bearing account.
Therefore, it may be possible to make a big difference just through
suggesting minor changes in their financial affairs.
4. Do I help those who don’t want it?
Quite often, people making big financial blunders are the least
receptive to help. This is a difficult situation because we want to
help, but it can cause resentment when we intervene. One question worth
bearing in mind is: who will have to bail the person out when things go
really bad?
If it could be you, then it’s worth offering a clear choice. Suggest
two alternatives: Either do this suggestion and I will help you; or go
your own way, but this will happen and you are on your own. This leaves
it up to the other person to accept your help or not. At least they know
where they stand and what to expect in the future.
5. Detachment
No matter who you are dealing with, it is worth trying to maintain an
attitude of detachment. This means you can offer impartial advice,
possibly even lend them money, but at the end of the day it is their
responsibility and not yours. You should never feel guilty if someone
creates their own financial mess.
Remember the old saying, “You can lead a camel to water but you can’t
make it drink.” It’s the same with finance. You can offer good advice,
but you shouldn’t feel it is your responsibility to make them change
their attitude. From personal experience, some people are very unwilling
to change their attitude towards money. I have stopped trying to change
them and it is much more peaceful.
This article is based on personal experience (some quite painful).
Generally, I have good solid finances, but I seem to attract friends who
are hopeless in financial matters. It’s not easy, but whatever you do,
the most important thing is to make sure a friendship doesn’t suffer
because of disputes over money.
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