Jan. 6, 2023

Should I Stop Loaning Money to Friends?

Should I Stop Loaning Money to Friends?

A new kind of Rich Girl Roundup.

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Welcome to a new kind of #RichGirlRoundup! We're trying a new format, where my Executive Producer Henah and I will pick a burning money question and discuss our answers. These new mini-episodes will drop every Friday, and every so often, we'll put out a call for questions on Instagram (@moneywithkatie) and select a few to answer.

For our first conversational RGR, we have a spicy (and very complex question):My friends and family keep asking me for money. What should I do?

Katie and Henah chat through their framework for loaning out money, how to politely decline, and the cultural and familial obligations associated with money. You can also watch the full conversation over at the Money with Katie YouTube: https://youtube.com/moneywithkatie

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Katie:Welcome back, Rich Girls and Boys, to a new format ofThe Money with Katie Show. I'm your host, Katie Gatti Tassin, and we are experimenting with something a little bit different. So rather than including our Rich Girl Roundup question and answer at the end of every episode, we are going to start releasing it separately on Fridays. This way, the idea is that you'll be able to search them more easily, and judge from the title whether it's a financial topic that you want to hear about. My executive producer, Henah, will be joining me for a discussion about these questions. That way you get a second point of view, because they are often, like most things, not totally black and white. So without further ado, Henah, thank you for joining me. 

Henah:Hi, Katie. Thanks for inviting me on. I'm really pumped about this. 

Katie:Yes, this is not your first debut on the show, but I'm glad that you're gonna be coming back on so we can have these hot take exchanges. 

Henah:You know I love a hot take. 

Katie:And now from our sponsors. Paid non-client of Betterment. Views may not be representative. See more reviews at the App Store and Google Play Store. Learn more about this relationship betterment.com/moneywithkatie. This segment is brought to you by Betterment, the online investing platform that gives you the tools, inspiration, and support that will help you become a better investor.

So this week's question is from someone who actually wants to remain anonymous, which is how you know it is going to be good. She says, “I'm a 36-year-old single female and I'm working toward financial independence. My cousins and friends take advantage of my position and ask me to loan them money often, which I sometimes don't get back. I don't mind helping if it's a legitimate emergency, but I was shocked to hear from other sources that at times, my money was used for investing in stocks when the market was low. I feel so used. How do I politely avoid giving money when I feel it is not going to be used for emergencies?” 

Henah:The first part is that it sucks to feel like you're taken advantage of. For me, money is so personal, and I've worked so hard to get where I am, and I think everybody can feel that way. When you feel like people are asking you for money that they didn't “earn,” and it's money that they're now then going to use for themselves, and it's not something that's providing, like, you know, shelter or basic needs, I can totally understand why someone would wanna be like, “Hey, I don't feel comfortable with this anymore.” 

Katie:Yeah, I think it's important to highlight that like…to me it's one thing if you identify a need from a loved one, like you see someone is struggling and you take it upon yourself or make the decision to reach out and offer to help them. When the situation kind of morphs into something wherein there is now this ongoing expectation where you are being consistently hit up for cash from a friend or family member, it's just unfair. Like you are not the piggy bank, right? I feel like it probably indicates that this person has done well for themselves and your friends and family know that you've done well for yourself and probably see you as a generous person. There's such a delineation between kind of the intention behind it and whether you are proactively noticing and offering, or if it feels like the same people keep coming to you being like, “Hey, I need some money again.” 

The interesting thing though, Henah, when we were talking about this before we began recording, is the first-generation angle of this. So I'm curious if you wanna speak to that. 

Henah:You know, I'm in a first-generation American family. My parents are immigrants, and for a lot of people in the same boat, there's kind of this familial obligation to support your family. Especially in collectivist cultures, there is a big emphasis on trying to support one another and that it is a family unit. So when you go far, everybody goes further, and that everybody's success is yours. Like it's kind of a shared thing. And so to that extent, I can totally see why some family members may feel like it's their right. You know, it's not offensive to be asking for that kind of support. To your point, they are being seen as the piggy bank and they didn't necessarily sign up to be perceived that way in the long term. And just because you support somebody once doesn't mean that that's something that you're signing up to do forever. Figuring out if that's like a cultural thing that they have to balance, or if it's just like a personal preference, there's I guess a framework that I would wanna put in place on how I approach these kinds of decisions. I feel like you would be the same way. 

