Neither a borrower or a lender be - especially with your family

Borrowing money from friends and family can seem like an easy solution to financial worries, but done incorrectly, it can ruin relationships, writes KATE HOLMQUIST

INFORMAL BORROWING between family and friends can be a lifesaver for people hit by unemployment, and while being able to help a friend in need can be fulfilling, it can also destroy relationships.

Harry is the eldest son in the family and has regularly lent small amounts of money – €50 here and €50 there – to his younger brothers. He earns considerably more than they do, they know it and have used this to appeal to his generosity. At first he was happy to do it, but by now these small loans have added up to hundreds of euro, and that’s not counting the tickets, flights and accommodation he put on his credit card so that he and his brothers can go to a match abroad. He suspects there’s “no hope” of getting his money back, so he’s decided to stop lending.

“It’s as though they believe they are entitled to the money, but I’m not their father.” He’s tired of being seen as a soft touch and, with hindsight, thinks that he should have given firm dates on when he expected to be paid back.

That’s exactly what he should have done, says Michael Culloty of Money Advice and Budgeting Service (Mabs). Lending and borrowing between family and friends “needs to be treated as an agreement, written down, with a repayment schedule so that there is clarity of expectations and so that family and friends don’t fall out with one another”, he advises.

“It can destroy the relationship or the friendship. Trust is broken, expectations are misplaced, maybe the difference between a gift and a loan was not made clear. There are red flags all around this area, though it can work well if it’s handled properly.”

A loan is not a gift, so if it is a gift this should be clear that it is one from the outset, he counsels.

“This is a notoriously difficult subject; it can be a nightmare,” says Tony Moore, a counsellor with the Marriage Relationships and Counselling Service (MRCS). “There is a quagmire of problems with borrowing money. If at all possible, it’s best to keep family out of it and go to the credit union or Mabs to get your financial problems sorted.” Moore, too, advises lenders to insist on a written agreement with a date for repayment, even if it’s just an IOU. He describes a typical disagreement: “Your friend says, ‘Can you lend me a couple of hundred to get the car taxed?’ You assume you’ll be paid back in a few weeks. Then a month or two later, you go to the borrower and say, ‘I’m going on holiday and I need that money back’. Your friend says ‘sorry, I’m a bit stuck and can’t give it back to you yet’.”

Moore continues: “This is where you get into shocking difficulty. It can create very bad feelings and a breakdown of trust.” Yet, while the most sensible thing is to have a written agreement, few people have the nerve to ask for one because the borrower is likely to see it as an affront, he says.

Having to borrow is humiliating, especially when the person says “no”.

In some cases, family and friends give substantial amounts to help with mortgage and car payments. With unemployment on the rise, people who have lost their incomes and are living on social welfare are struggling to hold on to their houses and having difficulty paying day-to-day bills, never mind huge debts incurred during the Celtic Tiger years when people borrowed to the hilt, says John Monaghan, national vice president of the Society of St Vincent de Paul.

When family and friends cannot help, or when their help has been exhausted, the society is “the last resort”, Monaghan says. The society has seen a 30 per cent increase in requests for assistance in the past 12 months. The first thing the society does is help them assess their income and outgoings, and to prioritise their debts. The society may negotiate with lenders, or refer the person to Mabs, who will do the same thing.

Monaghan has seen an increase in once well-off people who have been surviving by borrowing from family and friends. “Borrowing from family and friends has always gone on. My sense might be that people are attempting to do it more. I would imagine there are many older parents who are helping their children to pay their mortgage and to keep a roof over their head. They wouldn’t be people the Vincent de Paul would be helping, they would find help from family first.”

Hearing from clients that their families have turned them down “would happen quite a bit”, he says. Either the family hasn’t got the money, or they are fed up helping. “There could be drink, drugs or martial problems and the family say ‘enough is enough, I’ve done this before’.”

A family member or friend being asked for a loan or gift may want to ask whether the money is really needed, or merely wanted. Cullotty advises: “Is it absolutely necessary? Is it for something sustainable and good for the person, such as health, education or to help progress in a career? You may say that’s a good investment. Whereas if it’s something trivial, some considerable thought should be given to it.”

Spouses and partners can run into difficulties when they borrow from one another. “Spouses steal money from each other all the time,” Moore says. Some women are being constantly asked for €100 for a stag night or a night’s drinking from their husbands, or even for the husbands to conduct affairs behind their wife’s back, he adds. These women should insist on having the loan in writing, though he admits that realistically few would dare do this. Even so, Moore says that if asked by his son for €50 for a night out, he would ask him to sign an IOU. “It depends on your value system,” he says.

BORROWERS SHOULD never let family and friends who lent them money think that they are forgotten and should make efforts to pay the money back, even if they can only afford €5 or €10 per week, Moore advises. Otherwise the unacknowledged debt becomes “the elephant in the room” and affects the relationship.

Older people, who have been through previous recessions, are better at coping with a sudden drop in income and the St Vincent de Paul society is getting fewer calls from them.

“The older generation has lived through recessions before, but people under 30 don’t know how to cope – psychologically they are not geared to this and it’s a real, real tragedy,” says Monaghan.

Many of the young middle-class new poor, swamped by debt, cope by having unrealistic expectations of maintaining their former lifestyle and the need to borrow more money to fund it, rather giving things up, he adds.

So lender beware and be realistic about how and when and even if you expect to get the money back.

Lending advice

• Be clear on whether the money is a gift or a loan
• If it is a loan, have an agreement in writing no matter how small the loan
• Always pay the loan back, even if you can only afford €5 per week
• Before calling on family and friends, go to the Money Advice and Budgeting Service (mabs.ie) to take control of your finances
• St Vincent de Paul (svp.ie) can help with utility bills and provide advice