How to avoid fights with family and friends over money matters

A disagreement when lending and borrowing money among family and friends can quickly spiral into a full-blown relationship breakdown. Here’s how to prevent a fight.

• Students forced to pay study loans sooner
• Why couples cut back on Valentine’s Day costs

Fights over money have destroyed countless friendships and fractured families everywhere, but it doesn’t have to cause such angst.

Sticking to a few simple rules when lending and borrowing money among family and friends – or deciding on an inheritance – can prevent most conflict, experts say.

At one end of the scale are multimillion-dollar estates left in wills.

At the other end is lending a few bucks to a mate or splitting the bill at restaurants and bars.

Most of the advice around avoiding money fights focuses on couples and how they should communicate better with each other.

It’s a given that partners should regularly discuss their finances, set joint goals and spending plans, and share bill-paying and investing duties.

But when it comes to extended family and friends, money opens a fresh can of worms.

SMALL AMOUNTS

New data from Beem It, an app that allows people to split bills and record who owes want, shows that only 41 per cent of the $2.7 million of shared expenses it mapped in December have been repaid.

Part of this is people prioritising credit cards and other debts in the busy post-Christmas period, but tardiness to repay can create angst, says Beem It CEO Angela Clark.

“It can cause tension and friction between friends and family – relatives might see someone spending money on something, and wondering why they aren’t being paid back for something they’ve footed the bill for,” she said.

Money fights with family and friends can be bloody affairs. Illustration: John Tiedemann

Ms Clark said good communication at the start was essential, because relationships could be strained when people had to chase money from friends or family.

“People feel awkward asking for money to be repaid,” she said.

Her top tips to avoid fights over small amounts of money included:

• Attempt to split the bill immediately so you know your portion is covered and you don’t need to worry about others.

• Keep track of what they owe you and gently bring it up if they’re late to pay. Beem It’s app sent notifications straight to people’s phones.

• Try not to take it personally when someone is slow to repay. “Give them the benefit of the doubt – sometimes people could just be busy.”

• Suggest to your friend that you keep tabs and track expenses because sometimes it might be you that owes.

Wealth for Life Financial Planning principal Rex Whitford said humans had evolved from ancient times with an “innate responsibility of reciprocation”.

For example, if your tribe shared resources with another tribe they would later share their resources with you, Mr Whitford said.

“There’s a social breakdown that’s caused when goodwill is not reciprocated,” he said.

This was expected even at the pub when buying dinner or rounds of drinks.

“I don’t like getting into rounds with people – they can end up choosing something that’s worth three times as much,” Mr Whitford said.

Micro payments via credit and debit cards were now widely accepted and could help people quickly pay their own way, he said.

“You can do it with your wristwatch.”

LARGER SUMS

Lending money for larger purchases – think cars, houses and consumer goods – is complex and potentially dangerous, and experts say it needs to be documented clearly upfront.

“It is a vexed subject,” Mr Whitford said, adding that people who were simply trying to help someone out could come unstuck.

“Wearing your heart on your sleeve can be a very expensive coat to wear,” he said.

Mr Whitford said larger loans should be thought out carefully and documented in a legal contract that all parties agreed to.

Beem It CEO Angela Clark says lending money can cause tension and friction.

Adrian Frinsdorf, director of wealth advisory at William Buck, says communication is vital.

“Even if it’s not a legal document, write down the parameters and have all parties sign, witness and keep a copy. But I prefer using a proper legal channel.”

If possible, avoid lending to others altogether.

“There’s an old saying: neither a borrower nor a lender be’, unless you’re a bank.”

William Buck’s wealth advisory director, Adrian Frinsdorf, said his firm had “dealt with a few horror stories” around family loans gone bad.

“We try and educate clients that it is about communication,” he said.

“We like to start with ‘just don’t’.

“But the Bank of Mum and Dad is the fifth largest bank in Australia, they say.”

WILLS AND INHERITANCES

Family fights over inheritances are one of the most common money flashpoints and often involve the largest amount of money.

Mr Frinsdorf said arguments often stemmed from one beneficiary being left more than another, so communication was vital.

“Leave with the will a letter of wishes – a lot of arguments occur over the interpretation of what mum and dad wanted,” he said.

This was not a legal document but could be one of the most valuable tools to prevent estate wars, Mr Frinsdorf said.

He said parents should get professional estate planning advice, particularly for bigger estates. For example, tax was complex, and someone being left an investment property while their sibling received the family home could be up for much higher taxes.

“Money’s great but it causes problems as well,” Mr Frinsdorf said.

“Another issue is parents trying to rule from the grave – trying to bind children together by leaving a holiday house or other instructions. The holiday house is a shocker – we’ve seen them left to four siblings.” Try dividing Christmas and Easter holidays among that crowd.

Mr Whitford said it was important to get all wills and related documents drawn up by an estate planning professional.

And when people deliberately left less to one beneficiary, it was a good idea to explain their reasoning in their will, he said.

“Otherwise a judge may overrule the will.”

@keanemoney

Originally published as How to avoid fights with family and friends over money matters