Discussions of Mormons and Mormon life, Book of Mormon issues and evidences, and other Latter-day Saint (LDS) topics.

Thursday, November 22, 2007

Tis Better to Give than to Loan: How to Help Friends and Relatives Stay Out of Debt - and Not Become Your Enemies

We had a wonderful traditional Thanksgiving here in Wisconsin, surrounded with family and friends talking, eating, and enjoying some fine Wisconsin polka music while playing that video game sensation, Accordion Hero. OK, it was actually Guitar Hero, an interesting video game that features a host of bad hair styles and even worse music. But I can see why people would enjoy it and I did try it for a minute or two, trying to be a good sport. But when the night was over, I was ready for polka, an musical genre whose epicenter is in Wisconsin and one that I have never been able to appreciate, until, perhaps, tonight. Accordion Hero: The Mega-Polka Edition - I almost hope that's in my stocking this Christmas!

Speaking of family and friends, here's a little tip that I think has really helped us over the years: It's more blessed to give than to loan. This is a very serious financial principle. We came to that conclusion after observing the disasters spawned by many people around us who kindly loaned money to people they cared about. Big mistake! Loaning to friends and family is often a good way to damage your relationship when people can't repay. Friends in debt to friends soon quit calling and visiting. Family members in debt to each other often quit talking. It's a mess.

Don't loan to people you care about. If you want to help, just GIVE them the money that you can afford to give them, and make it absolutely clear that this is NOT a loan, not to be repaid, and if they do come up with money that could repay the gift, to use it to help someone else or to invest wisely for the future, but not to repay you. It's a GIFT. Gifts that people need rarely break up relationships, but loans often do.

A couple things almost always seem to happen when one makes a loan to family and friends, as we've seen from so many events among our acquaintances. First of all, because you are their friend or relative, you're going to give the loan based on trust and a verbal agreement, rather than via a legal document with teeth. The reality, then, is that you're going to have a hard time getting your money back if "unforeseen trouble" arises, as it usually does. Because you are a friend making a loan based on trust, there is little downside to not paying you back, unlike other obligations they may have. Even with the most honorable of people facing a multitude of debts, the loans that get paid back are the ones that have "teeth" built in - e.g., damage to their credit rating, confiscation of property, eviction, etc.

Second, the reason they are coming to you and not a bank or other official source of funds is because they might not be able to afford the terms of a regular loan or might not be able to qualify for one. They are higher risk, usually, and are very likely to have trouble paying you back, no matter how good their intentions. Don't put them in the unpleasant situation of being in debt to you. Offer your help, if any, in the form of a gift and keep your relationship healthy.

Loans are inherently risky. Even the best people may face difficulties that make it difficult to repay as agreed. When an institution faces bad loans, they can write the loans off and move on. But you, in the other hand, might never be able to let go. Some lenders, "betrayed" by friends or relatives or fellow Church members who took their money and didn't repay, become bitter and wounded over the loss, in addition to suffering the harm of a damaged relationship. Such loans can end up hurting the giver as well as the receiver. Avoid that risk.

One of the worst mistakes you can make is to take out a loan yourself to help a friend. There may be cases where you feel you have to, but it's a double negative. You'll be in debt and you'll face real teeth when you need to repay, and they'll be in debt and will have embarrassment and even anger toward you when they are unable to repay you, but you keep "encouraging" them to pay you back. Just gets ugly. If you feel you have to go into debt to help someone, again try to do so without giving them a loan - make it a gift and preserve that relationship.

Just a little financial tip for the day. (Please note that I'm avoiding the temptation to ramble on about food storage, the sinking dollar, the insidious threat of inflation, the wisdom of investing in commodities like energy and silver - but get it while it's cheap.)

Happy Thanksgiving, everyone! (And remember, it's better to give Accordion Hero than to receive.)

11 comments:

Peter said...

I love this post. I think it is a great example of "Christian" giving. I had a mate who clocked up a large phone bill while living with me. The phone was in my name so I had to pay the bill. Over a few months he was paying back bits and pieces until he moved out. I would say that he and I were blessed by my new job. I understood the situation he was in financially and while I was being blessed from a new (higher paying) job I was able to let him know to forget paying me back and just do something nice or put it towards his future with his wife. This man has a lot of debt and doesn't really need me chasing him as well as the various financial institutions. We haven't spoken in about 2-3 weeks but I know that while comparatively this was a small burden, being able to forgive even that bit would make a world of difference to him.

Peter

Mormanity said...

Amen, Peter. Nice example. How sad when material things end up jeopardizing friendships. Glad you could do that!

Anonymous said...

Wonderful post. I've experienced the downside of loans as the borrower and lender. Much better to give and forget.
-Troy

Peter said...

