Friends and Finances: Do They Mix?
24th August 2020
Human beings are pack animals by nature. It stands to reason that we want to look after each other when the hunting and gathering gets tougher. It makes no difference whether we’re talking about close family or our wider circle of friends, we all find our finances running a little dry from time to time, and we all need to know we’ve got someone to turn to. The trouble is, we might be starting to dig a little too deeply into our own wallets to tide over our mates and relatives.
The Bank of Mum and Dad
For a lot of us, it’s the elders of the clan we tend to look to. It’s tough to say no to a family member in need, and the so-called “Bank of Mum and Dad” is a big player in the lending game. Back in 2018, parents and even grandparents were helping out the younger generations of their families in 315,500 property purchases. The year before that, Bank of Mum and Dad loans totalled around £6.5 billion overall. We’re not just talking about kids with their hands out here, either. More than 25% of those loans went out to people over the age of 45. 1 in 10 of them was at least 55.
All that said, parental loans aren’t quite the financial cure-all they might have appeared in the past. The Financial Times reckons the COVID-19 pandemic is putting a serious damper on that party. On top of that, some of the more conventional lenders are starting to show a few frayed nerves over family loans. Lloyds delivered a financial gut-punch to many first-time buyers this month by ditching – temporarily, at least – its specialised home loan for buyers with parents prepared to tie up their savings for 3 years. This move came hot on the heels of a clampdown on Bank of Mum and Dad lending from Nationwide. From now on, buyers are being asked to stump up 75% of their deposits themselves, without getting cash from family to put them over the line.
Lending to friends
Of course, it’s not just parents doing the lending. Sometimes, you’ve got to look outside your immediate family circle for help. An average UK household owes close to £3,000 on a “casual” basis. Forgetting about mortgages for a second, that 3 grand accounts for over 10% of our average total debt. It can be tough to claw that cash back, too – particularly when many of us end up being both borrowers and lenders at the same time.
“Mates loans” don’t tend to be formal affairs. If you’re helping out a friend, you’re probably not looking to make a profit out of it. Chances are you aren’t asking for interest or setting strict terms on the deal. At any moment, people in the UK owe an average of around £400 on a casual basis to the people around us. Most of those loans seem like a fairly minor thing at the time, but they can easily stack up. What’s more, over half of us never really even expect to be paid back. After all, reaching into your pocket from time to time’s just the cost of being a good friend, right?
Helping your friends without losing out
Casual loans from friends and family aren’t going away any time soon – and we really wouldn’t want them to. The same as any other kind of financial arrangement, though, the trick is never to bite off more than you can chew – and never to let your friends to it either. Whether you’re the one giving the hand-out or the one with your hand out, there are a few basic rules to keep both of you safe:
- If you’re lending, make sure you can afford to lose the money altogether.
- Don’t be shy of asking about your friend’s financial problems. There may be better ways to help them.
- Ask yourself if your friend’s good with money – then ask yourself if you are.
- If you’re feeling iffy about the loan, set out some ground rules about paying it back.
That last one’s the killer, of course. Hardly anyone has the nerve to lay down the law when a friend has swallowed their pride and asked for help. If you’re even considering parting with an amount of cash you’d seriously miss, a formal agreement with a bit of protection and muscle behind it could go a long way to keeping both of you covered. It could be as simple as an IOU note, or as “official” as asking for collateral. Chances are you won’t have to haul out the financial big guns to keep yourself protected, of course. After all, if you’re that unsure of how safe the loan is, maybe you shouldn’t be offering or asking for it at all.
Choosing money over mates
Friendships end all the time over anything from simple misunderstandings to major betrayals. Arguments over money are a pretty big contributor to the break-up statistics, though, with about 10% of us having lost a friend or had a family relationship go bad over our finances. The sad thing is that it’s often so unnecessary. We talked before about finding alternatives to mates loans, and we’re pretty sure we’ve got the perfect solution. Instead of putting yourself or your loved ones at risk with a one-off loan, wouldn’t it be better to make sure they get the tax refunds they’re owed by HMRC every year?
At RIFT, we understand the value of friendship – and we've even put a figure on it. The next time a mate or relative is a little short of cash, ask yourself if they might be owed a tax refund. Better still, ask us!
The RIFT Refer a Friend Scheme
The RIFT Refer a Friend scheme means you can help out a friend in need, and make some cash yourself at the same time. Here's how it works:
- You refer someone to us who might be owed some tax back (ask their permission first, of course).
- If they end up claiming a tax refund with RIFT, we'll send you £50 as thanks.
- For every 5 people you refer, you get a bonus of £150 on top. That's £400 for every 5 referrals.
- Whenever you use Refer a Friend, you get entered into our prize draws. Prizes range from £150-£500 in cash right up to a Star Prize worth a whole lot more!
Refer a Friend is a real chance to help out a mate in need, plus the opportunity to earn a little extra for yourself. With RIFT, everyone benefits and we keep the taxman honest at the same time. Isn't that what friends are really for?
Claim a tax refund to beat your debts.
An HMRC tax refund beats an emergency loan every time. Instead of stacking up debts, you're reclaiming your own money when the taxman's taken too much - no strings attached. An average 1-year refund comes to over £750, and you can claim back what you’re owed for up to 4-years.
Check if you qualify for a tax rebate today.