How to avoid a falling out after shaking the family tree for money.
From the outside looking in, my life earlier this year appeared to be unfolding like a Candace Bushnell novel: A young, starry-eyed girl makes the move from sleepy mid-sized town to The Big Smoke to pursue her dreams of writing, moves in with a quirky-yet-loveable roommate, and hijinks ensue. And, as is the case with Bushnell’s Sex and the City heroine Carrie Bradshaw, people were wondering how I had the money to fund my new downtown lifestyle. As it turns out, I didn’t. With not much more than first month’s rent in the bank, I quickly realized the error of my rushed decision.
So, feeling like a downcast baby bird who’d made her first wobbly flight only months earlier, I begrudgingly called my mom and dad to ask for financial assistance. (If it’s any consolation, I pay interest in self-inflicted guilt.) I’m one of the lucky ones, and I know that, believe me. Not everyone has the luxury of having two parents who are willing to (temporarily) help bail you out of your financial gaffes. Mercifully, I’m not alone: According to a recent RBC study, 78 per cent of Canadians have personally loaned or borrowed up to $500 or more from friends or family members. But if you think it would be less complicated to borrow from mom than a bank, think again.
Our families know us better than anyone, so any wrongdoing, even a financial one, is a slight at close range. Recently, even the paragons of mother-daughter harmony—Lindsay and Dina Lohan—experienced a very public bust-up over a $40,000 mortgage loan, among other things. If the Lohans can’t make it work, what hope is there for the rest of us?
Not much, says Laurie Campbell, CEO of Credit Canada Debt Solutions. A large percentage of her clients are in dire financial straits, and on limited speaking terms with their relatives, thanks to loans gone awry. “It’s just such a mess,” she says. “They’ve either loaned money directly to a family member or co-signed on a loan that they’re not being paid back for. Because it’s family, there’s this expectation that you don’t really need to pay them back right away. Then, every time you see them, you know that you owe them money. The relationship’s balance has shifted and there can be real discomfort that surfaces afterwards.”
There are, of course, obvious upsides to borrowing from the Bank of Rich Uncle Tony over, say, the Bank of Montreal: You’re not subjected to a barrage of service and product offers, rigid payment schedules, or those lofty interest rates that can really stymie your upward climb out of debt. If you’re considering hitting up a relative for money, make sure you choose your backer wisely. Being on good terms with a family member is just as important as their financial situation. “If the relationship is a bit rocky to begin with,” says Campbell, “this could definitely put it over the edge.”
Even though it might seem a bit impersonal, Campbell recommends approaching an intra-family loan as you would any other business transaction. Resentment and confusion often stem from the lender interpreting the money as a short-term loan, and the recipient viewing it as a gift. “It’s amazing how quickly that relationship will sour if you get the feeling that you’ve been taken advantage of,” says Campbell. “It’s not even about the money.” Be sure to establish immediately whether payback is necessary to avoid any miscommunication.
Once that’s out of the way, start outlining the terms of the loan—and do it in writing. Come to an agreement on the amount of money being loaned, and figure out how the funds will be transferred—will you send a cheque? A wire transfer? A carrier pigeon? Make sure to settle on a repayment schedule and any interest that the lender will collect over the course of the reimbursement period. And kids, if you’re having problems with payback, don’t let them fester: Tell mommy and daddy all about it as soon as you realize you’re in trouble.
“Make sure you’re committing to something you can do,” warns Campbell. “There’s nothing worse than saying, ‘I’ll pay you back $500 next month,’ when you have no intention of doing that. If you need to renegotiate the terms, discuss this openly.” Finally, as tempting as it might be to punctuate requests to “pass the stuffing” with comments like “and my money, you thieving bastard” at family get-togethers, Campbell stresses the importance of setting up acceptable times and places to discuss the debt. (This does not include the dinner table.)
Slowly but surely, I’m finding my financial footing. My current closet doesn’t exactly resemble a Manolo Blahnik showroom, but baby steps, right? In the interim, though, it’s nice to know my family has my back through bank accounts thick and thin—that is, until mom shows up when I’m 40 with my stack of IOUs.