Lending money to a friend or relative

Are you willing to lend money to your friend or relative?  One day, you might get a call from a cousin.  He wants to borrow $2500 for a used car.  His old car was wrecked last week.  He could not get a car loan due to insufficient credit or income.  What are you going to say?  “Oh, I don’t have that much money.” Or “Sorry, I can’t lend you again.  You still owe me $300.  Remember the loan for your Florida vacation?” Or “Sure, I’ll send it to you right away.”

This is a challenge.  It’s hard to make you and your cousin both happy.  In your heart, you know once the $2500 is lent out, you may never get it back.  That’s your hard-earned money, and you could use it to pay house bills, save and invest it for your retirement, etc.

Money is such a sensitive topic.  It could hurt the feelings and friendship.  It’s hard to say No, but sometimes we have to, in order to protect ourselves financially.  I feel it may be related to the culture in some ways.

Chinese culture does not like to say No directly:  

I grew up in China, and lived there for 30 years .  In China, if a lady asks you:  “Do I look pretty wearing this dress?”  You’d better say Yes, no matter what the truth is.  Over there, Yes does not always mean yes.  But No means more than just no.

The place I grew up is a small village in northern part of China.  My family was very poor.  My dad was a school teacher, and didn’t make much to support a family of four.  My mom is a home maker.  When I went to the college in Beijing, my dad had to borrow money from his friends, to cover my college expenses for 4 years.  At that time, there was no student loan available.

The college was not that expensive in China back early 80s.  Tuition and room was free.  Because of my family’s low income, I got good stipend from the school to cover the food.  All I had to pay was books, clothes, and other miscellaneous expenses, which were covered by the loans my dad got.

My dad’s friends were not rich either.  They were so nice, generous, and supportive.  I really appreciate all their help.  I was able to finish the school, get a good job, and help my dad to pay off all the loans quickly.

Even now, borrowing money from each other is still common in that village.  Once a while, some people went to my parents’ place, and wanted to borrow money for a new house, son’s wedding, etc.  My parents are not that poor anymore.  My dad was retired, and has a decent pension.  For his friends who helped us before, my dad was more than happy to help back.  But some relatives simply wanted money to gamble.

In China, face is everything.  To many people, face is more important than life.  Saying No directly seems so rude and unacceptable there, and friends could become enemies.  They feel that, being rejected is losing the face, is humiliating, or at least is disrespecting.

If you don’t want to lend money, you have to pretend like this:  “Yeah, I fully understand your situation.  I really wanted to help you, but just don’t have the means.  My kids just spent so and so much, and I have nothing left at hand.”  Actually the money is just hiding at the drawer 5 feet away, and is giggling at you quietly.  Everyone knows it’s a lie, but feels more acceptable, as the face has been saved.

I would love to say: “No, I won’t let you gamble away my money!”  But my parents wouldn’t agree with me. Having lived in US for 20+ years, I learnt to be direct and honest.  That’s what I value the most.

Take care of yourself first:

Taking care of yourself is not selfish.  Only when you are in a great shape (financially, physically and mentally), you will have more energy and means to help others.

If someone asks to borrow money from me, I would take care of myself first in this way:  keep being honest to myself, and ask the following questions before making the decision:

  • How much chance will I be paid back?
  • How long will it take to get it back?
  • Do I want to charge interest?  If yes, what rate?
  • Does it hurt me financially and emotionally if I’m not getting the money back?
  • Do I feel comfortable about treating the loan as a gift?

Did you ever lend money to someone?  What’s your experience and suggestion?

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18 Responses

  1. Sor says:

    Hi Helen,
    My friend borrowed $5000 from my 9 years ago but didn’t pay back. I wasn’t angry or feel bad because she helped me when l was in a bad situation. I will never borrowed money to anyone again. Friendships turn into enemies, families become strangers and relatives will always talk somethings bad when money is involved. I am Chinese from Singapore so l can completely understand what you are saying.
    By the way l love visiting different parts do China especially for the unique and amazing senenry and the foods.

    • Retire Early Helen says:

      Sor,
      That must be very hard for you, as that’s quite a lot. I’m sorry to hear that. Yes, money could ruin a family or relationship, as sometimes we are so reluctant to say no. We all learn the hard lesson in some way, and hope it won’t happen again.
      I like the Chinese food, too. It’s a great place to visit. If you go to the northern part of China, I suggest you try to avoid going there in the winter, due to the pollution. The other three seasons should be better (I hope).

  2. Sor says:

    Hi Helen,
    Thanks for the prompts reply. I usually visit China in spring or summer to avoid raining season. In your future posts, can you tell your readers how you achieve your early retirement, do you have investments that pay all your monthly expenses? I am looking forward to read your next post.

  3. EHC says:

    Hi Helen, I can’t remember how I stumbled across your blog, but it’s a good “stumble” as I have enjoyed reading your posts. I would be interested to know how you get around the health insurance issue living in US. It is one of the biggest expense that’s holding people from retiring before Medicare kicks in.

