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Expert tips for enjoying life after 50

Do not lend money or sign surety for family and friends

The typical parent usually works his whole life to become financially independent. He and his spouse usually become dependent on their nest egg to look after them for the rest of their lives when he reaches retirement.  His nest egg is therefore sacrosanct.

If you would lend some of this money to anyone you would compromise your and your spouse’s security which is very important.

There is a saying which has a lot of meaning in this regard: “Lend money to a friend, and get it back, if you’re lucky, from an enemy”.

And remember that signing surety is as good as lending money as the bank or other institution will come straight to you for the money if the other party defaults.

There are many subtleties you should keep in mind: Ask yourself “Why do children or friends come to you for money and why do such loans so often go sour?

Some of the reasons could be:

  • If you lend money to your children (or a friend) you often incur a double risk:  (a) the risk that you may lose the money, and  (b) the risk that your relationship with the person to whom you lend the money will go sour. It often goes along with a guilt feeling towards the person who want to lend money from you. You are often manipulated in this regard because it is difficult for you to say no.
  • Children are often reluctant to become independent and to start fending for themselves. They then expect their parents to support them financially and to lend them money. They often don’t realise how sacrosanct their parent’s retirement money is. If a kindhearted parent would lend money to his children, he may live to regret it – financially and as well as his relationship with his children.
  • It may then be better, if the parent can afford it, to give each of his children a so-called ‘golden handshake‘ i.e. a once-off donation when they leave the house to go on their own.

A typical case: 
During my consultation practice as Estate Planner for farmers I came across the following case. A father was joined by his son in a joint farming relationship. The farmer ploughed all the money he had back into the farm. He did not make independent provision for his old age neither for that of his spouse.

When the father retired and moved to his retirement home in the village he remained dependent on the farm for an income which the son faithfully paid for the rest of his life but when he died, his spouse was not protected and was quickly told by the son that ‘times are tough’ and that he could not afford to pay her the money for her maintenance. The relationship obviously went sour.
It would probably have been much better if the father would have made independent provision for his spouse e.g. by means of a retirement annuity with life cover.

Possible solution:

Try to be preventive. Learn to decline courteously but firmly when you are approached. Do not allow yourself to be influenced by moral pressure being put onto you or to have yourself manipulated. If you find it difficult  to say no, you can always postpone by indicating that you first have to speak to your accountant or financial advisor.
It is important for children to realise that it is a privilege to inherit and certainly not not a right.

Have you had any bad experience lending out money?