Thinking of lending money to family?
How to protect your relationship when lending money to family or friends.
The "bank of Mum and Dad" is one of Australia’s top five lenders with parents lending more than $92 billion to their adult children*.
While lending money to family or friends can seem like a safer route than other finance options, it could also cause a relationship rift with the people you care about the most.
RACQ Bank’s Eszter Cathcart said people should consider their own financial situation before agreeing to lend money to family or friends.
“If someone asks you for money, don’t feel pressured to give an answer straight away,” Ms Cathcart said.
“Put yourself first by taking some time to think about your own situation and whether the loan would put a strain on your finances.”
Ms Cathcart said it was important to consider the impact the loan could have on your relationship.
“Many of these loans are informal, which could cause disagreements and breakdowns in relationships if both parties aren’t on the same page,” she said.
“Your kind gesture could end up ruining your relationship if the person you’re lending to thinks the money is a gift or if it isn’t paid back in the agreed timeframe.”
Ms Cathcart said prospective lenders shouldn’t be afraid to ask what the money will be used for.
“If you think the money isn’t going toward a genuine need, consider alternatives to handing over cash, such as paying a bill directly or taking them grocery shopping,” she said.
“Make it clear that you expect any money spent to be paid back by a certain date and consider a loan agreement – you can find free templates for these online.”
While gifting cash may seem like an easy way to help, Ms Cathcart said lenders should consider future implications.
“You might decide to gift a small amount of money and not worry about being repaid but the recipient may see this as a green light to call on you every time they’re short on cash,” she said.
Ms Cathcart said there were alternatives to help someone who was short on cash.
“You could help them to sell unwanted items online, cook a batch of their favourite foods, or offer to babysit so they can pick up an extra shift at work,” she said.
“Don’t feel like you have to lend money to make a difference.”
To take control of your financial confidence and wellbeing, register to attend one of RACQ’s live webinars via the RACQ Financial Wellbeing Hub.
Alternatives to lending money
- Pay a bill on their behalf.
- Take them grocery shopping.
- Help to sell unwanted items online.
- Give them furniture you no longer need.
*Mozo Bank of Mum and Dad report 2020
The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.