Monday, February 15, 2016

Neither Borrower Nor Lender Be...

If you would know the value of money, go and try to borrow some; for he that goes a borrowing goes a sorrowing.
BENJAMIN FRANKLIN, Poor Richard's Almanac

A lot of folks thought that Benjamin Franklin said, "Neither borrower nor lender be" but in fact, if he did say it, he was quoting Shakespeare:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
(Hamlet, Act I, Scene III)*
There is a reason Benjamin Franklin, who never held an elected office, is on the $100 bill.  He knew a thing or two about money.

I was reading a "financial" site the other day and people were very self-importantly discussing the best ways to lend money to friends and family.  I was sort of appalled by the whole deal, for a number of reasons.

People who lend money to friends and family often do so in order to be big-shots.  They like the idea of being the one with the money that others come to, hat-in-hand, asking for a handout.  No one will admit to this, of course, but it is a big part of why people lend to friends and family.

Loaning or giving money to friends and family is a personal decision, but it is often a rotten one, as the Bard illustrates.   Not only are your motives in lending (or giving) money suspect, the result of such loans or gifts will alter your relationship dramatically.  You are no longer friends, once you have created a fiduciary relationship.

And eventually, of course, you will get pissed off that the friend never pays you back or shows sufficient "gratitude" for your loans or gifts. You become the friend with the perpetual problem, always bad-mouthing your borrowing friend to others, whining about how they are always hitting you up for money.  (By the way, the borrower does the same exact thing - trash-talking you, behind your back).

And in most cases, you can't afford it anyway.  In one forum, a person who loaned money to his "family" realized that the reason he was broke all the time was that he was handing out money to his "kin."   His "family" (siblings and parents) thought he was "rich" because he showed off his apparent wealth with fancy cars and cell phones and clothes, so naturally they asked him for some of it.

He realized he was spending himself into the poor house, and decided that whenever family members bought up monetary issues, he would change the subject from now on.

A better idea, I think, is to stop hanging out with your childhood family and instead find your own mate and form your own family and divert your energies and monies to that.  If you are "hanging out" with your parents and siblings well into your 30's, something is very, very wrong with your life.   You are not living it, you are still an audience to theirs.

And another good idea is to act poorer than you are by not buying bling cars and bling accessories.  If people think you are poor they will stop asking you for money.

It is like the "Mexican Grimace" I discussed before.  Whenever we saw our cleaning lady on the street, she would be frowning.  And during our ill-fated RV trip to Mexico, we noticed that many Mexicans, when walking on the street, tended to look upset or depressed, even though they were happy people.

The reason they do this is simple: In Mexico, if someone sees you smiling, they assume you are happy and they assume you have money.  So they figure out a way to take it away from you.   The Police, the government, your neighbors - even criminals.  All will take away your fortune if you appear to be fortunate.   So as a matter of urban camouflage, you act as though you are down to your last peso.  It is a smart move.

Never crow about having money, otherwise people will ask you for some.  And when you refuse, they will say you are "mean" for not "sharing" - even though you might have just barely enough to live on yourself - and fund your own retirement and health care.

From the borrowing side, it may seem like a sweet deal, shaking down family members for spare cash.  But it is a short-lived bounty.  If you are turned down for a loan from the bank, it is not because the bank is being "mean" or whatever, it is because you have no way of realistically paying back the loan.   Experts in finance at the bank have determined this - and you should listen to them.

I once was turned down for a loan from a small bank that I owned founding shares of stock in.  The VP who handled the loan was a personal friend of mine.  He still turned me down, and he felt bad about it. I told him, "You know, this is a wake-up call.   You are doing me a favor!  You have to make decisions like this based on hard numbers, and what you are telling me is that borrowing more money is a very bad idea.  I should listen to you!"

And you should too.   If a bank turns you down for a loan, going to a payday loan place is not a good idea - it is a horrific one.  And going to relatives or friends isn't much of a better idea, either.

