Remember the last time loved ones and money mixed?
Yeah -- us too. It's no secret that money and relationships oftentimes come with a very specific set of… baggage.
It’s the moment a text from someone you care about comes through. It's the loaded pause in the conversation when the topic changes from the score on Sunday night’s game or a hit recipe into something more serious – a critical need and a request for support.
It might sound something like this:
- “Hey, I could really use some cash right now. Could you help me out?”
- “Any chance you could spot me $100 until I get paid this Friday? I need to pay a bill to avoid a late fee.”
- “I hit a rough patch and could really use some help. I hate to ask, but could you spot me $200 until the end of the month?”
If you’ve found yourself in a situation like that, you probably turned to Google (or Bing, or DuckDuckGo, or AskJeeves) - a natural next step. And, you probably typed in something like this:
- “How to ask a family member for help with money” - “A friend just asked me for money. What should I do?” - “How to track loans with my family”
You were likely greeted with a ton of search results telling you why you should never mix the two. But, why is that? Glad you asked. It's not a simple situation – especially when it comes to loved ones and money in today’s economy.
It turns out, this request for support is only growing more common among Americans. According to The Federal Reserve, friends and family lend and borrow $184 billion annually – a total that exceeds student loan and credit card debt combined.
More Americans are turning to the ones they love for financial support instead of traditional institutions. As this number grows, further analysis and exploration of this historically-messy exchange is a must.
So, we’re diving into three themes that are working together to create a pressing need for these unwritten rules to change – so we can turn this recipe for disaster into a recipe for social good.
Personal budgets and wallets are growing tighter
In today’s economy, many Americans’ wallets and personal budgets are growing tighter. Consider this:
“Inflation was higher over the last year than it’s been for nearly 40 years. Prices for many things have been rising” according to a report by the Consumer Financial Protection Bureau.
As prices rise, Americans are strapped for cash when it comes to life’s unexpected events including rising rent costs, car repairs and medical emergencies to name a few. Even worse, “the average American doesn't have $400 for an emergency” – suggesting that many Americans’ paychecks are already accounted for by regular bills and expenses.
When emergencies inevitably arise (because, Murphy’s Law), people turn to the ones they love for financial support. According to a recent survey, “one in three people in the U.S. will borrow money from a person they know with an average note of $3,300.”
To sum it up, things simply aren't adding up and more Americans are struggling to make ends meet.
Friends and family might just be the largest bank in the world
Many Americans, often younger and younger generations, are going to friends and family for help over a bank or payday loan office because they are struggling to make ends meet more than older generations of Americans.
Get this: According to the Census Bureau’s Household Pulse Survey, “25.6 million people, or more than 10 percent of U.S. adults, had to rely on their support network for financial backing in 2022, up from 19.1 million a year.”
This staggering increase tells us that real people are opting for loans with loved ones over traditional lending institutions which oftentimes come with predatory or sky-high interest rates that could make a tough situation worse.
According to an article written by The Center for American Progress (CAP), “today, there are about 23,000 payday lenders—twice the number of McDonald’s restaurants in the United States—across the country.”
With payday and predatory lenders popping up everywhere, there’s got to be a better way to give and get financial support that actually helps in the short and long term.
Money and relationships do mix
And especially in today’s economic climate, these two ingredients kind of need to.
According to an online poll conducted by American Consumer Credit Counseling, "9 in 10 of respondents aged 18 to 34 would lend money to a family member in financial distress.” At the same time, “ninety-three percent of young Americans would loan money to a family member in financial need."
We touched on it earlier, but borrowing or lending money with friends and family can be a delicate situation if not handled properly. It can also be a good way to give or get help from someone you know and trust – enabling both parties a chance to build a stronger relationship.
When it comes to managing personal loans with friends and family, it's essential to be respectful and considerate of the other person's financial situation and to be mindful of the potential impact on your relationship. Taking the time to consider your options, communicating openly and honestly, and being respectful of the other person's financial situation, can make for a positive experience.
Whether you’re considering asking for help or helping a loved one out, having a way to track and manage your loan can be a great way to stay organized.
If you’re considering lending to or borrowing money from someone you care about, we’re here for you. With the Zirtue app, you can set up a loan repayment installment plan between friends, family and trusted relationships.
We’re rewriting the rule that loved ones and money don’t mix.