A few months ago, I loaned an older relative some money. At the time I didn’t even think of it as a loan. It was just convenience thing. She had an entirely legitimate bill due, and because of the particulars of the situation, it was just a lot easier for me to foot the bill and have her pay me back.
Unfortunately, now she’s confessed that she isn’t able to pay him back because she’s living paycheck to paycheck…which includes 3 or 4 nights a week at a bar (single), driving SUV, etc. It’s $1000, so not chump change. Especially for someone our age (22-23).
Fortunately, she’s got investments (I don’t know if they’re in retirement accounts) and is going to sell some to pay him back.
Knowing that particulars of this story from chatting with AJ (he lives in DC as well), I can see why he is so surprised by the whole situation. Some people you just don’t lend money to (you either give it or you don’t let them have it at all) because you’re sure they’ll never be able to pay you back. And if they do, it’s a pleasant surprise. But some people you’re quite confident with.
For example, I don’t think I’ll have the money to lend much to my sister, but she’s totally financially responsible. So if her money was tied up in CDs (which I believe the bulk of it is, unless she’s started investing yet…note to sister: get a Roth if you haven’t!) I might be willing to lend her a couple hundred (again, if I had it) with promise of repayment when the next CD’s term ended.
And I’d be shocked in the same way he was if she didn’t pay me back.
But it happens.
As it is, I don’t have enough money lying around to even have the option of lending to friends or family…which makes things a lot less complicated. But someday, I hope to and then I’ll have to figure out my position.
Some ideas for what else AJ could do:
1) Work out a repayment plan with the relative. Offer to help the relative put together a (temporary?) budget so that the money will be there…say $250/month. That means he’d have to wait at least 4 months to get all his money back, but it might feel better for the relative than cashing out investments (especially if they’re in retirement accounts with penalties).
Plus, if the relative stuck to the budget, she might feel less need to borrow in the future (perhaps he could introduce the idea of building an emergency fund).
2) Forgive the loan. I’m not in favor of this, since the relative doesn’t seem to have any genuine need. It also won’t help with the long-term money management issues she’s having. Still, there are various reasons why AJ might be able to frame the loan as a kind of payback for various earlier favors this relative has done him (necessary vagueness is annoying when you’re a writer).
3) Accept the lump sum payback and offer to help her sort her finances out. He thought she had things under control, but apparently she doesn’t. So it would be a nice gift on his part to help her keep out of this situation again.
Sometimes even the most previously trustworthy people let us down and we have to figure out where to go from there. What would you do in this situation?