What If Wednesday: Lending Dough to the Fam

What If Wednesday: You Won the Lottery

In the What If Wednesday series, we transport to a hypothetical alternate-reality and watch life play out. And we do it on Wednesday, because alliteration.

As I sat across the (probably fake) mahogany desk from the slightly slimy sales associate, I realized this was probably the most important decision I had made in my 21 and two-thirds years of existence. Sure, choosing your eternal soulmate was kinda important, but far more important was this moment — the moment I settled on… the ring.

I remember signing and finalizing the paperwork. My sweaty hands grasped a stapled brown bag that held the small jewelry box and its diamond engagement ring. I was waiting for a paycheck to come through the following week, so I put the astronomical amount (for a 21-year-old who had never carried a balance greater than $2000 in his bank account) on a newly acquired student credit card I received the week prior. Unlike many credit card stories, this one ends happily as I did in fact pay down the balance a few weeks later. But regardless, I wouldn’t allow anything to stand in my way at the time of getting Joanna the perfect ring.

Enter hypothetical alter-universe. Your brother has been dating a girl for about a year, so it comes as no surprise when he calls you up and tells you he’s ready to propose. You congratulate him and do your best to build him up and await the conclusion of the call. But it’s not happening. And then he drops the bomb: he wonders if you could spot him $4000 to buy the ring. Here’s the deal. He’s a good guy. He’s just finishing grad school and has a standing offer from a good company. You’re not crazy about his fiancee, but you think she’ll grow on you. He tells you he doesn’t want to be irresponsible and put it on a credit card or store-issued credit and that he can probably pay you back in full within six months. And then he stops talking and awaits your response…


Our Response

Long answer short: sorry, bro. Can’t help you.

Long answer long: family and money is always tough. And while this situation seems like it’s a pretty safe bet to get our money back, that’s not the only thing that we’re considering. Here are our concerns:

  1. The Principle of Borrowing — Having battled with the Debt Monster, the last thing we’d want to do is enable someone to make the very same mistake. The ring he chooses is up to him (and maybe her). We’re not about to tell them what they should or shouldn’t buy, but they’re going to need to find another lender.
  2. No Family Loans — If there’s one thing Dave Ramsey and Suze Orman agree on and insist on repeating over and over and over, it’s to never lend money to family. Loans change your relationship from brother and sister or mother and son to lender and borrower. And that’s a breeding ground for feelings of resentment, anger, shame, despair, etc. For us, the Debt Monster will have no place in our familial relationships. So should money ever be exchanged among family, it would be given with no intention of ever seeing it again. And since getting a jewel encrusted trinket isn’t a dire situation, we can’t just say goodbye to $4 grand.
  3. That’s a Lot of Dough! — Regardless of your income/savings/net worth, if you’re living on a budget, you know that $4000 is a sizable chunk of change. And while it wouldn’t put us out at the moment, it’s not money we want to see leaving our bank account.
  4. Jealous Rage — I don’t think it would sit well with Joanna knowing that some of our cash was going toward a ring that will likely be much larger and blingier than hers.

We’d let him know we loved him, we’d be happy to help with wedding prep, jewelry store negotiations, etc. And while the conversation might be a little more difficult than just giving him the answer he’d want to hear, it’d be the right decision — for us.

What’s your take? Would you help a brother out, trust your instincts, and lend him the money? Or would you turn his dream of the perfect ring down?

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  • Reply eemusings April 24, 2013 at 7:13 am

    I’m female, but don’t give two hoots about jewellery or rings (really, talk about ‘the perfect ring’ is so tiring). I’m also anti lending money wherever possible. So this would be a HELL NO from me. Engagement rings are one thing you need to definitely foot your own bill for.

    • Reply HS April 24, 2013 at 10:58 am

      Totally agree. I hate the idea of engagement rings on so many levels!

      I also hate when people say they “can’t afford to get married right now.” It doesn’t cost that much to get a marriage license and get it done. But, I guess it does when you buy into everything the wedding industry says you need.

      Also another vote here for not lending money to family/friends. Just a bad situation. My partner has suggested paying off my student loan and then me paying him back at a lower interest rate. I refuse!

      • Reply Joanna April 25, 2013 at 10:45 pm

        Great point on marriage only costing as much as you want it to. I understand wanting to have a dream wedding, but it’s definitely a choice, not a necessity. The one thing I think everyone should splurge on is good photos! Now those are a must!

