Lately, I've been taking Uber and Lyft to the airport for my work travel. It gives me 40 free minutes to relax, work or have random conversations with the drivers. One recent chat with a Lyft driver reminded me that loaning family money can cause more harm than good.
My Lyft driver, Susan (let's call her Susan … she looked like a Susan), allowed her daughter, Katie, to move back in with her after a rough patch in her life. From the sounds of it, Katie needed a place to stay to get back on her feet financially. Susan decided to let Katie live at the house rent free while she searched for a new job. Susan also let Katie borrow $3,000 to get life back in order.
Fast forward nearly a year later, Katie is still living with Susan and she has an addiction … to Amazon Prime. Packages come to the house nearly every day because there was a great “deal” that Katie just had to buy. Meanwhile, Susan is seething because she let Katie borrow $3,000 out of her hard-earned Lyft driver savings and she's not feeling confident she's ever going to get it back. Every time one of those little brown boxes with blue tape comes to the house, Susan nearly loses it.
Katie is about to move out and get her own place, but the money that she owes her mother continues to linger and reek havoc on their relationship. Susan will continue to hang the borrowed money over Katie's head. She may not even verbally bring it up to Katie, but instead she'll keep it all inside and only vent to strangers like me. That won't bode well for her health or her relationship with her daughter.
This cycle of friction, contempt and internal resentment could continue for years.
— Andy Hill (@AndyHillMKM) February 15, 2017
After hearing this story, I thought about some alternatives to letting your family borrow money.
3 Smart Alternatives to Loaning Your Family Money
1. Give Them Money, Don't Expect it Back
If your family member is in major financial trouble and you are in a strong financial place yourself, don't loan them money. Give them money and don't expect it back.
The friction that is caused from loaning is more harmful than helpful. Most people already have a difficult time talking about money with family let alone making sure they are keeping honest on their monthly payments they owe them!
My only caveat would be NOT to give money if you feel like you're enabling bad behavior that is just going to repeat itself. That leads me to #2.
2. Lovingly Say “No”
If you know that your family member has a gambling problem, a substance abuse problem or simply just does not handle their money well, you are completely in your rights to refuse the hand out. You can tell them, “I love you too much to give you this money. It'll cause you more harm than good.”
Now this approach is definitely not the easy route especially if you're talking about a parent-child situation like Susan and Katie's story. It may be difficult, but if your family member is not mature enough to handle this money, you are doing the right thing.
Also, if you simply can't afford this gift, don't do it. Putting yourself in debt or depleting your emergency fund for someone else's emergency won't help you or them in the long run.
3. Help Them to Help Themselves
To make a lasting impression in your family member's life, it is best to teach them HOW to solve their problem instead of solving it for them. I've always loved this quote:
“Give a man a fish and feed him for a day. Teach a man to fish and feed him for a lifetime.” -Maimonides
As I reviewed above, if your family member is not mature enough to handle the money they are asking for, then don't give it to them. By giving money in that situation you're not solving the problem. You're enabling their poor choices and making it worse.
Put something else in their hand instead of cash like a good personal finance book. For some recommendations, here's a list of the top 5 books that helped me become debt free, control my spending and win with money.
Better yet, your money gift could come with some helpful strings attached. Have them complete one of those books, explain what they learned, discuss how they are changing their behavior and then give them the cash. Another idea would be to have them create their own monthly personal budget and once that's complete, give them a portion of the money they need. Once they prove to you that they are living on that monthly budget, you can give them the rest.
By incentivizing them to think more intelligently about their financial choices, they will start to become more responsible. In time, they will stop asking for money because they will have their own. Having tough discussions and teaching your family members about money could very well change your family tree for generations to come.