Monday, February 25, 2008

Borrowing from friends and family

I was watching one of the multitude of doomsday documentaries out there a couple of weeks ago on The History Channel. Within the documentary they examined the psychological affect of an "end of the world" scenario on the average John and Sally Smith. It dealt more or less with how they'd respond to knowing that the world was undoubtedly and unavoidably coming to some sort of end. There were a few responses that cut against the curb, such as "I'd party and never stop!" or "I'd pray!" But the vast majority of people (something like 85%) chose the obvious, and in my opinion, wisest road.

They said when polled that they'd spend their last remaining hours or days with their friends and family, in the comfort of their own homes. The poll surpassed nationality, race and creed. It seems most people, regardless of their upbringing would prefer to spend time with their close friends and family if for some peculiar reason the cosmos spat out a "The End" card for our planet.

The answer is pretty obvious and dull, but the message it conveys says a lot about our society. We're social animals built for a social world. It's why humanity can construct tools like jackhammers, supertankers, space shuttles and cherry pitters. We feel the most at ease and comfortable if we're near the rest of the pack. We have someone to watch our backs if the going gets rough. Everything in our lives is in someway connected to our closest social interactions, so it kind of makes sense that personal finance, being what it is relied heavily on our interactions with the rest of the family group.

You trust your friends and family, probably implicitly. The feeling is quite likely mutual. I'm not talking about Larry in the next cubicle over that you trade email addresses with, but mom, dad and grandpa, your best friends, your siblings. You trust that they would never do you any sort of harm that wasn't in your best interest and they likely feel the same way about you. That is after all what being a family is supposed to be.

So when you're navigating the world at large and you encounter a little difficulty, it makes sense to return to the people you feel most comfortable with. If you're in the middle of a disastrous break up, it's a good thing to ask for your best friend's advice. If your house burns down in the middle of the night, mom and dad likely have a pull out couch for you to crash on until the house insurance pays off.

Or when you hit the iceberg of epic debt, it makes sense to ask Aunt Susy (who has a house in the Hamptons) if she can spare a couple of bucks to help you out. Right?

Wrong. I subscribe to the philosophy that one should never, ever borrow any appreciable amount of money from a friend or family member. Unless the circumstance is extraordinarily dire (like you need to be bailed out of jail, or you have an attorney knocking on your door), it should never even be considered an option.

It's true that friends and family are there to help you out when times get rough, but far too few people realize how much strain a personal loan between friends can cause. I blogged about a similar circumstance a couple of weeks ago in regards to the dangers of co-signing on home, car or a small business loan. While the subject of borrowing money is a lot more subjective than co-signing, the underlying facts remain the same. You are putting someone you care about the most in a compromised situation.

They may quite willingly shell out the dough or dish out an autograph for the bank. And you may fully expect to return their favor in full. You might even plan to give them a little interest for their trouble. But what happens when the unexpected occurs? What if immediately after borrowing $5,000 from Aunt Susy your office down sizes you?

Sure, good ole' Aunt Susy won't expect the money back after you've lost your job. But what if after that your car needs a new set of tires? The unexpected happens on a daily basis and you may be fully justified in not being able to pay the loan back. But Aunt Susy doesn't see that. She'll pick up on the major things, but not the daily brick-a-brak of daily life. It's hard to blow off a car loan. If you're a couple of days late they start angry calls, charging fees and fines and sending collection letters. But chances are if Aunt Susy doesn't see a dime she'll stay quiet for a long time because of the pre-existing relationship.

And when she speaks up? Oh boy, she's probably been bottling it up for quite sometime. When it comes to borrowing money from friends and family, both parties must be prepared to either lose the money or lose the relationship.

There's absolutely never a guarantee that'll ever happen, a relationship ending over money. But does it sound terribly difficult to imagine? Most marriages that collapse under their own weight do so over money. Is a relationship with one's best friend or brother that much different?



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