The reason is, of course, you likely won't be able to pay them back and as a result, a lot of hard feelings will come about and you will lose your friendship or be estranged from your family.

A high school classmate of mine contacted me on Facebook back when I was still on it.  He was a ne'er-do-well and is living on disability most of his life.  He has gone though bankruptcy more than once.  I asked him how his brothers and sisters were doing and he said, quite honestly, "They don't talk to me too much anymore, because I keep asking them for money."  In other words, his "needs" for money caused him to lose the friendship of his own family members.

At the same time he was borrowing money from family members, he was acquiring exotic pets.   And this is not atypical of the family borrower.   Often people will ask family members for money rather than sell their hobby car or motorcycle.  They claim they are broke, but their body is covered with thousands of dollars of tattoos - and they bore you with their plans for yet hundreds of dollars more. They text you from their new smart phone about how they can't make their mortgage payment.  And they don't see the irony.

Or they smoke tons of pot (which is expensive) and complain they can't hold a job - but hey, can you "loan" me $500 until next week?   As the lender, are you being kind, or just enabling their lifestyle?

Rather than face hard truths or take action to fix their finances, they take the easy route - hitting up friends and family for money.

Recently another friend asked me for money to help pay medical bills.  I was a bit astounded in this day and age of Obamacare that anyone could have problems with medical bills.  But with co-pays and deductibles, they had run up quite a bill with the hospital.

I asked him if he had contacted the hospital's billing department and asked for payment terms.  Many hospitals make their profits based on Medicare/Medicaid/Insurance payments and the co-pays or deductibles are just written off.

For example, another friend of mine was hospitalized for diverticulitis.  Hospitalization was not really necessary, but they had empty beds and medicare was paying - so why not?  Better to get 3/4 the daily rack rate than nothing.  And now you understand why health care is so expensive in this country.

But odds are, the accounting department would have worked with my friend to accept monthly payments, interest-free, at a level he could afford.   After all, if he declared bankruptcy (again) they would have to write the whole amount off.   Anything they can get from him is "found money".

The worst thing you can do with staggering medical bills is put them on a credit card or - as my friend intended - pay them with a consolidation loan.   Now you actually owe that money to a 3rd party, and they are not going to be as accommodating as the Hospital.

But even in situations of medical debt, a lot of people don't really "need" money from friends and relatives so much as they don't want to make changes in their lives.  They don't need the money to pay the debt, but to be more comfortable or to maintain their current comfort level.

For example, my friend with the hospital debt lives in one of the most expensive places to live in the country.  High rents, high food costs, high gasoline costs, high taxes  - a high cost-of-living overall.   You would think that being on disability they might seek out a cheaper place to live, where their meager dollars would go further.  Hitting up friends and family for money is not a long-term answer to their problems.  Living withing their means, is.

But again, common-sense advice falls on deaf ears. No one wants to hear things that appear to be difficult or require difficult decisions.  Borrowing money from friends appears to be "easier" and when they don't cough up the dough, you can blame them for your misfortune instead of looking inward as how you got to where you are in the first place.

It may sound cold-hearted, but I have very little sympathy for people who lend money to family members and friends and then complain about how rotten it is they never got paid back.  I have a little more sympathy for people in financial difficulties, but not much.  If you find yourself in a situation where you are begging for money from friends or family members, maybe it is time for a wake-up call.   Because borrowing money is not a long-term solution to anything.  It barely is a short-term solution.

And let's face it, in this country, even if you are "destitute" you can qualify for a lot of free things - places to live, a free cell phone, food stamps, free bus fare, public assistance, etc.  Compared to the rest of the world, even the poorest among us in the United States is living like a King.

Stop playing "bank" with your family members and friends.  Whether you are the banker or the borrower, it is a lose-lose proposition.

* This quote from Hamlet has a double-meaning. Polonius is not just giving financial advice, but making a lot of boring platitudes - bloviating and blasting hot air. In that regard, this quote is apt for this blog!