What to remember when giving money to friends or family

Giving money can and should be a blessing, but it can turn into a nightmare if you can’t let it go or if you’re not honest with yourself.

Let’s face it: some of us have money these days and some of us don’t.

And I’m not just talking about whether you’re over on the “wealthy get wealthier” side of income inequality. These days, it could be just whether you have a job or not. While I don’t believe that AI is coming for our jobs in the way that the media is saying, I do think that companies are trying to reduce their headcount as much as possible, mistakenly believing that a business that requires no one to run it is a good thing.

Anyway, if you’re in the fortunate position not feeling strapped for cash these days, you still probably know someone who isn’t as fortunate. Maybe you have a parent who is struggling with being on a fixed income. Maybe you have a child who is having difficulty finding their feet. And maybe you have a friend who is just down on their luck.

And perhaps you want to help them out.

Well first of all, good for you. I applaud your generous impulse. Giving isn’t always easy, and many of us have a strong scarcity mindset.

But caution is warranted here, as it’s far too easy for generosity to lead to conflict and bad feelings. Here’s how to make your gift a blessing and not a nightmare.

Make if a gift, not a loan

If you want to help someone out with money, make it a gift, not a loan.

I’m serious. Do not lend money to friends or family. If you take nothing else away from this article, let it be that.

Why do I feel so strongly about this? Because a gift that comes with strings attached is not really a gift.

When you loan someone money, you have created a power imbalance in your relationship. They literally owe you something. And this can have all kinds of unintended side-effects.

For example, you may feel a little more invested in what they are spending money on. Imagine how it would feel if you loaned them money and then they said they were taking a big vacation. Would you feel a little irritated, like they weren’t prioritizing pay you back?

This sort of thing can really erode relationships. If you lend someone money, and you end up with a strained relationship, was it worth it? I doubt it.

Conversely, when you give money and five it freely, there is a freedom involved in it. Your generosity is truly embodied, and you can let go of the consequences, whatever they are.

This isn’t always easy, and it can be tempting to police their spending even with a gift, but if you can do it right, it ends up working out much better. You decide what the gift is, and assuming you’re comfortable with it, give and then let it go. It feels great.

Set the terms

If you are insistent on loaning money to someone, then I would treat it like any business deal, and come to the table with some terms.

Here are questions that you should answer before you go through with the loan:

• How much is being loaned?
• Is this money being transferred once or in stages?
• Will there be any interest charged? How will it be charged?
• What are the terms of payback? Is a one-time payback expected?
• If payback is over time, how much and how often?
• What is the contingency plan if any of this doesn’t happen? (Missed payments, etc.)

You want to get clear confirmation of all of these questions, and get the results signed and in writing. Yes, that might seem cold or unfriendly, but this is a business deal, and any potential awkwardness now will reduce the chance of conflict later on.

But I still wouldn’t do it.

There are no terms in a gift

Meanwhile, if you are gifting money to someone, then there aren’t really terms.

Sure, you could set up some kind of escrow and not let the money move until some condition has taken place. Or you could take ownership of the money and use it in the way that you’d like (such as being the person to pay down the debt).

But by definition, a gift is something you no longer possess, and if you no longer possess it, you know longer control what happens to it. Someone could take the money and light it on fire, and while you wouldn’t be particularly happy with that, a gift means that it is theirs to do with as they please. Otherwise, it’s not really a gift.

Are you really prepared to give money?

All of this begs the question: are you really prepared to give money to this person or people? No strings attached, no contingencies, no ownership, just a gift?

While I think loaning money to someone is a bad idea, gifting money to someone while feeling as if it’s a loan is even worse. So whatever you decide, be honest with yourself (and them) about what it is you really want. And if you can’t think of this as a gift, then consider whether you are in a place to really engage in a financial transaction at all.

Gifts should be a blessing to all involved, both the giver and the receiver. You don’t want to turn what should be a blessing into a nightmare. Remember, it’s never worth sacrificing a relationship over money.