A few years ago, Maggie Baker’s adult son asked to borrow money to invest in a new business he was particularly hot on. It wasn’t the first time. Her son, a trained actor, had been, as she put it, “a Peter Pan for longer than most.” She knew that he wouldn’t have the follow-through to make money from the stakes she supplied and eventually pay her back. So Baker did what so many family members and friends find impossible when asked for money: She said no. It helped that as a psychologist and financial therapist in the Philadelphia area, Baker was practiced in how to say no. It’s something she teaches her clients on a regular basis.
“He was very angry and resentful for a long time. I had to withstand that,” she says.
It’s a very common phenomenon. A study by AgeWave and Merrill Lynch found that two-thirds of Americans age 50+ provide a consistent stream of support for their grown kids. But it’s not just an issue with parents and children. Jeanne Fleming and Leonard Schwarz, longtime financial ethics columnists for King Features Syndicate, conducted a survey of 800 people in the United States and found that more than one-third had a family member that was consistently asking for money. Friends add another level of complexity.
So, what’s the answer? If you’re one of those people who has a personal policy of saying “no” when friends or family members ask for a loan (or an outright gift), you’re fortunate. You can honestly say that your beliefs prevent you from helping in this way. Ever. In almost every other situation, Baker and other experts note, the lines are wavier. There are times to say no. There are times to say yes. “There are some professionals—I know some—whose response is always to say no, in every case,” says Megan Ford, a financial therapist in Athens, Georgia, and author of the blog Finding Harmoney. “In my mind, there is some sort of happy medium—a process of analysis that helps you figure out whether it’s a good idea to say yes or to say no.”
With that in mind: Here are four nos, and a yes to get you on the right track when friends or family ask to borrow money:
Say No To: Loans that Enable
By lending this money are you essentially allowing this person to continue on the same, financially irresponsible track they were on before? Say no. Another way to ask this question: “Are you rescuing this person—and has that been a pattern of behavior,” asks Ford. If this is a pattern, you have to ask if you’re really helping them or if you’re just enabling them to stay right where they are.
Similarly, sometimes rescuing a person prevents them from exploring their own bottom—which they may need to hit in order to make changes in their own life. In this case, you’re often better off volunteering to help with information or education, for example showing them how to make a budget or helping the polish their LinkedIn presence, rather than with a check.
Say No To: Loans With No Due Date
Or, for the record, other parameters. If you’re going down the decision tree of yes-or-no and it’s unclear how the repayment process will pan out, walk away.
- How will payments be made?
- Is there a minimum amount per year?
- Are you expecting a lump sum?
- Will there be interest?
Baker says yes. “Make it as real-world as possible,” she encourages. “The world will not give you an interest-free loan, and if they do, there’s a catch or it’s not long-lasting.” And put it in writing so that there’s no later confusion (or argument) about what you both agreed to.
Say No To: Loans That Will Make You Resentful
Remember that this two-sided transaction will very likely have some impact on the relationship you have with someone close enough to you to feel comfortable asking you for money—or even if they don’t quite feel comfortable, to do it anyway. In other words, it’s likely an important relationship.
If you’re going to be looking at them funny, being judgmental or resentful, that’s a good reason to say no. “It’s about you, too, not just them,” Ford says. Examine that. “Not just how will the person benefit from this, but how will I feel about this?”
Say No To: Loans When You Need The Money
People who are asked for money tend to be self-sacrificing. They tend to think more about others than themselves. And, yes, these are qualities that are often found in women. But supporting someone else’s wants (or needs) when you have a true need for the funds yourself is not a smart move. Moreover, it puts you in the position where you are likely going to have to turn to someone else for help yourself. This is, in some ways, the easiest no to say. The words are simply: “I just don’t have it.”
Say Yes To: Loans Where The Person Has Changed Enough To Make You A Believer
Which brings me back to Baker and her son. After stewing in his anger, Baker’s son changed his behavior.
“He said, ‘I’m ready to listen to you now, Mom. And he showed me that he was ready to listen and take my advice.” Perhaps, it was the fact that he had a child to support. Perhaps, she says, he was just “sick of working in restaurants and being poor.” It doesn’t matter. It was a change and it was noticeable. So, Baker changed her mind and loaned him money, and she doesn’t regret it one bit. “He’s shown me over the past couple of months what a creative and bright and hardworking person he is,” she says.
Looking for more behind-the-scenes financial insights from our own Jean Chatzky? Subscribe to HerMoney today.