    • Reply Joanna April 25, 2013 at 10:43 pm

      Agreed about footing your own bill for an engagement ring. Gold bands aren’t very expensive, and if you really want a diamond, you can get one a few years down the road.

  • Reply Rob April 24, 2013 at 7:34 am

    The only rule of thumb when lending to friends, inlaws, or outlaws:
    If you really really want to (because of various circumstances) then go ahead but in your mind consider it to be a gift to that person (with no expectation of any payback). If the loan does eventually get paid back then consider it to be a bonus. That said, if you ever do lend out $$$ just don’t repeat and get into a habit of being the banker – even if you should win the lottery! 🙂

    • Reply Elvin @ Journey To Millions April 24, 2013 at 9:23 am

      I agree wth you Rob, if I’m going to lend some money to a family member, I consider it as a gift. I don’t expect them to give it back, so I give whatever amount I can give and never expect to be paid. In case, they want to borrow from me again, I’ll use my past experience (if they pay or not) to decide if I would lend them again or not. I really don’t want other people waste my hard-earned money.

      • Reply Joanna April 25, 2013 at 11:01 pm

        The gift policy is a very good one, and one that Johnny and I intend to follow. And I agree, Elvin — it’s hard to give away hard-earned money that may go to waste.

    • Reply Joanna April 25, 2013 at 10:59 pm

      That’s a great rule to keep, Rob! If Johnny and I can ever help family out, we’ll have to make sure we are actually helping and not enabling bad habits. Sometimes it’s hard to discern between the two!

  • Reply Brian April 24, 2013 at 8:11 am

    I just loaned my sister $40,000 so she and her husband could buy a car wash. We even have a pretty sweet little contract for the entire transaction (my sister is a lawyer so she modified one she found on the internet). I guess technically I am not loaning it directly to her, but her LLC. They are going to pay me back over the course of 7 years and I gave them a very reasonable interest rate. Of course I didn’t mind loaning them money because they were buying a business that already cash flows and her husband really knows that industry.

    I probably wouldn’t loan them money to purchase a non-cash flowing asset like an engagement ring. Outside of the above situation I pretty much refuse to loan money to anyone (well except my parents but if they are asking me for money then the world economy has probably collapsed and bullets, water and that pallet of honey my grandfather left in my basement are the new currency).

    • Reply Joanna April 25, 2013 at 11:09 pm

      In your case, it sounds like it’s more of a business investment than just a family loan. I like that you differentiate between a loan for a non-cash-flowing asset vs a cash-flowing asset. That’s something I hadn’t considered.

      It sounds like you and your sister came up with a great set up. You make a little extra in interest, and she and her husband get to pursue their business endeavor. Win-win!

  • Reply Laurie @thefrugalfarmer April 24, 2013 at 9:24 am

    I totally agree with you guys. We even hold the same rule for our own kids if they want a new toy/gadget and haven’t saved up all of the money yet. We will not give them a loan or even an advance on their allowance. First of all, we’re teaching them that it’s ok to borrow. Second, we’re feeding into instant gratification. Third, we’re risking putting a strain on our relationship with them. We did one time make an exception with our oldest, for the purposes of teaching her the dangers of debt. Before she was even halfway done paying back the $100 for her half of the compound bow, she was SO done with borrowing money. She hated every minute of having her allowances not be hers anymore as she worked to pay back that debt.

    • Reply Joanna April 25, 2013 at 11:11 pm

      You are teaching your kids some priceless lessons, Laurie! I think it will be really fun/gratifying to do that with our kids someday.

      And I love your story about helping your daughter understand the dangers of debt. Awesome.

  • Reply Emory April 24, 2013 at 9:36 am

    I have had the misfortune of watching those close to me borrow from family and have those relationships ruined because of debt and expectations of payment. I hold a personal principle that I won’t go into business with family and I won’t lend money to family with any expectation of repayment. I think that these situations can work for some families and I applaud that, but for my family I have yet to see positive results and it complicates the family dynamics. I prefer to keep family as just family and keep my life compartmentalized.

    • Reply Joanna April 25, 2013 at 11:15 pm

      I really like your thoughts on this subject, Emory! I especially liked what you said about how it all just depends on the family. That’s so true. There are so many ways to help family without giving money. And you can still keep those good relationships in tact!

  • Reply debtperception April 24, 2013 at 10:14 am

    No way Jose! First of all, I don’t have that kind of money and if someone tried to borrow that from me, I would tell them I got married without a ring, surely they can find something they could actually afford that would suffice!

