Study: 2 in 5 people wouldn’t loan money to anyone, even mom and dad

In Shakespeare’s Hamlet, the character of Polonius gives some of the most famous advice in human history: “Neither a borrower, nor a lender be.” Four hundred years later we can see how the Bard hits on yet another important facet of human relationships — whether it’s a bad idea to loan money to friends or family.

Our recent survey of over 2,000 respondents shows that 44 percent of people take Polonius’ advice explicitly to heart. They make it an iron clad policy never to loan money to anyone — especially their family. The other 60 percent who might end up becoming one of the lenders, should definitely temper expectations when it comes to getting repaid. A study by LendingTree shows that “loans” made to family or friends result in a little over half of the principal being repaid on average. That being said, many of these people are just overly generous. The same study points to the fact that those who were not repaid in full would gladly loan money again.

In addition to these findings, our survey found that:

• People are nearly twice as likely to loan money to friends, than their extended family.
• Though the IRS requires that any loan be paid back with interest, even one to a friend or family, almost 80 percent of people never even consider that possibility.

Only 47 percent of Americans would lend money to immediate family.

Less than half of Americans say they would lend money to an immediate family member, and even less say they would to an extended family member. In fact, according to our study Americans are almost twice as likely to lend money to a friend than an extended family member like an aunt or cousin!

Out of the over 50 percent of people who say they would not lend money to their mother, father, or kids — 2 out of 5 of them say they would never lend money to anyone, regardless of their relationship. As mentioned, when family becomes extended, the desire to lend gets lessened quite a bit. That leaves a reasonable percentage of people almost twice as inclined to lend to the “family they choose” of trusted friends.

1 in 5 Americans would charge their friend interest if they borrowed money.

One of the biggest perceived benefits of borrowing money from family or friends would potentially be the lack of interest payments. After all, what’s a few dollars between friends? And without the power of legal agreements and accountants, who wants to take the trouble of keeping track of it all. That being said, about 14 percent of people say they would charge interest to friends and family.

Interestingly, this can be broken down by demographics:

• Men are 30 percent more likely to charge interest to friends and family than women.
• Only 11 percent of 18–24 year olds would charge interest to friends and family, compared to 20 percent of adults age 65 and over.

However, wanting to charge a friend interest may not be as harsh as it seems. If you are considering handing out a loan and want to know more about what interest to charge, the IRS has a set of standards you can follow. In order to understand your income and the income of the borrower, they actually expect that you ask for a certain amount of interest for any loan — even if most people don’t follow that structure. It’s also a good idea to set a timeline and a payment schedule that gets followed.

Ultimately the decision is yours if you feel magnanimous enough to hand out a loan to a friend or sibling. However, you should make sure you have considered the possibility that you will not be repaid (or at least not regain the principal) and make peace with that idea.

The point is, if someone, even a close relative asks for a loan, don’t feel obligated. If you want to tell them that you never loan money to anyone, remember that you are in good company with nearly half of the population.

If you do think about loaning money, consider if the move is enabling bad behavior before going through with it. Are you funding someone’s debt when you might instead teach them better spending habits? And if you go through with it, make sure the terms of your agreement are clear and consistent. Finally, don’t be afraid of charging interest. If the borrower balks at this, you can tell them it’s not you, it’s just what the government requires.

Sources

Lifehacker | LendingTree