Author Topic: Partner lending money to others  (Read 2979 times)

moustacheverte

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Partner lending money to others
« on: April 10, 2015, 06:56:03 AM »
Hi,

We are starting our FI journey and have already some money stashed. I have about 20 times more money saved than my partner and we keep separate accounts for now.

She has a friend who was an engineering student and who landed his first job about 2 months ago.

She lent him money once when he was a student because he make his full rent for that month. Since he was a foreign student, paying a sky high tuition etc, I wasn't thrilled about the idea but I thought that I could be understanding and it was only 500$. Plus it's not my money so I can't really say anything. That was about a year and a half ago, before we even knew about FI etc. He paid her back a few months later and there was no problem.

Fast forward yesterday, that same person needs 500$ again because they would like to start their immigration process. This is in no way an emergency (compared to not being able to pay your rent on time) and could easily wait 2 or 3 more months. Their current status is valid for another 3 years so there really is no urgency in starting the process right now.
Keep in mind this person landed a 55k engineering job a couple months ago and has since been blowing it all by buying a 300$ coffee machine 2 weeks ago, moved to a more expensive apartment, eats out any chance they get etc, you get the picture.

My partner loaned them the money anyway because "I don't know how you were raised but in my family when friends need money you don't ask questions." This pissed me off very much because in my book, when someone needs money from you, you DO ask questions (it's your money after all and it doesn't grow on trees!!). Getting a loan from a friend is a HUGE deal where there should be absolutely positively no other alternatives and it's a matter of life or death. In this case however, it's 100% their fault. If they spend like morons and then need money to pay for the necessities in life then go to a bank and have them lend you more money with interest + the power to collect.

This concerns me very much because even though it's still technically her money, we are planning our future together. And if that person doesn't pay her back, it will eventually impact me. Whether I bail her out or not, we will still be 500$ short as a couple if that person doesn't pay back.

My girlfriend makes half of what that person does and yet she managed to have a 2,000$ emergency fund which this 500$ came out of. It's 500$ this time which isn't a disastrous sum of money to lose in the grand scheme of things but what happens when she has more than 2,000$ saved? Will she keep giving larger loans?

I don't know how to approach the problem with her. While I appreciate she told me and I explained her yesterday why I disagree strongly about her doing that, about how this person is an idiot and should bear the consequences and about how selfish it is from them to ask her for money; I'm not 100% sure she got the point because she still sent them the money this morning.

At the same time, I don't want to antagonize her and have her keep lending money but not telling me anymore to avoid any conflict.

What would you do in my shoes and how would you approach this?

Kris

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Re: Partner lending money to others
« Reply #1 on: April 10, 2015, 07:03:45 AM »
It's her money, and she can do whatever she wants with it.  You don't have a say in that, and you should not try to change her mind about it.

However, where this does eventually concern you is if/when you marry or merge accounts/lives.  So, if you think there is a chance that this will happen someday, I would leave the conversation alone until neither of you is feeling frustrated/defensive about it, and then ask to have this conversation:

"Honey, I know that the money you lent X is your money, and you decide what you do with your money.  I respect that, and I respect the reasons for your choices.  My view on lending my money to friends is different.  Can we talk about how we will approach this if and when we get married/merge our lives?"

You will need to know whether you can come to a unified decision on this, before the situation arises. Because it probably will if you stay together, and if you don't have clarity on how you will handle it as a couple, it could really build resentment between you.

scrubbyfish

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Re: Partner lending money to others
« Reply #2 on: April 10, 2015, 07:12:57 AM »
First, I would let go of today's loan. She had already decided to give her friend the money, and probably told him that, so in this case she wouldn't have felt able to not do so, even if all your (newly presented) words make sense to her.

Soon, I would ask her for time to talk about moving toward shared finances in future. Your words above show that you're in for the long haul, which is often good news to people in a relationship.

Then, work hard to ask, explore, and understand her culture/ideas around loaning/giving to friends and anything else financial. When you understand, reflect back everything you've understood, then ask her if you missed anything.

After you've had some time (days) to ponder that, say what's true for you, and ask how you two can move toward building a shared financial life, if that's what she wants too.

