How to Give Money to Family Members (or Not)

After writing about how to lend (or not to lend) money to family members who ask for help, I’ve heard more stories from people who have struggled with this very difficult issue.

One interesting perspective comes from Donald Cox, professor of economics at Boston College. He says that people who give or lend money to relatives are usually motivated by altruism, but sometimes something is expected in return. For example, if a parent gives money to their child for a down payment for a house or college tuition, then they may expect assistance later. “Many adult children who are providing care for needy, elderly parents say they are doing this out of a sense of reciprocity,” he says.

Here are more stories from readers:

• Andrew lent his sister $10,000 in 2005 to help her pay off her bills and get out of debt. He expected her to pay it back. Today, he has only received $800 of it. He writes, "I rarely talk to her, and when I do, I don't want to pester her about the money. She recently purchased a house, and she has a family with three step-kids and one child of her own who is only a year old." He isn't sure what to do, and worries about tension around holiday gatherings. The lesson: Family loans often don't get paid back, which can badly strain relationships.

• When Jay's mother had a stroke at age 50, he struggled over whether to lend her money. He was just 26, but with his job, could afford to give her some money. But he decided not to. He writes, "I know my mom. I know her history with money and jobs. I know what would have happened if I enabled her behavior." But he did pay her rent until she recovered. She ended up relocating to a less expensive area and is making ends meet. The lesson: Know your limits. Jay says that while his decision was difficult, he knows it was probably the best move. "Throughout my experience with my mom, she kept saying, 'I'll pay you back.' But I knew better."

• Julie had just turned 17 when her dad quit his job and opened a hardware store. He asked her to lend him some of the cash she had stored up from part-time jobs -- money that was earmarked for school costs. She decided to lend him  the money. "My parents had already provided for us and spent money year after year on our sporting activities. I determined if I could help, I would be glad to, as a way of saying 'thank you.' Also, by lending the money, I would guarantee that I wouldn't spend it and I didn't need it for three years," she says. She ended up drawing up a contract for the loan, which specified that her dad would pay her back with interest. She got her money back right when she needed it. "Things worked out in the end, and I am happy that I was able to give my dad a gift to help him out when it was needed." The lesson: Sometimes giving a loan works out well for both parties. Also, written agreements can help.

• Brandt over at the Wealth and Wisdom blog wrote of the struggles of his friend "Joe" and gives more advice on what to do when asked for money. On the top of the list: However you respond, don't feel badly --you've done nothing wrong.

Special thanks to JD at Get Rich Slowly, who wrote a post on this same topic, and helped me find people who had struggled with the issue. FreeMoneyFinance also recently posted a fascinating discussion on the topic and helped connect me to people.