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It pays to tread carefully when lending money to family and friends

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Put on your financial oxygen mask first

Loaning money to family or friends can be a complicated and emotional subject for many people. To that point, a friend recently confided in me about money issues they were having with a family member.

This family member was gearing up to ask my friend for money. They could see all the signs, my friend said. While they had not talked to each other in several years, this person was suddenly interested in my friend and even inquired about their recent promotion at work.

As much as my friend wanted to believe that this sudden interest in their life came from a good place, they had seen this happen before with other friends and family members. The truth is, for many first-generation black wealth builders, there's a responsibility to provide for family and our friends.

As a wealth builder myself, there's a feeling of responsibility that we must spread the wealth around and use our own success to help and support others financially. Why? Because these first-generation wealth builders tend to be hard workers, and they're incredibly appreciative of everything that they have. Also, they are one of the first generations to push beyond the wealth gap to find financial success.

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I see the recurring theme of the family asking a first-generation wealth builder for excessive loans or financial assistance crop up across multiple cultures. Of course, it's not wrong to want to help your family or friends in time of need. In fact, I believe that it can be beneficial for a first-generation wealth builder to reinvest in their community.

It is problematic, however, to continually enable family members by giving them money whenever they ask for it. This is especially true if giving family members financial support could negatively impact you or your personal financial goals and obligations.

More money isn't always the answer

You may be worried that lending money will derail your relationships and damage your financial health. If so, I recommend following a few money-giving rules that will make room for giving and still create healthy financial boundaries.

Do you consistently have the same person coming to you for money? It may be time to attach some education to your financial support. Two examples that I consistently see are:

  1. Family asking for money to fix a bad financial habit — such as credit card debt, debt from gambling, etc.
  2. Family asking for money to cover "wants" — not "needs."

If you're finding that family members are asking you for money because they are making financial mistakes that will continue to hurt them in the long run, giving them money isn't going to stop the problem. By doing so, you have become an enabler. Similarly, if you find that you consistently cover a relative's cable bill, or helping them fund a brand-new laptop or iPhone, it may be time to have a serious conversation with them about wants and needs.

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In these situations, a third-party financial professional can help them recover from bad money habits. Getting input from a credit counselor or going to a pro bono financial service firm can start get them on the right financial track.

If the consistent money "asks" don't stop, you have a big decision to make. Ask yourself: Is financially supporting this person helping them? Is it a fulfilling way for you to spend your money? If the answers are yes, you should add a budget line for them in your spending plan so you are prepared. However, if the answers are no, it's okay to set a boundary with that person — even if it's painful in the moment.

Additionally, when you decide to give money to a friend of family member, there's a temptation to call it a loan. I find that when you expect that the money will be paid back, it's only going to cause more hurt and bitterness in the long run. If you decide to give money to someone, do so without expectations. There should be no financial or repayment "strings" attached to your giving.

Growing your wealth doesn't mean that you're obligated to help everyone around you. You get to make financial decisions about how you want to use your hard-earned money to support your family, friends and yourself.
Rianka R. Dorsainvil
founder and president of Your Greatest Contribution

If you are a first-generation wealth builder who is consistently asked for money by friends or family, I have some points for you to think about. Sit down by yourself, or with your spouse or partner, to discuss the following:

  • Who are we willing to financially support in your family or community?
  • Who would you not want to enable if they ever asked for money or a loan?
  • How much are you willing to budget to give to friends or family or to support your community each year?
  • What situations warrant stepping in to offer financial assistance? What situations should you avoid?

Stepping up, and stepping back

Knowing the answers to these questions ahead of time can help you to say "yay" or "nay" with a clear conscience if and when someone approaches you for money.

Stepping up to help your family in times of need can be an incredibly rewarding way to use your wealth. However, if you feel as though you're being taken advantage of, or you want to put a stop to habitual requests for money — it's okay to take a step back.

Growing your wealth doesn't mean that you're obligated to help everyone around you. You get to make financial decisions about how you want to use your hard-earned money to support your family, friends and yourself.

Putting your own financial needs first is not a bad thing. Always remember, it's essential to put on your financial oxygen mask before you can assist others.

— By Rianka R. Dorsainvil, founder and president of Your Greatest Contribution