How to Say “No” to Family and Friends Who Ask for Money

You don't have to lend money to family or friends, but if you decide to do so keep these tips in mind.

Some time ago I was asked by a reader oh how to respond to family members who were constantly asking for money. She cared for their wellbeing but it was beginning to take a toll on her finances.

Our phroogie asked: “How can I say “no” to family who asks for money? I continuously get asked by different family members and extended family members for money because they assume I make a ton of money.”

This is a tough situation because there are family dynamics at play. For one, it’s not your duty to bankroll your grown family members’ lives, but then again these are people you love and want to help. In some cases, your family expects you to help at all cost (even if it hurts your own financial interests).

She added: “I just learned to handle my finances a certain way that allows me to live a comfortable life. But, I find it hard to say “no” to my family [who] often never pay me back and I look like the bad person for asking for it back. So what can I do?”

If you’re finding yourself facing your own financial issues because of your generosity, it may be time to give a different answer. That answer may be “no” to any family member or friend who asks for money.

In her award-winning book, Gold Diggers and Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin, Valerie Rind shares compelling stories of people who borrowed and lent money to family and friends and the proceeding turmoil that ensued. It doesn’t look good on both sides. In fact, Valerie recommends you never ask or lend money to a family member (not even your partner).

Can I borrow money?

Have you ever asked to borrow money from someone? Did you ever lend money to a friend? What were the outcomes of this financial transaction?

When money and family are involved emotions run high. Chances are your decision to lend money or ask for money is based on an emotional bond. And because it is influenced by our feelings, it has a very personal association. Whichever side of the coin you’re on–borrower or the lender–things can, and often times will get quite dicey.

I’ve played both borrower and lender with family members and friends. These experiences shaped the way I view lending and borrowing money to anyone I have a close relationship with.

When I was 20 years old, I was a financial disaster. I was living paycheck-to-paycheck, wracking up credit card bills, and maxing out my student loans. As a 20-year-old college student, I made good money but I never seemed to have enough.

There is one particular situation where I asked a good friend for money. I needed to pay for my car insurance. With no questions asked, he lent me $600. I remember wanting to pay him back but I never seemed to gather the money to do so. I was still scraping by. The amount borrowed was enough to cover 1/4 of my annual premium but the next payment would be due soon.

Months had passed and I tried avoiding him. It wasn’t until my friends all planned to go away on Spring Break that he asked for his money back. I didn’t have it and it would take a few more months to save enough. In the end, I never gave him the cash back but instead paid for the trip to Cancun with my credit card.

My friend never treated me any differently. He never showed any anger and fully understood how financially reckless I was. I felt shame and guilt and it impacted the way I interacted with him.

From borrower to lender

A few years later, I found myself in a better financial standing. I was now playing the role of helping family and friends by lending money to them. Similar to my friend, I had no rules or criteria for the borrowed money. My personal experiences were filled with moments of borrowing and paying back family members and friends. It was now my time to repay these acts.

I was different than my friend and I would ask for the money to be repaid. It was a horrible situation to be in. Friends facing financial difficulties who borrowed my money were taking vacations and eating at fancy restaurants. But made no attempt to pay me back.

Relationships were strained.

I noticed friends avoiding me. I also had a cousin tell other family members I was worse than a debt collector.

There is a lot of emotional and mental baggage when it comes to borrowing money from someone you know well. If you’re borrowing money, you’re admitting to bad decisions you’ve made. In some regard, you’re putting your swallowing your pride and showing vulnerability.

On the other side, as the lender to family and friends, you’re potentially putting your own financial security at risk. And you can be seen as the bad person for wanting your money back.

I’ve learned that at times we need a helping hand but we also need some tough love. When we lend money to help a friend in need and see them financing a new car, or buying $500 sneakers, it will change the friendship. Other times, lending money to family is enabling them to continue with their financial ways doing more damage

Should you lend money to family or friends?

People borrow money for a number of reasons. Sometimes it’s to pay for rent. Other times it’s needed to make payroll for their business. Occasionally, it’s needed to pay living expenses.

