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Are You Tired of Lending Money to Relatives and Being the Family Bank?

Below is a question and answer piece about lending money to relatives and some things to consider when loaning money to family.

By Scott Hannah

Being the family bank and lending money to relatives.Q: I’m one of three kids in our family and I seem to be the one who repeatedly lends money to my siblings, and occasionally to other family members. I am fortunate that I can afford to do so, but my wife and I have our own financial plans and are starting to get frustrated with being the family bank. How can we change this?

A: I can appreciate the struggle you face with wanting to be generous with your family, yet getting frustrated with being used as a financial resource. I would suggest that you and your wife examine your values around lending money to relatives.

Examine Your Values

Ask yourselves if lending money to family truly reflects what you want to do as individuals and as a couple.

Are generosity and the sharing of money among the values that you both hold dear or are you lending money to people you love from guilt or a sense of obligation?

Reframe Your Lending

If generosity is an important value for you and your wife, consider reframing how you view lending money. Shifting your perspective can help you focus on the positive aspects of giving.

Since you value generosity, sharing with others, and have the means to do so, try approaching lending with an open heart and without the expectation of repayment. Embracing a mindset of giving freely can help ease any feelings of frustration or resentment.

Look a Little Deeper

However, if you find yourself lending money out of guilt or obligation, it may be worth taking a closer look at the reasons behind these feelings. Ask yourselves why you feel compelled to give.

Is your relative facing a genuine financial hardship, such as illness or job loss, making their need temporary and repayment likely once they recover?

Or is the money being used to fulfill wants rather than necessities, with little structure or certainty around repayment?

The Bottom Line About Lending Money to Relatives

Seeing loved ones struggle financially is never easy, and offering support during a true crisis is very different from being treated as the family bank and being expected to always loan family money.

If your family repeatedly turns to you for financial help, the most valuable support you can offer may be guiding them toward long-term solutions.

Teaching them effective money management strategies can have lasting benefits, creating a financial foundation that extends far beyond any immediate assistance you provide today.

If your family member needs help creating and following a budget, tips and coaching to help them make better financial decisions, or is swamped with debt, you can also encourage them to speak with a local non-profit credit counsellor – such as one of ours. They can receive one-on-one help and guidance and they can also attend free online workshops to learn how to manage their finances better.

proceed with caution
Lending money to family and relatives is a common thing, with a recent survey revealing that 1 in 3 have a loved who owes them money. Unfortunately, nearly half of those who extended financial help later regretted their decision, and even more concerning, 1 in 6 reported that it damaged their relationship. This aligns with government studies showing that 50% of bank co-signed loans result in the co-signer having to take over the payments, while finance company loans see co-signers being forced to cover the debt 75% of the time. Given that many borrowers struggle to repay even formal loans, it’s not surprising that personal loans between family members often don’t end well. Lending money to family is risky, and the greatest risk is that relationships can be ruined. This can happen for a lot of reasons. The borrower could fall on hard times, be unable to repay their loan, and then feel so bad or guilty about it that they don’t want to see you anymore. Worse yet, they could find fault with you as a reason for not repaying the loan. For all of these reasons, its wise to consider in advance how you might handle the situation if your family member is unable to repay the loan. Will you insist on repayment no matter how much this strains the relationship? Will you ask your family member to agree in advance to seek help from a credit counsellor if they struggle with repayment? Or would you be willing to forgive the loan if it becomes clear they won’t be able to pay it back? Thinking through these possibilities ahead of time can help preserve relationships and hopefully lead to better outcomes.
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