And, don't call her friends idiots, selfish, or anything else disparaging. It's not only disrespectful of her friends, and of your beloved's heart choices, it puts her on a psychological defense and kills any chance at awesome conversation. Her friend's financial moves are not the issue here. Your beloved's family culture dictates that she give when a friend expresses need. That needs to be navigated within your relationship; the wisdom of her friends does not.

okits

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Re: Partner lending money to others
« Reply #3 on: April 11, 2015, 12:45:53 AM »
You've already told her how you feel.  I'd sit back, watch, and see what happens.

Maybe she's never had a loan go bad, so if it does this time she'll get to experience what it's like to lose $500 and a friend (he will surely start avoiding her if he doesn't mean to repay.) If she has one bad loan and changes her lending habits, consider that the cost of some financial education (most of us have made mistakes and paid some kind of penalty to be wiser in the future.)

If you do bring your lives together you can have a "yours, mine, ours" money system where loans you don't both agree on comes from that person's bucket only.  That may make her more careful, if a deadbeat friend costs her her fun money for half the year.

little_owl

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Re: Partner lending money to others
« Reply #4 on: April 11, 2015, 04:56:48 AM »
I agree with others - you can't tell her what to do with her money, however, this would make ME more cautious about blending finances in the future.

FWIW, I am right there with you - frankly, I wouldn't ever lend money I couldn't be 100% financially and emotionally ok with giving away forever.

moustacheverte

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Re: Partner lending money to others
« Reply #5 on: April 11, 2015, 08:01:39 AM »
You've already told her how you feel.  I'd sit back, watch, and see what happens.

Maybe she's never had a loan go bad, so if it does this time she'll get to experience what it's like to lose $500 and a friend (he will surely start avoiding her if he doesn't mean to repay.) If she has one bad loan and changes her lending habits, consider that the cost of some financial education (most of us have made mistakes and paid some kind of penalty to be wiser in the future.)

If you do bring your lives together you can have a "yours, mine, ours" money system where loans you don't both agree on comes from that person's bucket only.  That may make her more careful, if a deadbeat friend costs her her fun money for half the year.

Oh she did, a few years ago she was earning tons of money and lent 3k $ to a guy with gambling problems. Luckily her sister bailed her out and collected.

Retired To Win

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Re: Partner lending money to others
« Reply #6 on: April 11, 2015, 09:25:10 AM »

... Maybe she's never had a loan go bad, so if it does this time she'll get to experience what it's like to lose $500 and a friend (he will surely start avoiding her if he doesn't mean to repay.) If she has one bad loan and changes her lending habits, consider that the cost of some financial education (most of us have made mistakes and paid some kind of penalty to be wiser in the future.)... That may make her more careful, if a deadbeat friend costs her her fun money for half the year.

Oh she did, a few years ago she was earning tons of money and lent 3k $ to a guy with gambling problems. Luckily her sister bailed her out and collected.

Still... that's not the same as NOT getting paid back and having to write off what you lent.  Wait until that does happen to your partner.  Then make a big deal out of it but do it from a perspective of standing in her shoes with that loss.  You'll have a much better chance of changing her lending "habit" at that point.

Goof luck.

Cathy

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Re: Partner lending money to others
« Reply #7 on: April 11, 2015, 09:27:51 AM »
I don't think lending money to friends is an inherently foolish endeavour, but your partner does need to understand the following: If you don't charge a rate of interest that compensates you for the risk, you are essentially giving free money to your friend, not just loaning then money.

In the case of the friend from the OP, there is a demonstrated history of poor money management, but also an engineering degree and job in the field. The foreign status of the potential debtor does increase the risk though. I would probably be willing to lend to this person the $500 at 20% interest per annum, which is comparable to a credit card and way better than a payday loan lender. At less than 20%, I think your partner isn't being compensated for the risk she's taking on, so it's as if she is giving a gift to the friend in the amount of the risk premium.

I would also require the would-be debtor to execute some written paperwork to formalise the loan (such as a promissory note). In the note, the borrower should promise to repay not only the loan but also any collection fees including "solicitor-and-own-client costs" (in a US document, this would be called "attorney's fees", but you should use the Canadian phrasing).
« Last Edit: April 11, 2015, 09:29:36 AM by Cathy »