How to Lend Money Responsibly

When a relative or close friend asks for financial help, your heart will always be screaming “yes.” And according to a recent Pew Research survey, plenty of us are put in that position. In the past year, 1 in 4 Americans surveyed said they had borrowed money from family or a friend.

I am going to ask you to always consider whether lending money is truly generous.

Does that sound crazy to you? How could helping someone you care about, who is in a financial bind, not be the very definition of generous?

Well, let’s review one of my guiding principles: Generosity must flow in both directions. What is generous to someone you love must also be generous to you, personally.

If giving someone money will mean you can’t pay down credit card debt this month, or add to your emergency savings, that doesn’t pass my generosity test.

When what you give reduces your own financial security or prevents you from building strong security, it is not generous.

If you can afford to lend money, let’s talk about if you should.

Will it be helping that person long-term? Or is it just a band-aid for a wound they will keep reopening? Giving money to someone who can’t control their spending is not helping them. Giving money to a child launching into adulthood so they can afford a better apartment/car/lifestyle isn’t helping them to learn the power of living below their means but within their needs.

I also encourage you to consider whether a loan, and not a gift, would be a better solution. Hear me out: By making it a loan, you offer that person the structure to stand in their truth.  They need help now, but when they are able, repaying the money will bring them a sense of responsibility. Maybe that time comes next month. Maybe it comes next decade. It doesn’t matter. It may seem counterintuitive to you, but asking them to repay the money when they are able will enable them to stand taller.