Katie:Yeah, no, I agree. So for me, it kind of comes down to a few things. I really haven't found myself in situations where people have explicitly asked me for money, but I do feel as though I've been in situations where I have noticed that someone might need the help or that it would be within my realm of possibility to help them. And so I feel like, usually my personal lending is under the presumption that I'm not going to be paid back. So if I'm not okay with that and I'm like, “Ooh, no, actually, I'm not comfortable just freely giving this away,” I probably would not go there. And I also tend to ask myself that question of, “Do I feel genuinely excited about helping this individual, or am I already feeling resentful of them?” 

Henah:That's such a great point, though. 

Katie:I think that's where a good hard and fast blanket rule can actually kind of make this easier. So if you were to come out and say, “Hey, you know what, actually, in the interest of, you know, my personal growth and in the interest of maintaining this relationship, I've had issues in the past with lending out money to loved ones. And so moving forward, I've decided that I'm no longer going to be loaning money to people, and in emergency situations where I feel significantly compelled, I will gift you the money in instances where you need it.” And then that kind of makes it less personal. It's just kind of like, “Oh, okay. So this applies to everybody now.” 

And I'm curious what you think about that, but also knowing where the money is going to be used, and like the level of oversight that you should…like, do you think it's fair to be like, “Yes, I'm happy to give you money, but I wanna know what you're gonna use it for,” or is, should this be like a “Hey, once I give it to you, I'm trusting that you are gonna use it the right way or for the right things.”

Henah:Asking the tough questions, Gatti. I feel like it really depends on your relationship with that person and the trust that you have with that person. If you trust that they're gonna use it for the right things, then maybe you don't need to know every little thing. In the case of who's asking this question, like they're finding out that it was used for stocks, and that they feel really used. Based on how they're feeling and their reaction to it, I think for them it would be really reasonable to say, “If this is something I'm going to offer again, I would like to know what it's going to be used for.” But I agree with you that a blanket rule, kind of like depersonalizes, like I'm specifically pickingyounot to give money to, versus like, this is just my philosophy because this is how I protect my own wealth and my mental health and my relationships. What do you think, I guess at this point? 

Katie:Well, part of me is tempted to say that if I were thinking or considering lending money to somebody, or giving the money away in this case, and I felt so concerned about what it was gonna be used for, that that was kind of the crux of whether or not I was willing to do it. That might signal to me that this is not someone I should be giving money to. Like kind of, point blank, that if that is a big concern and I'm stressed about it, then that might kind of be like a warning sign that this is maybe not something that you wanna be doing. But I totally concede that it really depends on the relationship and how close you are to this person. Because if this is like a parent/child thing, that is admittedly different than like a close friend. 

Henah:Yeah. Well, I think like we've sort of talked about the cultural expectation, the kind of relationship that you have, but I think another question too is, how much are we talking about, and what does it mean in the grand scheme of their financial position versus the person that they're supporting? 'Cause $500 could be nothing to one person and everything to someone else. That's something that we don't know about in this scenario. But that's something that I would also kind of consider if they're gonna move forward with doing this again, is like maybe there's a threshold of “If I'm going to support you, then I want to know what it's gonna be used for.” Or if I find out and it's not something I'm excited about, am I okay with that? This is a tricky question. 

Katie:It's a pretty transactional element to introduce to a relationship, and not all relationships function well with that type of transactionality involved. So all right, cool. To summarize, we have: considering the hard and fast rule and setting that tone with everybody; determining if you have a threshold, right, for giving and/or lending; and then I guess part three-related is, are you lending or are you just gifting? And maybe it depends on the person. And what do you need to know to feel comfortable doing so? But it's probably better to get clear on these things before someone comes to you, because it's gonna happen to everybody. Like at some point in your life, someone is gonna…you're gonna be in that position, or you may be in the position to ask someone else. And so if you think about it ahead of time, now you're like, “Ah, this is actually not as straightforward as I thought it was.” 

Henah:I mean, we've talked about, all of us are way closer to ending up in an unhoused situation than we are to being billionaires. So I do think it's really valuable to think about this from the perspective of not giving the money only, but also if we're the ones needing it. 

Katie:Hear, hear.

Henah:Great question. 

Katie:Thank you for listening to our first conversational Friday Rich Girl Roundup. We will be back next Friday talking about the politics of tipping. So tip culture: Should you tip every time someone puts an iPad in your face? We will discuss.