Uncomfortable Conversations: Borrowing money from family can be awkward. Here's advice.

USA Today

26-01-2025

Borrowing money from family is awkward enough. But borrowing money from your parents when you are in your 60s is humiliating, Sherrie Palm told me.
Palm of Mukwonago, Wisconsin founded the nonprofit Association for Pelvic Organ Prolapse Support in 2010. Palm said she funded the nonprofit and its efforts out of her own money – and didn't take a salary.
I am "poor as a church mouse," she said.
Welcome back to Uncomfortable Conversations About Money, a recurring series where we will tackle challenging topics or situations around money that make you uneasy. We'll outline the problem and try to get you some usable solutions.
Is it a good idea to borrow money from family?
The problem: In 2014, Palm needed $3,000 to go to Nepal, which was the only country in the world to have a government campaign about pelvic organ prolapse.
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She got up the nerve to ask her parents, the late Phil and Joan Kastner, for the money. Her dad enthusiastically said yes, Palm said. Her mom, who had grown up with financial difficulties and was tighter with money, frowned. But the next day, Palm's mom took her to the bank to get the money.
Palm, now 71, and her parents never outlined when or how she would pay them back.
At the time of the loan, Palm's mom had the early stages of what the family later found out to be Alzheimer's. Her mom wrote a sticky note that said "Sher borrowed $3,000," put the date on it and stuck it to the side of her computer.
Family loan causes drama
No one thought anything of the loan until five years later when a family member found the note among layers of sticky notes on the desk while cleaning. The relative alerted the grandkids. That turned into "soap opera" drama as Palm describes it, among that generation, who'd been hoping to inherit the family farm, but were not in their grandparents' will.
Palm's dad was furious when he heard that the younger generation was creating a problem about the unpaid loan. Palm's two brothers, who understood she struggled financially, were not bothered by it. Her mom, whose Alzheimer's had progressed, didn't react to the family drama, Palm said.
After awhile, things calmed down.
Palm's dad died unexpectedly in 2020.
"It still makes me sick that I was not able to pay the loan back prior to dad dying, but dad was very proud of my work," Palm said.
Palm's mom died in 2022, which then led to Palm and her siblings spending the next 2½ years sorting through belongings and preparing the the farm for sale (The grandchildren who had wanted the farm, in Mauston, Wisconsin, didn't have the means to buy the it).
The farm sold for $300,000 and Palm took the $3,000 she owed out of her portion of the inheritance.
Borrower would have acted differently, in hindsight
Palm said had she known the drama that would have ensued from borrowing the money, she would not have asked. She would have taken that as a sign that she shouldn't go on that trip to Nepal.
In retrospect, Palm wishes she and her parents had come up with a clear payment plan or expectations of when she should pay the money back.
Palm said she thinks if she had on paper an agreement such as "I'll pay back $50 a month," that she would have probably gone out to get an extra job "to make that magic happen."
Having an agreement and something on paper would have made Palm feel responsibility for the loan, "kind of like when you get that charge card bill in the mail or the electric bill comes," she said.
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Treat a family loan like it is a formal agreement
The advice: Family members who are borrowing or loaning money need to be as clear as possible, said Oliver Schnusenberg, a financial therapist specializing in neuroscience.
"Set clear terms and preferably in writing," said Schnusenberg, who is also a professor of finance with a specialty in behavioral finance at The University of North Florida. "What exactly is the loan? What is it for? What are the terms?"
"The more you actually treat it like a formal loan, the less awkward it becomes because now there's actual transparency around it," Schnusenberg said. Otherwise, things like a "found" sticky note in Palm's case "can be interpreted in multiple ways," he said.
Being clear about the loan and the repayment means "everyone can feel good about it and everyone knows exactly what it is," he said. "If you can name it, you can tame it."
He also advises that the family members lending the money charge interest. Maybe it's less interest than the family borrower might be charged at a financial institution, but Schnusenberg still advises that some fee be tacked on. That's because the lender is losing out on interest the cash could have earned if it was left in a bank account, he said.
If the money is not a loan, but a gift that is not expected to be paid back, then the family members need to consider whether that money could be considered a taxable gift, Schnusenberg said.
Despite some strings being attached, a loan between family members can still benefit the borrower, especially if the person does not have good credit, since a relative is not going to be running a credit or background check, Schnusenberg said.
Borrowing money from family can affect the relationship
But Schnusenberg said personally, he would avoid borrowing money from a family member because "you are in each other's business."
"You're mixing family with business, which may or may not be a good idea," he said. Then if you can't repay the loan, "that may result in strained relationships...and that can be whipped out in other conflict situations in the family like 'Oh, I knew it. You owed me money. It's just like you.'"
Still, Schnusenberg said there may be times when someone has no other choice than to ask family members for financial help.
"I actually know someone who has a fairly strained relationship with their parents, but had no other option and needed a co-signer because their credit rating was so low," he said. "It's created a situation that really no one wants."
How do you ask for a loan from a family member?
Timing and reading the room is important when asking a family member to borrow money, said Schnusenberg.
"Time it to make it a comfortable gathering where everyone is kind of at ease," he said.
Or hint at it without directly asking, to feel out how the family member may receive the idea, Schnusenberg said.
"If you say 'I'm having trouble right now paying for this, I might need to take out a loan,'" you can see how the family member responds, he said.
"If they say 'Well, good luck with that,' then I'm probably not going to ask," he said.
Should family members tell other family members about a loan?
Whether to tell other family members who are not involved in a loan depends on the situation, said Schnusenberg.
If the parents are of an advanced age and other family members need to know about the loan when it comes to settling the family estate, tell the other siblings, Schnusenberg said.
Parents who give a loan to one adult child may also want their other children to know so there is transparency and no appearance of favoritism, he said.
What should you do if the family member doesn't pay you back?
It can get very awkward when someone doesn't pay you back, causing resentment, said Schnusenberg.
"Are you going to take him to small claims court? Probably not," he said. "The only thing you have then is kind of the power to say 'I'm never going to lend you money again,' which probably you weren't going to do anyway."
The bottom line, Schnusenberg said, when a family member asks to borrow money is "How do I feel about that and can I really afford it?"
There's also a potential upside to family members borrowing money from a relative – and successfully paying it back, said Schnusenberg.
Not only did the borrower get quick access to funds, with potential lower interest, but "if the loan is repaid as agreed, then it could also cement trust and understanding. It could potentially actually fix relationships that may be on shaky grounds," he said.
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Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at [e-mail] or follow her on X, Bluesky, Facebook or Instagram @blinfisher. Sign up for our free The Daily Money newsletter, which will include consumer news on Fridays, here.