I’ve seen the exchange do some nasty things like destroying marriages, cut off sibling communication, and I’ve witnessed friends get into a physical fight.

It’s okay to lend money to anyone you choose. If you have the right mindset and have the means to do so. For example, you’ve accepted the money you lend will never be repaid and it’s money you do not need…ever.

I’ve learned it’s quite important to have rules when it comes to lending money to a loved ones. Here are my five rules to follow to save yourself some grief and potential financial ruin

1. Set a rule or guiding principle about lending

My rule is that I do not lend money to anyone. Period. With that said, it doesn’t mean I do not give money to family or friends. There’s a difference between lending and giving money. If I have money to give and never expect to need (i.e. not taking money out of my emergency fund), I will freely give. In most instances, my money is allocated to specific financial goals, so I do not have any free available cash. I follow this rule: I do not lend money to anyone.

2. Set realistic terms and write it down

You’ve broken rule #1. Helping a family member or friend in need is something you’re compelled to do regardless of your own financial situation. So now, you must set terms and a realistic expectation for yourself and the borrower. You must expect to never get the money back and you’re okay with that situation. This will give you some peace of mind and not peril the friendship. This doesn’t mean you shouldn’t be repaid, but you’re setting your mindset to accept this money is being given not lent.

If you do decide this money needs to be paid back, have a contract drawn out that outlines the rules. The borrower friend or family member might feel slighted with this request. Explain your situation and your desire to be clear about this financial arrangement. Refer to this blog post if it helps. Outline the amount and repayment terms.

Here’s a pro-tip: tell your friend to communicate with you and ask if it’s okay to share observations. It might be hard asking for money but it also can be difficult giving financial advice to friends. Ask if you can offer suggestions such as ways to earn money with a side hustle.

3. It’s an investment not borrowed money

There are times when a family member or friend has a business idea. Or they may have an existing business and need an influx of cash to keep operating. Think of the money you lend as an investment with a risk of loss. I will invest in an idea or business that has a solid operation and plan for growth. When I think of money lent as an investment it changes how I view it. It also helps frame the financial transaction among friends as a business. Outline the terms as well for this investment.

An insightful discussion regarding the use of the money to grow the business is a must. Again, write it all down. Make it clear what the terms regarding the money is–amount, repayment, a percentage of profits or ownership, and options.

4. Fund a secured loan with their financial institution

I’ve had friends who needed cash to pay for a moving violation or ticket. One such friend had a $1,000 ticket for using his phone while driving. This is why we all need a Rainy Day Fund to cover unexpected expenses such as tickets, flat tires, and busted heating units/

In this situation, you want to help your family or friend out by changing their behaviors. Consider opening a secured loan for them at their bank or credit union. Deposit the needed amount into a savings account and request a personal loan for that amount. The borrower will make the loan payments and in case of default, you have means to pay off the amount and still recover some of your money.

I helped a friend using this method. He needed $1500. Through a credit union, we opened a joint account and got a secured loan for that amount. My friend made the minimum monthly payments. In about 8 months he was able to pay off the amount in full. This served two purposes: it taught a financial lesson that impacted a behavior and his credit score actually improved.

The Smile Conclusion: A Yes or No

Your decision to lend money is going to be personal but it should also be financial. Make sure you understand what you’re getting yourself into and communicate openly with the borrower. I’ve found that when you do say “no” most have found alternative ways to deal with their situation. At times, the no has led them to seek financial counseling and begin the process of learning how to manage money and credit better.

These are rules I’ve followed for years and have served me well to maintain healthy relationships with family and friends. I haven’t lost any meaningful relationships. And I have been able to support my mission around financial literacy using these rules.

So this article isn’t so much about saying “no” but understanding your own personal reasons for lending money and evaluating the risks to your finances and your relationships.

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Jason Vitug

Jason Vitug is founder at phroogal, creator of the award-winning project the Road to Financial Wellness, and author of the bestseller and NY Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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