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Life Kit: tips on lending money

DANIELLE KURTZLEBEN, HOST:

It's a perennial way to start a segment about money by saying times are tough, but seriously, times are tough. Millions of Americans are out there borrowing money from friends or family to make ends meet. And if you're the one being asked, it can be a difficult conversation to navigate, even if you've got the money to offer. Well, our Life Kit team has prepared this guide to lending money. Here's NPR's Andrew Limbong.

ANDREW LIMBONG, BYLINE: Just to set the terms here, we're not talking about spotting someone cash for the movies or picking up the tab at lunch. We're talking about rent money or car payment money, a significant hunk of cash, whatever that might mean to you. And our first tip to loaning money is, well, don't loan people money.

MICHELLE SINGLETARY: We are not, as individuals, in the business of lending money.

LIMBONG: This is Washington Post personal finance columnist Michelle Singletary. She says giving money with the expectation that it'll be returned is setting that relationship up to fail.

SINGLETARY: We don't know how to do it. We do it with a lot of feelings and emotions involved, and that's why it should be left up to financial institutions. And I recommend to people, if someone's coming to you in need and you have the money, just give it to them.

LIMBONG: And you should only be giving money if you've got yourself covered first. Here's Wendy De La Rosa, an assistant professor at the Wharton School of Business.

WENDY DE LA ROSA: If you are not saving, if you don't have an emergency savings fund, you can't actually help anybody else. I think that's just, like, a very hard and fast rule that sometimes people feel uncomfortable with.

LIMBONG: Here's where it can get tough. De La Rosa says that, yeah, if you grew up in an immigrant family or have been able to climb to a higher tax bracket than the one you grew up in, you might feel the need to stretch yourself beyond your budget in order to help out as many people as possible. But De La Rosa says you want to be careful not to get yourself caught up in a financial hole you can't dig yourself out of. So think hard about the people you're willing to give money to.

DE LA ROSA: I would encourage people to draw a circle of saying, who are the people that I - that, man, like, I really care about? And then that's my circle. That's my immediate circle.

LIMBONG: But even for people within that circle, if your budget says you don't got it, then you don't got it. Financial educator Berna Anat says if your answer is no, offer other ways to help.

BERNA ANAT: I don't have $500, but I do have two hours next week to sit down and, like, talk about any kind of financial questions that you have or help you write out a budget or help you pay it like a debt payment plan. I don't have $500, but I do have time to watch your kid for two weekends. Like, what is it that you can offer? What is the yes you can offer? So that, again, that person still understands, like, I care about you. I just can't care about you with dollars right now.

LIMBONG: But even if the answer is yes, Michelle Singletary, the personal finance columnist, says you should use it as a time to ask questions about their finances.

SINGLETARY: The first thing is, like, what happened? What's going on? Why do you need the money? And that's a perfectly legitimate question. Some people bristle at that. Like, how could you ask that? Well, if you go into a bank, they going to ask you what you need the money for. They want to see financials. They want to see your tax return. And so it's OK to say, what happened here?

LIMBONG: This peek into their finances can open up some tough questions, says Wendy De La Rosa.

DE LA ROSA: Is this the right place for you? Is this the right industry for you? Is this the right city for you? Should we talk about downsizing? Like, these are really painful conversations that people inherently know, but it's so tough to have when you're by yourself. And that's why a friend is really useful.

LIMBONG: And you don't need to be a personal finance expert, or even have your own perfect record of budgeting, to have these hard conversations. You just have to care enough about your friend or loved one to help them through it. Andrew Limbong, NPR News.

KURTZLEBEN: For more tips from Life Kit, go to npr.org/lifekit. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Andrew Limbong is a reporter for NPR's Arts Desk, where he does pieces on anything remotely related to arts or culture, from streamers looking for mental health on Twitch to Britney Spears' fight over her conservatorship. He's also covered the near collapse of the live music industry during the coronavirus pandemic. He's the host of NPR's Book of the Day podcast and a frequent host on Life Kit.