| September 25, 2015

Research of the Week: Lending to Friends and Family

Is it better or worse than borrowing from a bank or credit card?

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

How much does it cost to ruin a friendship? About $450, according to the PayPal Money Habits Study.

The online payment service asked 4,000 adults in four countries – the United States, Canada, Germany, and Australia – how they feel about lending money to friends and family.  Not surprisingly, 93-94 percent of people in all four countries “hate owing someone money.” But there were two numbers that were surprising – one big and one small.

The big result

Extrapolating from those 4,000 adults, researchers determined that Americans owe each other $37.6 billion in loans made to friends and family. That big number consists of many small ones: The average loan is a mere $450.

But those personal loans are big enough to cause personal problems: “The study found that one third of adults in the U.S. have ruined a relationship over IOUs.”

 

The fascinating details

The “driving reason” for these ruined relationships is simple: “Discomfort around financial conversations.” Researchers say.

More than half of people surveyed across the four countries find it awkward to ask their friends or family members to pay them back, and nearly 55 percent on average admitted they felt embarrassed asking friends to spot them cash.

What you can do

For an explanation of this discomfort, PayPal consulted Ryan Howell, a psychology professor at San Francisco State University and an expert on the psychology of spending.

“People are more willing to discuss their sex lives than their finances,” Howell says. “Money is still considered an incredibly private, personal topic for many people due to deep-seated cross-cultural stigmas around money.”

Consolidated Credit president Gary Herman has seen firsthand how money can damage relationships.

“When friends and family get behind on their bills, we all want to help,” Herman says. “Unfortunately, sometimes the problems are too big for us to solve.”

If someone is buried under credit card debt, even a substantial private loan might only cover the steep interest payments. Herman suggests consulting a certified credit counselor before asking friends or family for money.

Consolidated Credit’s experts offer a free debt analysis that may qualify you for debt-relief programs that can reduce total credit card payments by up to half. Call Consolidated Credit at to learn more.

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