With businesses struggling and the furlough scheme coming to an end, a lot of people’s finances are stretched right now – so they’re turning to their parents for help.
A fifth of adults have borrowed money from their parents during the pandemic, according to a survey from the Saga Equity Release Advice Service.
The research found some parents have dipped into their savings to help their adult children, while others have had to cut back on spending themselves.
It raises the question: is it okay to borrow money from parents (or other friends and family) if you’ve been hit hard financially by the pandemic?
Dee Holmes, a relationship counsellor from Relate, warns that asking to borrow money can cause friction with loved ones – and pressurise them to put their finances at risk. “You may feel obliged to lend money you can’t afford because of your relationship with the person asking,” she tells HuffPost UK.
“Parents often feel they should lend money. Children sometimes borrow it not actually expecting to pay it back.”
Resentments can occur if someone lends money for essentials, such as rent or food, then sees the borrower spending money on things they consider to be luxuries.
“Certainly, between generations, there will be different ideas of what is essential,” says Holmes. “And in lending money, the lender may feel they have some rights to dictate what the person spends money on.”
If the money isn’t paid back as agreed, you run the risk of a huge family row – or damaging a friendship for good.
But Ellie Austin-Williams, a financial coach and founder of This Girl Talks Money, thinks if done cautiously, borrowing money from loved ones can work.
“In many cases, it offers an interest-free and low-risk way of making ends meet,” she tells HuffPost UK. “If communication between everyone involved is clear and open, there’s no reason why borrowing from friends or family can’t be a good solution for all parties, particularly when the alternative is expensive consumer debt.”
To ensure the loan doesn’t impact your relationship, Austin-Williams says it’s vital to have an honest discussion about your boundaries from the start.
“Regardless of whether you’re the borrower or the lender, make sure you’re in agreement about the terms of the loan,” she says. “Firstly, make sure it’s very clear it’s a loan and not a gift. Also make sure you’re on the same page about the amount owed, the length of the loan, how and when it’ll be repaid and whether any interest is to be paid on top of the initial amount.”
Of course, not everyone has the option of borrowing from friends and family – and some may feel the risk to others isn’t worth it.
If you’re in this situation and struggling to pay your bills, Austin-Williams recommends reviewing your spending and setting yourself a monthly budget to help you stay within your means financially. If your income has dropped, be sure to check whether you’re eligible for any government help.
“In certain industries, there are grants available to help support workers struggling financially in the pandemic,” she says.
“Finally, if you do take out a loan or credit card, be careful to read the small print and understand the terms and conditions. Use a comparison website to find the best deal and always check the interest rate.”