“Should I Loan Money to My Sister?”

Families can be difficult, and money can be even more difficult. But when you put the difficulties of both of these things together, the results can be catastrophic if not handled appropriately.

Mike writes in: “Hey there, I’m a new follower. I have a question about how to handle my sister and finances. She’s been asking me for money a lot lately and I’ve been giving her quite a bit of money. She’s never been great at handling her finances and I’ve always been a bit more of a saver. I feel like I have to help her out, but it’s getting to the point that I don’t know if I can keep helping her out.

My problem is that now her car broke down and it’s beyond repair. She has to buy a new one but she can’t get financing. She told me that if I loan her the money, she’ll never ask for money again. This sounds reasonable and I was hoping I could get your opinion on it.”

Thank you for writing, Mike. It’s great that you want to help your family and it’s a blessing that you can afford to. But I want you to take a step back for a second, Mike, and think about what you’ve been doing and if this is really helping your sister, or is it just encouraging bad behavior?

When you give her money, does she spend it wisely or does she come back to you the following week, in more debt, having more “problems,” and you’re there to help her out? Most of the time in these situations, it’s going to be the latter. 

Now, giving money to family members and loaning them money are very different things. When you give them money, you’re okay with them having it, no strings attached, and you won’t get mad at how they spend it, because it was a gift. 

When you loan them money, and you expect repayment, you get mad or frustrated when you see them enjoying themselves with money instead of repaying you with it.

Do you feel comfortable that giving your sister the money will result in her paying you back? When a family member gives a loan to another family member, it is generally a recipe for disaster. It can lead to broken relationships and hurt feelings. 

Any time you see them spend money while they’re still indebted to you, you’ll wonder in the back of your mind, “Don’t they know that they owe me money and that is my money they’re spending?” It will cause what seems like at first a minor strain on the relationship, but it will get worse.

If you ever loan money to family or a friend, know in advance whether the money is worth more or less than the relationship. If they cannot repay you, how will you handle it? Will you cut off ties or will you forgive the debt? You may be faced with that decision so prepare well in advance.

In case I did not make it clear enough, we here at Foxx are against loaning money to family members. We are against most forms of debt altogether, but when family members are in the mix, it only gets worse. 

Hope that shed some light on that, Mike. Thank you for writing in.

 


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This article is not intended to be financial, legal, or tax advice. For help regarding your specific situation, please consult a local advisor.

Author: Foxx Financial

We are focused on financial literacy and a want to help others grow assets, reduce and remove debt, or just understand financial concepts better. The site will be updated often so subscribe for more content.

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