What happens when your child comes home from school and announce that she has given some of her allowance money to a friend to help him get his friendship-bracelet business off the ground? First, kudos to her friend for hustling for startup capital. Second, explain to your child the nuances of loaning money to family or friends. Loaning money to people you know and love is not always bad. Having money to support the endeavors of people close to you is a privilege. Also, they might genuinely have a good idea that you can economically benefit from. If you are looking for more information about safely lending money to friends or family, LearnVest and Credit.com provide great outlines of the first step towards creating a safe loaning system.
However, it isn’t a minor issue and needs to be handled correctly. Should the loan go awry, you have risked both money and the relationship. Also, mixing business with personal relationships sometimes creates situations in which the business relationship is a little murky. Explain these dangers to your child. Let her know that if she wants to lend her friends money, she has to be comfortable with the stresses that come with that decision (or vice versa if her friends lend her money). She has to be aware of the implications if their friend cannot repay the money. If her friend is not able to pay the loan back, does this mean the end of the friendship? Be prepared to talk through the outcome, positive or negative, with your child so that they learn the lessons that you intend.