by Stacy Francis, CFP®, CDFA
I received an interesting email this morning. It was from a mother-of-two in her early thirties, who was broke because over the past five years, her parents had continuously borrowed money from her, supposedly to get into some miraculous investments bound to triple within six months. Of course, none of these had worked out, so they didn’t have any money to pay her back. Her children needed new clothes, she needed a new car, her husband needed a vacation . . . and her parents were giving her guilt trips for refusing to lend them more money. When she told me this story I had to keep myself from asking her parents phone number and calling them to give them a piece of my mind!
This situation may sound terrible, but I have heard similar stories before. Which is why I generally advise against lending money to family members and friends. Many friendships have ended this way, and within families things can – and do — get really ugly. Your own children can be exceptions, but even there, make sure you
- Put everything, including amount and conditions for the loan, on paper,
- Have a clear payback plan, and
- Don’t lend them another dime before they have paid back the original loan.
- Use a lender like Virgin Money to legitimize the loan so that you protect your assets.
Like I said, in 99% if the cases, don’t do it. But if you are going to anyway, at least make sure you cover the steps above.