By Nick Maffeo
I recently heard about a woman who was planning to retire in the next year or two. A family member had asked if she would tap her retirement savings to help them pay some large credit card bills.
At the other end of the spectrum, the “Millennial Money” column in a recent Kiplinger’s Personal Finance addressed the issue from the perspective of Millennials who are decades away from retirement. The question was: “Should you help a friend in need?”
Here are some things to think about if someone asks you for money — as a gift or a loan.
First, this is a situation to always be very careful with. Ask a lot of questions. Take your time. Think it over before you say yes or no. Because there are serious issues to consider around the various risks.
First there are the financial risks. No matter how much you care about someone, it’s possible that even all of your money won’t solve their money problems. It certainly won’t help if you let their money problems become your money problems.
Then there are the relationship risks. After she hit it big, Eat, Pray, Love author Elizabeth Gilbert started giving large sums to friends. In Wealthsimple Magazine, she wrote about what she learned. The headline says it all: “Giving your money to friends can backfire.”
At least giving presumes you’re not expecting to get the money back. Lending can be much more problematic if you need the money and the person can’t or won’t repay.
It’s a giant red flag if you sense someone is looking at your savings as something you can or should tap for them. They might see it as a big pot of “easy money” when actually it’s accumulated retirement dollars or maybe an emergency fund you’re working to build. You have every right to decline to put your financial stability in jeopardy.
So a lot depends on what you know about the person, how much they’re asking for and why. The situation they’re in really matters.
Is this a person who was hit hard by a COVID-19 job loss? That’s one thing. You may decide to make that gift or loan even if it’s a bit of a stretch for you.
Does the person asking you for money have a history of debt problems or substance abuse problems? Obviously that’s something else altogether.
No matter what the particulars, you have to think about whether your monetary gift or loan will make the difference … or is it just an all-too-temporary lifeline? In the long run, would they be better off pursuing other options to get a fresh start?
When someone asks you for money, it’s perfectly okay for you to put yourself and your own interests first. Talk to other people who know this person. See if they think your gift or loan would help, or hurt. Get an objective opinion from your local banker, a CPA or financial planner. Remember to be honest with yourself: Is this a gift or loan you want to make, or not?
Wanting to help a friend in need is admirable. Helping is admirable. Help doesn’t always have to be a gift of money or a loan.
The goal should be to ensure that your “best intentions” will be a good thing for the other person and for you too. It’s okay to say yes. It’s okay to say no.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. Have a question? Email to [email protected]
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