    • Reply Joanna April 25, 2013 at 11:21 pm

      I understand the desire to have a fairytale wedding, but in the grand scheme of things, if you’re really in love, the ring shouldn’t matter! Of course, sometimes it’s hard to realize this until after the fact.

  • Reply JMK April 24, 2013 at 10:22 am

    If she’s the right girl for him, she’ll still be the right girl in a few months when he’s settled into his new job and can afford to make the purchase – with cash. If he’s feeling rushed to “put a ring on it” now when he clearly can’t afford to, then maybe there’s more to the story. Leaning on family to borrow money for a completely nonessential purchase is frankly baffling to me. I’d be embarassed to even ask a family member to loan me money for something like that. Perhaps if I had a child who desperately needed something that couldn’t/shouldn’t be delayed, then I’d consider it. And I’d offer to pay a reasonable interest rate. Otherwise I’d never even ask.

    • Reply Joanna April 25, 2013 at 11:24 pm

      I can’t comprehend asking for money for a nonessential purchase, either. But that’s simply because that was never an option growing up. Parents really affect that mindset. My guess is that you’ve taught your kids to be as self-sufficient as they can be! 🙂

  • Reply Michelle April 24, 2013 at 10:28 am

    I would not. Lending money for something like that just doesn’t seem like a good idea. If it was $4,000 for a required medical surgery, it would be different. But for a ring?! Save up your own money!

    • Reply Joanna April 25, 2013 at 11:25 pm

      Good call, Michelle! If it’s a dire situation, that’s worth considering. Otherwise, just say no.

  • Reply Jake Erickson April 24, 2013 at 10:32 am

    I completely agree with you. There is no way I’d be giving my brother $4,000 for a ring, when he could get a very respectable one for $1,500. Even if he only asked for that amount, I probably wouldn’t loan it to him. I haven’t had a problem with family and money before, but that is also because I try to avoid it most of the time because I know it can change relationships. I really dislike owing family/friends or having family/friends owe me just because I feel guilty if I have to bring it up. I guess it’s a good thing I don’t have a brother, I’ll never have this situation arise. 😉

    • Reply Joanna April 25, 2013 at 11:43 pm

      Yep, not having a brother is a surefire what to avoid it!

      It’s tough because of course you want to help family when in need, but you don’t want to set a precedent for loaning money. I guess a lot depends on if you have family who would try to take advantage of your generosity. You’re smart to try to avoid it most of the time!

  • Reply Chris April 24, 2013 at 10:49 am

    I’d probably offer half as an engagement gift. I wouldn’t pay the full price of anything like that. It wouldn’t be a loan either hence the gift part. I’ve given my brother quite a bit of money over the past year to help him get through college without student loans. He tells me every time that he will pay me back, and I tell him to not worry about it. I’m only doing it because I can afford it, and I don’t want my brother to get caught up in the student loan bubble that so many people have been consumed by. So I’d never loan money to family, just give it to them with no expectation of repayment.

    • Reply Joanna April 25, 2013 at 11:47 pm

      Your brother is very lucky to have you, Chris! He’ll be able to start off life in the real world without being in the red, which is a huge help.

      And I agree with your sentiment… give it as a gift or don’t give it!

  • Reply anna April 24, 2013 at 11:37 am

    I agree with you on not lending out the money (more so if I didn’t like the fiancee… I guess I’m catty like that). If it were a serious emergency, though, then I would consider it, provided that it wouldn’t put me in a mess.

    • Reply Joanna April 25, 2013 at 11:50 pm

      We’ve never been faced with needing to help family in a serious emergency, but I think that’d be a hard decision to make. I’d probably have to call in to Suze Orman’s show and get her take, ha!

      And whether I liked the fiancee would be part of my decision, too :D.

  • Reply Miranda April 24, 2013 at 12:17 pm

    Agreed. Money should never be loaned to friends or family, only given as a gift. And my own personal opinion on the matter is that I would only gift someone thousands of dollars in cash if they were in a dire situation (house burned to the ground, need a life-saving operation, death of an income provider, etc). Maybe that opinion will change later in life, but for now, we need our money in the bank a whole lot more than someone needs it on their finger. And I SURE AS SPRINKLES wouldn’t give anyone $4,000 for an engagement ring when mine is only about half that…

    • Reply Joanna April 25, 2013 at 11:54 pm

      We’re not at a point in life where we could consider anything but giving money in an emergency, either. And in that case, I think we’d be much more open to giving!

