Should You Loan Money to Your Family?

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“Should I loan money to my family?”

This is a question I get asked about (and ask others about) very often. And unfortunately there’s no simple, straightforward answer.

Loaning money to family can be complicated and emotional. At the same time, it can also feel like the right thing to do, or even an obligation. While giving money to a family member may feel like you’re bailing someone out, you may also feel like you can count on your family for the same in return if you ever found yourself in a tough situation.

So when is it okay to loan money to someone in the family? Let’s take a look at one example and pick apart the factors around deciding whether or not to loan money to a relative:

“Uncle Joe is a few months behind on his electric bill. He lives paycheck to paycheck, surviving on the pension payments from a job he held for 25 years. Even though Uncle Joe is on a fixed income, he likes to buy gifts for friends and family and treat the ones he loves to nice things. That means he sometimes sacrifices being able to make his monthly bill payments in order to make others feel good. He needs to borrow $175 to cover his electric bill or his electricity will be shut off.”

So, would you loan money to Uncle Joe?

In this situation, it might be tempting to reprimand him for overspending and not planning for his regular expenses. On the other hand, Uncle Joe seems like a very thoughtful, kind-hearted man who cares a lot about his family. Loaning money to help him get out of his current situation might be appropriate, but the loan might also need to come with some stipulations and a conversation about planning ahead and paying his bills.

Again, whether or not you should loan money to family depends on your personal values and your family circumstances. And in most cases, a loan to a family member should really be treated as a gift – it’s hard to expect the money back when you’re helping a relative in need. In the end, loaning money to family is perfectly fine so long as you’re comfortable not getting that money back.

About Stephanie Halligan

Stephanie is the founder of The Empowered Dollar, a site dedicated to helping millennials to fix their finances and find their stride in money and life. When she's not blogging, Stephanie is designing school curricula and online games to teach students about smart money management.

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