    • Retire Early Helen says:

      EHC,
      I’m glad you enjoyed the read, thank you. You are right, health insurance has been a big issue in US, and don’t see any solution soon. Currently I’m enrolled to the ACA (Affordable Care Act). I’m not eligible for any subsidy. The premium is high (keeps going up), and the coverage is not that great. But I feel lucky, as it’s much better than no coverage. On the other hand, MediCare could change down the road, too. In terms of health care in US, nothing is guaranteed. I just took the chance. Overall, I’m very healthy, and hope stay this way. I try to have a healthy lifestyle, that’s what I can do at least.

  4. Yes, we have lent money to friends and family and most end up not paying back. That’s we only lend money we can afford to lose and must be for something useful like education or business.

    99to1percent recently posted…What BS Are You On? https://99to1percent.com/what-bs-are-you-on/

    • Retire Early Helen says:

      Right, once the money is lent out, there is no guarantee you will be paid back. I see your point. Lending money to support education or business is a great cause. It will make a big difference to the recipient’s life.

  5. Jacq says:

    I dated a guy for several years and he wasn’t good with money. Over time he’d be short and ask me, and I’d say “this is a loan, I expect to be paid back” and he would agree. (Like the time he ‘needed’ a new suit plus shirts, tie etc, (for ~$1000) and I could get a store card & he could not. I didn’t count things like dinners out, or small things you expect to do / treat for while dating.) He came into money, and I submitted a sheet of all the loans. He was very flustered but I reminded him he agreed each time. He did pay me back, and I was very careful moving forward. After we broke up, while trying to do that “we can still be friends” thing, I agreed to send his gifts to his niece & nephew for Christmas, and wasn’t paid back for the shipping.
    I’ve been much better off, not dating him, so I let it go.
    In general I either pass on loaning money, or gift it if I can afford it. From my ex I learned most people who can get loans / the money in a ‘normal’ way do, so those asking -me- for a personal loan are less likely to be able to pay it back soon, if at all.

    • Retire Early Helen says:

      Jacq,
      Yeah, money could be tricky in a relationship. You are so kind and willing to help. At least you were paid back for most of the loans, that’s a good thing. I’m glad to hear that, you became more careful on lending since then. We all learn the lessons from experience. Thanks for sharing your story.

  6. GYM says:

    I really avoid lending money to friends and family. Interesting that people have to lie to ‘save face’ in China. I am 2nd generation so I’m pretty direct. That might be the reason why my dad is upset at me and doesn’t want to talk to me- I was too direct and honest instead of lying.

    Oh I just saw that you liked “When Breath Becomes Air” that was a good book- I cried and cried reading it.

    • Retire Early Helen says:

      Yeah, it’s totally a different culture. People try to avoid confrontation and pretend to be polite. Sometimes, the truth is compromised.

      About the book by Dr. Paul Kalanithi, I share the same emotions. Such a beautiful life, but was cut too short. He always reminds me that, never ever take life for granted. Thank you for sharing.

  7. Louise says:

    I agree with everyone here – only lend out what you can afford to lose. Also, depends on the person and your relationship to them. My sister’s husband (boyfriend at the time) paid for some of her school. They knew they were going to get married and the degree would help her earning power, and thus, their family in the future. So this is a loan that makes perfect sense to make (only if you are fairly sure you will marry the person or be together longterm (not everyone gets married)! Otherwise DO NOT LEND MONEY TO SOMEONE YOU ARE DATING!!! I’ve seen too many friends paying for their broke a** boyfriends who don’t even have a full time job and aren’t looking).

    To anyone other than someone I live with or my parents, I would be shocked if they asked me to lend them money!!! Super gauche to ask someone who isn’t an immediate family member, at least where I live.

    • Retire Early Helen says:

      I see your point: “only lend out what you can afford to lose”. Very Good advice. Thanks for sharing your thought.

  8. Nick. says:

    It really depends on the circle of society you are in. Half my family is in the circle of losing a used car’s value in a weekend at the casino, paying $100,000 and six figure cars. The other half of the family where I’m from is pure ****. I suggest using all one’s energy and effort to go to the first half. That is what I do. It is much better there. Leave the second half it is hell. I don’t hear of their stories of borrowing $1000 to $4000. I don’t hear stories of ending relationships, lovers, dating, friendships over borrowing $4000 a few times over. Instead I hear of their stories of losing $10000 one great weekend at the casino, and returning next year to lose $15000 a fantastic weekend .

    Needless to say the two halves of the same family seldom interact because the wealth gap is too large.

    • Retire Early Helen says:

      Nick,
      I see your point. It would be nice if money were not an issue any more. Definitely it would eliminate a lot of headaches. Thanks a lot for sharing your thought.

  9. Melissa says:

    Lending money is tricky at the best of times. Especially when it comes to family. I’m lucky to be financially stable. Unfortunately I’m the only one in my immediate family; the rest live pay check to pay check. I’m happy to help out when it’s needed. But I also spent years feeling guilt over being ‘in a good position’ when I would say no for whatever reason (didn’t want to enable bad habits etc).

    When I did lend it, I rarely got it back, and that never bothered me. I guess because those times, they really were in a financial corner.

    • Retire Early Helen says:

      Melissa,
      I agree with you. Lending money is not an easy call, and a lot of emotions are involved. I’m glad to hear you are financially stable, and helped your family when needed. You are “in a good position”, that’s because you worked hard, and managed the money wisely. Wish you the continued financial success in 2018.
      – Helen

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