When someone you know, like a family member, is in a financially tough spot, it might feel natural to help them out. This can bring people closer together when times get hard. But when it comes to loaning the money, things get slightly more complicated as the chance of seeing it ever again plummets. 

Reddit user AmIGreedy12 found herself at risk of losing the $37K that she loaned her now-late mother. To try and save it, she pushed her sister to repay it, even though it meant leaving her without a home. This stirred quite the drama amongst the family, which led the Redditor to turn online, asking if she was acting greedy.

When a family member is in a financially tough spot, it might feel natural to help them out

Image credits: Prostock-studio / envatoelements (not the actual photo)

However, after helping out and not being repaid, this woman was set on taking extreme measures

Image credits: demopicture / envatoelements (not the actual photo)

Image credits: wutzkoh / envatoelements (not the actual photo)

Image credits: AmIGreedy12

42% of people reported losing money through loans made to friends and family members

Image credits: Beachbumledford / envatoelements (not the actual photo)

According to the 2022 CreditCards.com survey, 42% of participants reported losing money through loans made to friends and family members. Due to the high risk of not seeing the borrowed sum ever again, many experts urge people to very thoroughly think before lending the funds to family and friends. 

When a loved one asks to borrow money, the first thing a person should consider is their own financial situation. “Ask yourself: Am I really in a position to be gifting money right now?” says Wendy De La Rosa Wendy De La Rosa, assistant professor of marketing.

If the person has the extra money, they can consider sharing it. However, if they have to pull the funds from their necessary expenditures like rent, car payments, or tax money, they are at risk of jeopardizing themselves. It can also put them in an even more vulnerable position if the borrower fails to pay back. 

“I’m not a big fan of lending money to family and friends because of the strong likelihood that something will go wrong,” says Ted Rossman, senior industry analyst at CreditCards.com. “If you want to do this, don’t lend more than you can afford to lose.”

Lending money should be left to financial institutions

Image credits: Joyseulay / envatoelements (not the actual photo)

Meanwhile, financial author Michelle Singletary believes that lending money should be left to appropriate institutions. “As individuals, we are not in the business of lending money. We don’t know how to do it because there are a lot of feelings involved,” she says. “That’s why it should be left up to financial institutions.”

If a person has the money the family member needs and doesn’t feel a negative effect from parting away with it, they might consider gifting it. “If I’m giving money, I’m assuming it’s a gift. It’s not going to get paid back. So from my end, I know it’s money I’m willing to lose,” says financial educator Berna Anat.

In cases when that’s not possible, there are other ways to help a struggling loved one out. It may simply be enough to provide some guidance, as someone who is in a financially tough position often doesn’t see another way out. Instead of giving them the money, think about helping the person with their budget or setting up an action plan to get them out of the tough situation. 

Or offer to assist them with their groceries, or suggest taking care of their little ones so they could pick a few more shifts at work or focus a bit more on their side hustle. Providing support shows that you’re willing to be there for them, which will be greatly appreciated. 

So, dear Pandas, what are your thoughts on lending money? Have you done it before? If so, how did it go? Be sure to let us know in the comments below!

The author’s post stirred up a heated discussion in the comments

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