I hope that didn't come across as self praise. I wanted to show that the Lord blessed both of us.

Anonymous said...

Mormanity----

Immediately make an appointment with a Dr. Your polka comments scare me.

Dale

Anonymous said...

I presume you have heard of Dave Ramsey, then?

The borrower is slave to the lender...and I never want to put anybody in my family in that position.

NM said...

Oh, the depth of the riches both of the wisdom and knowledge of God! How unsearchable are His judgments and unfathomable His ways!For who has known the mind of our Lord, or who became His counselor? Or WHO HAS FIRST GIVEN TO HIM THAT IT MIGHT BE PAID BACK TO HIM AGAIN? For from Him and through Him and to Him are all things To Him be the glory forever. Amen. Romans 11...

His Word explicitly says that this gift of life is free (For by grace you saved through faith, not of works... Ephesians 2), yet so many professing Christians live life as if God had given us a loan to pay off...

Jeff, I pray that we might all, each day, come to a full realization that all we can do is receive, receive, receive...and so then live radical Christian lives...

In the same way that Jeff exhorts us, instead of offering loans to our families but to simply GIVE, God, who is infinitely loving, from His infinitely generous heart has given us a gift. God has also simply given. It is not a loan; neither do we have anything we can pay back (Romans 11)...

...in our humility, all we can do is receive and live a life of thankfulness in our response to having attained this free gift...

Bookslinger said...

Another option is to buy something from the person who needs money, with the option that they can buy it back within a certain time frame. This would be like pawning.

I guy I know needed money, and I didn't want to just give him that much money, and I knew if I loaned it to him, he'd never pay it back.

However, he had a DVD collection he was willing to sell. He needed the money _fast_, and would have taken the collection to a pawn shop.

I ended up buying his DVD collection at twice the price a regular pawn shop would have given him, and I felt like I got a good bargain.

I still have those DVD's. But the time frame has expired, so I feel free to sell them on Ebay or however. But I like those DVDs, so I'll just keep them.

This is another way of the borrower/receiver keeping their dignity, since they aren't receiving charity or a loan they can't pay back. They actually gave something of value, tangible assets, in return for the money.

A lot of people have extra stuff they don't absolutely need, like an extra TV, or a french-fry maker, or extra kitchen stuff.

So even though you as the giver may not need that french-fry maker, etc., your friend gets some money they need, and gets to keep their dignity.

Bookslinger said...

And by the way, taking stuff to a pawn shop is still better than those "pay day" short-term loan deals.

If you're sure you'll have the money to pay back the pay-day loan place, then you might as well pawn something if you have a TV or something of value.

Those interest rates and penalties on short-term loans are worse than redeeming pawned items from a pawn-shop.

Better yet is to live frugally in the first place, don't get into debt, don't make impulse purchases, don't make financial committments that aren't necessary, be prepared for financial emergencies, etc.

Anonymous said...

I learned this lesson many years ago.After having a number of bad experiences on loans I started giving what I could rather than a loan. I can say that all the bad feelings and stress was removed, but only give what you can afford.

dave d said...

I agree wholeheartedly with this post and with Bookslinger’s comments. The fast-offering program of the Church has these elements and so much more. It provides a means to give as a gift (through sacrifice of a few meals) even for those that normally would not otherwise be able to do so. It provides a way for those in need to keep their dignity (some kind of work may be required). AND it provides the right “strings” attached – working with ecclesiastical leaders to develop a plan to become self-sufficient once again. There is no expectation of repayment, but every expectation that those needing assistance progress in their ability to provide for themselves.

At times, fast offering assistance may be refused for a variety of reasons. At times, this gives friends and family of those in need another opportunity to give beyond their fast offering. But at times, the bishop who refused to give fast offering assistance may have been inspired to have the individual feel the gravity of their situation after they have repeatedly failed to live up to the expectations set up with previous assistance. Doing so sometimes allows them to take ownership of their situation and begin to make steps necessary to resolve it.

With the restored gospel, we understand that we are to become something more than we are and that we are to exert our own efforts to do so (knowing full well that the Lord will have to make up for all our shortcomings). We are given certain responsibilities and stewardships that we are to take care of and improve – our bodies, our time, our talents, and our means – rather than squander, waste, or bury. Providing financial help along with inspired guidance of ecclesiastical leaders and a plan to improve are very consistent with the gospel and can lead to better long-term results than to continually give in a way that enables, creates dependencies, and develops a culture of entitlement. While we as individuals are not to judge the beggar who puts up his petition to us, I am grateful that the Lord also set up a way to provide financial assistance in a way that has a much better chance to uplift and improve the needy individual.