Finance: bank of mum and dad

A man holding his wallet. See PA Feature FINANCE Friendly Borrowing. Picture credit should read: PA Photo/thinkstockphotos. WARNING: This picture must only be used to accompany PA Feature FINANCE Friendly Borrowing.
A man holding his wallet. See PA Feature FINANCE Friendly Borrowing. Picture credit should read: PA Photo/thinkstockphotos. WARNING: This picture must only be used to accompany PA Feature FINANCE Friendly Borrowing.

“Neither a borrower, nor a lender be,” wrote William Shakespeare.

But if anything, the habit of sharing money out between family and friends appears to be on the increase.

Whether it’s offering a loan to a younger relative to help them make the leap onto the housing ladder, or buying a few drinks for a friend on a night out, several reports have suggested that we’re becoming more and more used to passing cash back and forth between loved ones.

One recent survey, carried out for mobile payments scheme Paym, suggests that the younger generation in particular sees the “sharing economy” as the norm. They found that 18 to 24-year-olds are the most likely to borrow and lend cash among friends and family as a regular part of managing their money, and m any said they transfer money every few weeks for drinks, food or transport costs.

Meanwhile, more then half (51%) of workers and colleagues told Paym that they rack up a list of “IOUs” while purchasing coffees and lunch for each other.

Advances in technology, such as mobile payments and online banking have made it easier for people to offer a friend or a relative a small loan as a short-term stop-gap - as well as making it easier for that friend or relative to pay them back.

So what is the etiquette for sharing out money between family and friends?

Well, Paym’s research among more than 2,000 people found that £100 tends to be the largest sum people feel most comfortable sharing. Three-quarters (74%) thought that the reason for borrowing money should always be explained and 77% believe they have the right to turn down a request for money if they do not approve of what it is for.

While often this lending and borrowing between family and friends can make life easier, in certain situations there can be serious consequences.

Because for some people, it’s not just a case of borrowing a fiver from a pal for a couple of drinks or lunch. Charity StepChange, which deals with people who are in problem debt, says that the total amount of money owed by its clients to friends and family reached £235million in 2014 - marking an £83million increase in just two years.

More than one in five (21%) people advised by the charity last year had outstanding debts owed to friends and family. The average amount they owed to their loved ones was £3,265. The charity said this reflects the fact that many people turn to their loved ones as an informal source of credit when they are struggling.

Yet sadly, and perhaps inevitably, this can do long-term damage to their relationships: a recent survey of the charity’s clients found that 56% of those asked said their relationship with their family had grown worse as a result of their debt problems and 45% said the same of their relationship with friends.

StepChange’s chief executive Mike O’Connor agrees that borrowing from those closest to us can be “fraught with risks”, putting extra pressure on situations which are already difficult and doing “irreparable damage” to relationships.

“Friends and family are a significant part of the fragile safety net that people rely on when times are tough,” says O’Connor. “Last year we dealt with almost a quarter of a billion pounds in debt owed to friends and family. In many cases loved ones will be the first port of call, for others they will be a last resort when there’s nowhere else to turn.”

O’Connor adds it’s inevitable that the urge to helped loved ones in financial difficulty is a strong one.

“But people should not put themselves at financial risk to do so, and for many people any form of borrowing is not the answer.

“We urge anyone who is worried that they or their loved ones are struggling with debt to get advice or encourage their friends and family to seek free and independent advice.”