There’s one surefire way to strain a friendship so severely that the relationship never recovers. All it takes is to lend money to a friend. There’s a reason people say that money and friendship simply don’t mix, and many people have learned this the hard way.
When money gets involved, it totally changes the dynamics of a friendship, regardless of how much you try to avoid this change. When a friend is in need, it’s difficult to say no. You’re not alone if you find yourself willing to loan money to friends.
A study found that 67 percent of millennials would lend money to friends, making them the most generous age group out there. This well-intended generosity should be lauded, but there are so many stories of people who jeopardized their friendship in the process.
Imagine seeing your friend wasting money somewhere when they haven’t yet repaid you — and you kind of need that money. However, you feel guilty about asking for payment. That’s a horrible feeling to have in a friendship.
This line from the Wall Street Journal sums up the dilemma perfectly: “When money comes between friends, the biggest risk is that you stand to lose both.”
How to Avoid the Dilemma
There are two ways to go about both keeping your friends happy and getting the money you are owed. Either remove the business aspect altogether and gift the money to your friend or go all-out with the business side to establish clear expectations of repayment. The second option might not work with some friends, but it can sometimes be a good way to avoid that feeling of being the bad guy for asking for repayment.
The best way to keep a friendship healthy when money is involved isn’t to loan money, but rather to gift it instead. This may not make much financial sense, but it’s still a good investment for reasons other than money. It’s the best way to keep a friendship strong — assuming you can afford to do this.
Gifting the money instead of loaning it removes the unpleasant business-like feeling that hangs over a friendship like a cloud. Your friend receives the help they need, and you get a nice warm feeling from having made a difference. Maybe your friend will pay the money back, and that’d be nice. If they don’t, though, it’s no loss because you’ve already written the money off in your mind.
The other approach — and this is riskier — is to make the loan a business transaction. Get an agreement signed and notarized so everything is crystal clear. By concretely laying out your expectations and the conditions of the loan, you’ll hopefully be better at separating the friendship and the financial relationship.
Of course, a friend might not appreciate going beyond a handshake agreement, but some may be happy with the added structure. You would know best if this is a good approach for your friend.
Weigh Your Options
Whether you’re gifting the money or loaning it out with clear terms, there are still plenty of risks that go beyond the financial sense. Money in all forms can destabilize a friendship, so it’s best to proceed with caution.
Sometimes the best route is a clear and simple “no” when asked for a loan. You can just explain that you never loan money to friends and family. The friend might not appreciate this at first, but odds are it will pay off in the long run.
Just last month, an old friend of mine (who I barely keep in touch with once every few months), reached out to me out of the blue. After a brief catch-up session, she got straight to the point. She wanted to borrow a few thousand dollars from me.
I was initally shocked that she would ask me for such a large amount, but I was more worried that she was in some sort of serious trouble. I asked her why she needed it, and she simply responded with, “I just want to travel.” It took me more than a minute to process what she had just asked of me. She had zero savings and no income, but she wanted to splurge on travel so she could “take a break from life to explore the world while she was still young.”
I flat out said no. She’s currently a sophomore in college (she previously took a 3 year break from life and dropped out after her freshman year of college) and has zero income. Even if she landed a job straight out of college, it would take her a long time to pay me back thanks to her large student loans. There have been numerous times when I simply gifted the money to friends who were looking to borrow from me – either because they were in a dire situation or because I really supported their cause. But this was not one of those cases. I felt like lending her this money to travel would just enable her tendencies to “take breaks” and never follow through with anything. And everything would be so much worse if we lose our 15 years of friendship if she decides to never pay me back.
Even if it seems extra harsh and not quite right, simply saying no to mixing money and friendship is often the best choice.
How were your experiences with borrowing from a friend/lending to a friend in regards with money? Let me know in the comments below!
money with friendship