      And I sure as sprinkles agree with you on the ring comment! 🙂

  • Reply Diane April 24, 2013 at 12:21 pm

    Short answer~ NO! I would never lend money for a $4000 ring. That is not a necessity, and if he needs to buy an expensive ring he can save up for it, make a down payment & put the balance on a credit card & pay it off.

    I would consider loaning my siblings money for a necessity if one was in a bind. My sister once loaned me $600 when I needed it. She offered, she could afford it and I paid it back about a year later when I could afford to. She never asked about repayment, but I always intended to repay her.

    I’ve offered to loan my other sister money when she was in a bind, bu she refused, but we’re talking $1000 for a necessary car repair, not $4K for a ring.

    • Reply Joanna April 26, 2013 at 12:00 am

      Agreed, Diane! We should live as if family can’t help us and do all we can on our own. But if we’re ever in a bind and family can help, or vice versa, then that’s worth taking into consideration! It’s great you and your sisters are there for each other if need be.

  • Reply Emily @ evolvingPF April 24, 2013 at 12:42 pm

    I agree with you on all points! Thankfully my husband paid cash for my engagement ring (and by ‘cash’ I mean he put it on his credit card and then immediately paid the balance). We have never lent money to anyone or even been approached and I hope it never comes up!

    • Reply Joanna April 26, 2013 at 12:01 am

      We’re in the same boat as you, Emily. We’ve never loaned or been asked. It’s bound to come up at some point, and I think we’ll have to just look at each situation individually!

  • Reply Mrs PoP @ Planting Our Pennies April 24, 2013 at 1:29 pm

    For a consumer purchase of a depreciating asset, I wouldn’t lend the money. If your bro really wants to get married this second (what’s the rush, bro?) there are lots of alternative lending options that he could use. Heck, I’d be surprised if the jewelry company didn’t have a financing option at reasonable rates. Or turn to lending club or something like that.
    But for an investment that seems really well thought out and safe and looks like it’ll have a good enough return for both the lender and borrower to make a profit on it… well, that’s a different matter. I know because we did this. We borrowed $50K from Mr. PoP’s parents not quite 3 years ago to buy a duplex. By the time we pay them back (2 years ahead of schedule), they’ll have made $7500 in interest payments from us during the 3 year period. We preferred paying them interest rather than a bank. And they looked at this as a way to get a better return than the money market account the funds were sitting in with a bet that seemed pretty safe.

    • Reply Brian April 25, 2013 at 11:01 am

      Did you 1099 them for the interest or was thing an under the table kind of thing? I promise I won’t report you to the federales.

      • Reply Johnny April 26, 2013 at 12:01 am

        Says the federally employed guy. 🙂

      • Reply Mrs. Pop @ Planting Our Pennies April 26, 2013 at 5:10 am

        We report the interest paid to the IRS. Not sure exactly what form our tax guy prepares exactly, but it’s definitely reported. We drew up a formal contract for the loan and everything so it’s pretty official.

    • Reply Johnny April 26, 2013 at 12:09 am

      Yeah, what’s the rush, bro? I like that.

      A well-thought out, researched “investment” loan would maybe deserve an asterisk on our No Loan policy. I like the idea of family receiving the interest, but I’d have to feel really really good about either the investment I’d be borrowing or lending money for.

      • Reply Mrs. Pop @ Planting Our Pennies April 26, 2013 at 5:14 am

        Definitely agree. This was an investment they would have made themselves if they had more time/energy etc. They had bought a duplex a couple years before in the same neighborhood and were enjoying the cash flow from it, and we were able to scoop one up for about half of what they paid in a part of the neighborhood that yielded slightly higher rents. So it was something we were all pretty familiar with, which definitely helped.

  • Reply My Financial Independence Journey April 24, 2013 at 1:46 pm

    An engagement ring is not a legitimate reason to borrow money. If the girl is that important to him, he could save his money and buy the ring a bit later.

    • Reply Johnny April 26, 2013 at 12:00 am

      Agreed. And if the girl was worth keeping, she’d understand that, too.

  • Reply Grayson @ Debt Roundup April 24, 2013 at 2:42 pm

    Well, it looks like I am going to go against the norm here. I would lend money to my brother. I know him and have for years and I know he has the integrity to pay it back. I have loaned money to family members and they have loaned me money. We have never had issues with it and everyone has always been paid back, usually early. Maybe my family is different, but we also create law binding contracts before we lend to each other.

    • Reply Johnny April 25, 2013 at 11:58 pm

      Nice! I like the unpopular choice. I think it’s definitely worth considering who your “brother” actually is and his financial history. But I still don’t think I’d want to start the lender relationship with family.

