[This final entry of February was delayed due to my discovery of Idols West Africa, a tv show that will be very familiar to many of you.  Idols West Africa deserves its own entry so I'll say no more].

Two conversations about money with a coworker less than two weeks apart, coupled with a financial transaction that I’m making with a friend are the  inspiration for this entry.

We’ve all heard about the ills of mixing money and friendship, and if we haven’t, a couple of reminders:

Jane Austen:

Business, you know, may bring money, but friendship hardly ever does.

Mark Twain:

The holy passion of friendship is so sweet and steady and loyal and enduring in nature that it will last through a whole lifetime, if not asked to lend money.

It’s Mark Twain’s words that cut to the heart of the matter:  if you value your friendship, you may want to avoid mixing money with friendship.  Why is money loaning and borrowing so complicated?  I don’t know.  What I do know is the problems that I have with loans of money between friends.

Reason for the Loan
This is the least of my concerns with loaning money.  I talk about money often enough for people to ascertain that I’m doing alright financially.  I’m not rich, I’m not destitute.  I don’t appear to be living beyond my means.  While I have four credit cards (3 have been used a total of once in the last 3 years), paying off the balance when I get the bill is a matter of self preservation.  I abhor debt and paying off my student loans was a huge relief.  Part of why I am skittish about buying a car is the fact that I will be back in debt and owe money to someone, money that I will have to repay in installments (can you tell that I live at home and pay rent only sporadically, and a minimal amount of it at that?).  And I detest paying interest.  Despite the fact that my room most closely ressembles a storage facility, everything that I’m packratting away was a deal.  A bargain.  An irresistible purchase..so there!  And when all is revealed in my home in the future, you will praise my wisdom.

Because I am judgemental, and often think that my way is the right way in all things so help me God, when asked for a loan I will internally question the validity of the reason.  I have never actually come out and said “Do you really need to buy that $200 watch?” although you can bet I’m thinking it.  If you can’t afford something (by the time your credit card bill comes in anyway), why buy it?  Notable exceptions to this mode of thinking of mine are the purchase of big ticket items that few can afford to shell out the full amount for (a house, a car), and other things that are a “necessity” (a new wardrobe for a new job, a much needed vacation?), as long as you’re not buying out of a range you can reasonably afford to pay back.

So yes, while it bothers me when people ask me to borrow money to make an (unnecessary/exorbitant) impulse purchase, I truly believe that as long as it’s a loan on my part, I don’t have to right to judge their use of the money (to their face, anyway) ;).

Terms of the Loan
I have never loaned money to anybody who hasn’t been clear on when they will pay me back.  It’s almost an apologetic thing:  the loaner wants to make sure you have confidence with them so they will usually very quickly inform you of when you can expect to receive repayment.  When you, loanee, set the terms of repayment, I actually expect you to pay me back when you say you will.  Without any reminders from me.

[And it goes without saying that if you happen to be asked to borrow money by someone who doesn't give you an idea of when they will pay you back, you should a) (grrrr!) ask when they think they'll have your cash and b) be a bit worried:  if they don't set a payment date and you don't ask for one, they may not look at it as a loan.  And if things go terribly wrong and it ends up in small claims court, you're totally screwed as you will have to answer "no" to any judge asking you if the terms of the loan were discussed...oh, and you'll lose the friendship too.]

Why is it that when you borrow money from someone, it’s easy to forget the transaction took place, yet if someone borrows from you, you remember the exact amount, to the last dollar that is owed you  (Or is it just me)?   I’m sure there is a switch in the brain that causes the fuzzy memory.  I do think it’s possible to genuinely forget that you owe someone money (who can judge whether or not this is genuine forgetfulness, I wonder?), but do all you can to avoid this.  Please note:  I’m not talking about amounts under $10 here, nor am I talking about when you offer to pay for something for someone.  That is you being kind, not a loan or something that must be nickel and dimed to death.  I am talking only about situations where the fact that a loan is taking place is clear, and both parties are aware that this is in fact a loan and not a gift or a treat.

So if you say you will pay me back in 2 weeks less a day, I expect you to hunt me down and deliver the money to me on that day, or give me a call and tell me that you have acquired a case of flesh eating disease and will therefore have to will the money to me.  Or, let me know that due to another impulse purchase/being connned into paying for dinner for a raffish fellow you met at a bar/a homeless person who so stirred you to generosity you will have to delay payment.  All I ask is that you be kind enough to give me an idea of when you will pay me back. 

I beseech you: don’t make me be the one to ask.  That is the best way to irritate the crap out of me.  First off, I hate the idea of bringing up what could be an uncomfortable situation, depending on why the money was loaned to you.  If you had a problem that necessitated you borrowing money, you may feel embarassed and I would feel equally uncomfortable having to remind you of it when I inquire if you have my money.  And also, why should the loaner be obligated to chase down the loanee?  I’m sure there’s a law against that somewhere.  It just doesn’t make sense to me.

So if you’re the borrower, do what you must to remember to pay back when you said you would (or give the person you borrowed from an update on when they can expect their money):  get someone else to remind you, set up a reminder on your email/cell phone, do what you have to do.  If your friends are anything like me, s/he will appreciate it.

