Don't Pour Your Money Down a Relative's Drain

When I wrote Don't Loan Money to Friends and Family Members and said it's better to give money to family members and friends than to lend it to them, I forgot one key point -- what if the family member/friend is not disciplined and will simply "waste" the money? I was reminded of this issue when I saw the March issue of Money magazine and read this blurb:

Hold on to your check book. It's natural to want to bail a loved one out of a dire financial situation, but don't; it's a quick fix, and the person you're trying to help may just relapse into bad habits once again.

Oh yeah, I've lived this one a few times.

We've never loaned money to family/friends, but we've given money on different occasions. In a few cases (early on in our marriage), we gave money to one family member in particular who simply couldn't get her finances straightened out. We gave her money a few times to "help her out" and what did she do with it? She spent it on something she didn't need/use -- like a new cat or a nice treadmill -- instead of using it to pay off her debts. Basically, she wasn't ready to get her financial life together and we were too stupid to see that. It didn't take us long however, and we quickly dried up the funds until she got serious with her finances. Since then, she's done a great job of getting herself back on solid financial ground, and we give her a bit of money every so often.

So for us, this was a learning experience -- even if you're willing to give money to help someone out, be sure they're ready to use it properly. Otherwise, the gift will not really help them out. In fact, it may put them in a worse spot financially -- if they use the money as a downpayment on something they really can't afford.

Comments

[tinyhands]

It may be a subtle difference, but why not pay that loved one's bill directly, instead of giving her the money? It can be a "learning experience" for her if you go into the bill collector's office and write out a check with her standing there. Hopefully a little embarassment (within reason) at being publicly bailed out will also provide extra incentive. (Obviously this is assuming you live close enough to do this in person.)