  • Reply Jacob @ iHeartBudgets April 24, 2013 at 3:35 pm

    Totes with you on this one. No lending to fam, period. My family knows this, and they respect it. I have lent multiple thousands in the past and it never came back. I have since forgiven the debt, but it really does screw with the family dynamic.

    • Reply Johnny April 25, 2013 at 11:56 pm

      It’s experiences like yours that serve as a good reminder. I’ve never had to deal with the situation, but hopefully there’d be another option to offer help without having to shell out cash.

  • Reply Newlyweds ona Budget April 24, 2013 at 4:54 pm

    that was really ballsy of your brother. I would lend money in small sums to my immediate family members if they were in a dire situation (ie, couldn’t pay their rent, utilieis, or put food on the table) and yes, i would understand that it really wouldn’t be a loan, but rather a gift. And I know that they would do the same for me. I would NOT lend money for fun times or flashy rings.
    And it also depends on how they are with money. If I knew that they had always been financially responsible (aka my brothers) and found themselves in a bind, I would totally lend the money. If I knew that they were always spending left and right and going on expensive vacations even though they just lost their house (aka my brother in law) then no, I wouldn’t lend the money.
    you guys are way nicer than me when it comes to money, i can be a total meanie. haha

    • Reply Johnny April 25, 2013 at 11:54 pm

      To be clear, my ballsy make-believe brother. If it was my real brother I’d slap him and tell him to get a ring that cost a quarter of that.

      You’re right, their financial history and amount definitely needs to be considered. I don’t think it should be completely black and white. But I do think the “no loan” rule would still always be enforced.

  • Reply Michelle April 25, 2013 at 12:04 am

    I don’t loan money, I only give it. As for the bro. If he’s ready to get married then he’s ready to deal with the money stuff. Also, what fiancee wants other people paying for their ring?

    • Reply Johnny April 25, 2013 at 11:50 pm

      Based on this make-believe scenario, I bet the fiancee wouldn’t really care where the money was coming from so long the rock was shiny. 🙂

  • Reply Becky @ RunFunDone April 25, 2013 at 12:25 am

    I wouldn’t lend a family member money for a ring, because, I mean, that’s just plain ridiculous. (I’m anti-mined diamonds because of ethical concerns, so that adds to my opinion on the ring thing). However, I think if I had a responsible family member who needed money for a medical bill or something legit like that, I’d feel differently. This is partly because in my family culture, you’d never ask unless you had done everything in your power to handle the situation independently.

    • Reply Johnny April 25, 2013 at 11:48 pm

      Agreed on the medical bill or other serious need. And also because it would take something extremely serious to get to a point of asking for money. But I’d still look at it as money gone, not money loaned.

  • Reply Linda April 25, 2013 at 3:48 am

    That’s an easy one – no I wouldn’t lend money for jewellery, he can buy a cheaper ring or save it up. For a harder challenge, try family asking for money to get through the month with their rent, or to buy food. Saying “No” is all very well until they show up on your door because they’ve been kicked out of their apartment right?

    I gladly lend money to my family when they need something urgent, and I know they will pay back slowly over the months. Especially when it comes to my parents who paid for school and college and all my costs when I was a kid. Actually I only really lend money to parents – my brothers I know won’t pay me back!

    • Reply Johnny April 25, 2013 at 11:43 pm

      That is definitely a much harder challenge. We might have to include it as a future “What if Wednesday” because I’m not sure what my answer would be in that situation. Clearly I’d offer to help, but I don’t know what form that help might take. Paying their bills, taking them in, etc. Thanks for posing the question.

  • Reply Honey Smith April 25, 2013 at 1:41 pm

    My ring is a $350 white gold with CZ and NO ONE knows the difference. $4000 is cray-cray (as the kids say these days…)

    • Reply Johnny April 25, 2013 at 11:41 pm

      Cray-cray indeed! I considered a CZ, but I had heard horror stories of the wife finding out without knowing. And since I wanted it to be a surprise, I opted against taking the risk. But man, you can’t beat that $350 price tag.

  • Reply She-Ra June 8, 2015 at 10:30 pm

    Would be interested in a post about where to put paying off a loan from a family member. My parents helped with our down payment for a house (and their name is on the title as well). They offered and we accepted. Now I find it a challenge to put money towards their interest-free loan and my other debt. I’m just starting a budget and getting debt free. So just talking out loud at the moment.

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