Terms of Repayment
This differs from the terms of the loan only when the money being loaned won’t be paid back in a lumpsum.  Say you borrow $10,000 from a particularly well to do friend, and you cannot pay this back for at least a year or five.  Your friend may feel a bit antsy (and hopefully  you would too) if you tell him/her that you can’t pay him/her back until [date 4 years in the future] if you were to pay a lumpsum.  However, you will give him/her $500/month until you have paid off your debt in full. 

After these terms have been negotiated, this is exactly like the second case:  pay what you say you will when you say you will and everybody will be happy.

I have never been in the position to loan an amount of money requiring repayment in installments, nor would I be very comfortable with this unless I truly had this money to spare (which, I suspect, will be around the time that I win the lottery).  My problems with the terms of repayment is that there are that many more instances for you, loanee, to be the supplicant, wondering if and when you’ll be paid back.

And also, if this repayment is a long term thing, who knows how many things could change:  your friendship could turn sour for reasons completely unrelated to the money, and that could severely affect the chances of receiving money loaned prior to the falling out.  Your geographical distance might change (absence makes loan repayment disappear for some), and God forbid anyone who moves to actually avoid paying back a loan…I’m sure it’s happened!  Lax accounting skills on both parts (although I think it’s the full responsibility of the loaner to keep accurate records as a matter of principle, and the loanee out of self preservation) could also lead to misunderstandings and a termination of the friendship in extreme cases (“I paid you $1000 last month instead of the usual $500 so I thought I could go without paying you this month!”  “I paid the last installment last month!”  “No you didn’t, you still owe me $500 more”).  The key to avoiding this, in my opinion, is to document everything as if you’re loaning money to a complete stranger.

It doesn’t have to be notarized by a  lawyer, or typed up, but make sure you have a document, signed by both parties, detailing the amount of the loan, how it will be repaid, when the full amount will be expected to be paid, and any other conditions on this loan (what will be done if the friend can’t repay the amount at the determined time or at all, for example?).  And for long term loans, I’d recommend that statements showing the outstanding balance be provided regularly, or even just a verbal checkup (initiated, of course by the loaner:  “So, I have here that I still owe you $2500, is that what you have?”).

*

This view to loaning money is a bit pessimistic and perhaps overly cautious to some, but it is a necesary one.  I have heard too many stories of friendships that have become strained or completely ended due to someone loaning someone money, then being too shy/uncomfortable/awkward to request what is rightfully theirs back.  Some feel like if it’s been a few weeks or months since the loan, they should just drop it and “not make a big deal about it”.  This tactic can taint the friendship on your side, leaving the loaner wondering what your problem is or worse, if you are asked what your problem is and you’re too shy/uncomfortable/awkward to confess the source of your ire, then you look like the bad guy.  All because you did someone a favour!

There are myriad other problems that can occur.  Say, in your friendship, you’re the more generous one (and there usually is one):  you pick up the tab on dinners cheerfully, show up at your friend’s house with his/her favourite coffee/treat every time and you don’t even think about it or count it as a loan in any way, shape or form, you might be genuinely hurt if, following a coffee date (you forgot your wallet at home), your friend asks you if you have the $5 she loaned you for coffee that day.  This may lead to you mentioning the aforementioned instances to which your somewhat selfish friend may inform you that those weren’t loans but rather you being nice…which is true.  They will invariably miss the point of you bringing it up. 

So for reasons like that, I suggest that you and your friend(s) set up (completely informally, mind you) an approach to money.  This generally evolves as a friendship deepens.  I have two friends (married to each other) who are overly generous in my opinion and they will always be the first to pick up the tab.  You ask them to pick up something for you on their trip to the USA (er, totally hypothetical situation, naturally) and you have to beg them in tears to allow you to pay them back (how’s that for a switch?).  And their generosity is not because they’re fabulously wealthy (as far as I know) but it’s just a part of their nature:  material possessions are important to them but they also enjoy doing stuff with their money rather than seeing how much of it they can save for themselves.  This hasn’t happened yet but one day I will freak out on them for not letting me pay for things, maybe hold their child for a reverse ransom:  they can have him back if they allow me to pay for the latest thing I asked them to pick up for me.  Alternatively, maybe I can give them the money beforehand but I suspect I’ll be met with almost as much resistance (I’ll let you know how that goes).  And maybe then they’ll listen (Rich, Ves: I mean you!). 

Friends and money can make a volatile couple.  I didn’t even get into friendships that are unequal based on the income levels of the friends and how this can affect the friendship (especially if this inequality is recent, due to job loss or receipt of a lucrative job offer or inheritance), or my reluctance about discussing how much I make or how much I have saved (or not) in the bank or my investments with most people–I hate either sounding like I’m bragging or sounding like I’m financially behind–it goes both ways.  One thing I’m fully in favour of is treating money as it should be treated within a friendship:  it can’t buy the  friendship but if used appropriately between friends, it can certainly make friendships sweeter.  I shouldn’t borrow a dollar to pay for coffee and then be in a panic to locate a dollar so I can pay you back, nor should you have to ask me repeatedly to give you back your $80.  Let’s have enough respect for each other to know when money matters and when it’s mere pennies between friends.

Filed under: Friends, Money, WurdyGurdy by jummy