Mility Hopson’s attitude towards lending money to family is______.

Interviewer(M)Mility Hopson(W)
M: What if one day, one member of your family turns to you for lending him or her some money? With the do’s and don’ts of lending money to family, we are joined by Mility Hopson, GMA financial contributor and president of Ariel Capital Management. Welcome.
W: Thank you.
M: So can we narrow it down? Is there a yes-no answer to the question: should you lend family money?
W:(1)I wouldn’t call it a yes-no answer: I would start with a very basic idea. Before you think about this familiar obligation issue, let’s start with:(2- 1)Can you afford it? And if you can’t afford it, that answers the question right away. Also can you afford it if they don’t pay you back? A bank thinks about the same thing. They assess the risk of the loan they are going to make,(2 - 2)and they don’t make loans that are going to make them insolvent. You shouldn’t either, but if you go down this path, the one thing that I suggest you that helps mute some of the resentment or problems that can occur:(2 - 3)document it. Documentation helps a lot.
M: So those are the guidelines basically. You’re saying: write it down on paper, sign it, date it, and interest rates. Someone said, the interest rates are low, so this is a good deal. We do look at family as a good deal, even for paying an interest. That’s usually lower than the market rate, right?
W: Well,(3 - 1)I would start with, you want your names, the date, the amount, the purpose which you also have the right to know. A bank would ask you what the loan is for. You may not want to lend a family member money for a vacation versus a medical bill.
M: And you should tell them that you don’t want to pay for their trip to Disney World.
W: Absolutely.(3 - 2)The terms may or may not include interest. They may include a payment plan. And last but not least, sign it, copy it, make sure you both have a copy and when you get into issues, you pull out that piece of paper.
M: And you should have the hurt, supposed to be able to say to the person: I don’t think I want to loan you money for this purpose.
W: Absolutely. But it’s worse if you feel tremendous guilt and do something that you don’t want to do. You do it and it doesn’t go well. That’s a really bad situation. So on the front-end, maybe you can advise them to go to someone else, maybe you can cosign for a loan for them at the bank, really to create that kind of distance that might be meeting them halfway.
M: This is so loaded, because it is not just the stranger, right? This is all the family history, all the arguments, all the little things you did with your brother, sister or your parents, whatever you get loaded from the back-end with emotions.
W: There is no question about it, and there are certain people that think the family bank should always be open. That is not the case. There are also in most families a go-to person, who gets called again and again, because there is a sense that they are good with money, they have the money and can loan it. And so those things just create tremendous stress around these issues in families.
M: But it is hard to say no. You love this person, right? You want to help them out. But this maybe not be the best thing for the person.
W: Well, it’s hard to say no, but sometimes you have to say no.
M: And so that will affect your relationship, because you are going to deal with this person at holidays and family reunion.
W:(4)But you should know that it’s better than dealing with them when they are facing bankruptcy, because you didn’t force them to look themselves in the mirror and try to take accountability for the life style that they were trying to maintain, which they quite frankly could not afford. It was just the fact. There were no two ways about it.
M: Just now we’ve been talking about you as the bank in the family. What if you need to borrow money? How do you approach your family member?
W: Well,(5)if I need to borrow money, I will go to them in the most professional way and be the one saying this is what I need the money for. I’d like to document this and write this down, and this is when you can be expected to receive the payment. If I don’t pay you back, I would be here before the money is due to renegotiate these terms, so they get a sense that I am very serious, very credible.
M: It’s also good for your own self-esteem. As you two get terms here, you are going to pay him back.
W: There is no question about it. One interesting idea. Let’s just say for some reason a family member doesn’t pay you back, try having them work off the money. They may do the baby-sitting that you need done or mowing the lawn or things like that.
M: I don’t know any of my relatives would like to clean windows. Millity Hopson, thanks a lot for the good advice.