When you are in a high-income profession, it is not a secret. People will often assume that you have excess money sloshing around. Few fully understand the debt and costs that go into earning that income. Even if they do, that may take a back seat to their wants or needs. As physicians, we are wired to respond when someone asks us for help. That instinct is even stronger when it is someone we personally care about. We often feel obligated to help our parents or siblings, and that may even be culturally enforced. The dynamic also shifts over time, and perhaps you are reciprocating from when you were previously on the receiving end.
When money enters a relationship, you’re not just making a financial transaction. You are altering the power dynamic, emotional ledger, and the unspoken rules of the relationship. Done well, it may strengthen the relationship. However, the stakes are high. So is the risk that it could go off the rails. Pause and consider before you answer. That is easier if you have thought about it and planned in advance. This post provides a framework and factors to consider.
Decision Gates: Before You Get Rolling
Before you consider a major gift or loan, ask these questions first. If you are married or sharing your financial life with someone, be sure to involve them in this deliberation. You don’t want to risk multiple relationships.
Can You Afford It?
The first gate to clear before leaving the station is whether you can afford it. If you cannot afford to lose the money financially or emotionally, stop there. Without a legal contract that you are willing to enforce and assets to collect on, you must assume that the money will not be repaid. This is particularly important for medical students and those in early practice. Your line of credit is not money you have earned yet. Do not take on a loan to give a loan. Critically, do not part with the money you need to complete your training or grow your business – you need that to be able to pay it back!
Is It Aligned With Your Values?
If you are giving a gift that you bought, this is easy. You made the decision. If giving money, ask how you would feel if it were used for something that you do not support. Be aware that even if you specify how the money is to be used, it frees up other funds for other purposes.
Don’t let obligation or guilt push you into a decision that turns into regret and resentment.
Is It Balanced & Aligned With Your Role?
All relationships have at least two participants. They may have different roles and forms of power. Money is one form of power and may tip the scales if you are not careful. Exchanging money affects the relationship and how each person sees their role in it.
The larger the amount, the more it will shift the power balance in the relationship.
What are the Parameters?
It is impossible to foresee every contingency, and we all make assumptions. However, if you are giving or loaning money, will it be spent on a specific purpose, or at their discretion? As mentioned, you don’t really control this.
For example, we once gifted a family member our vehicle so they had something more reliable to drive their young children around in. Within a year, it was sold to fund the down payment on a new vehicle lease and a boat. We had bought a used vehicle to replace the gift, and we still don’t have a boat. In the end, their financial position continued to worsen, and resentment festered. Both from them when we would not give them more, and from us after seeing how the money was spent differently from our intent. It may have been better if we had given the gift without any expectation of use and been clear that it was a large gift from our perspective, not something we could repeat.
If it is a loan, it is even more critical that you have defined parameters. We will detail that later.
What is the Off-Ramp?
Consider how this could become a runaway train, and know your off-ramp before you start. If it is a loan, what will you do if they default? If it is a gift, will future expectations be created? In either case, are you taking on more obligations? How will any of these things impact the relationship?
Consider the Amount
It feels good to be generous. Especially with people that we care about. Because we care, we must also be mindful of unintended consequences. The greater our largesse, the more polarizing it could be to the relationship dynamics. We may change how the person sees themself, how we see them, and how they think we see them. That could manifest in behaviors that further damage the relationship.
Creating larger power imbalances, particularly when different values are involved, changes the nature of the relationship. It may become more transactional. Roles may shift toward a more dependent and directorial dynamic.
Don’t trick yourself into thinking no one is keeping score. We all have an emotional ledger. If the columns don’t add up, then the relationship becomes troubled. Denial just leads to further avoidance, and you will drift apart, dissatisfied.
Loans & “Investments”
We all want to see our loved ones succeed. Sometimes they need financial help to chase their dream. Naturally, we’d like to help if we can. That is usually the sentiment behind loaning money to family or friends. Whether it is framed as a loan or buying a stake in their business, there is an added layer of expectation and accountability to consider. If you are unwilling to handle it formally, you should reconsider whether it should be treated as a gift or a no-go.
Communication & Documentation
Proactive communication helps to defuse unspoken assumptions. Documenting it helps keep people’s memories and objective reality aligned. This is vital because different assumptions and perspectives typically cause explosions when pressure hits. If it is framed as a business venture, pressure will inevitably hit. Businesses require objective, often difficult decisions—especially when they are at a stage where they are asking you for money rather than a traditional lender.
Loan Documentation
At a minimum, ensure you obtain a proper promissory note. It will detail the loan amount, interest rate, and repayment terms. Include the maximum applicable statute of limitations period. It may take years before you realize that they are not going to repay you. For a sizeable loan, have a properly drafted loan agreement outlining the rights and responsibilities of both parties. For a sizeable sum, get a general security agreement and register the loan.
Talk to your accountant. Lending money to family or friends is riskier from a tax perspective. If it isn’t repaid, it is generally not deductible. Informal interest may even be taxed, even if you didn’t receive it. If the loan agreement says interest is payable, it may be taxed based on when it should have been paid. So, deferred or forgiven interest is dicey. Lending from a corporation also raises scrutiny if the appropriate interest isn’t collected.
Also, be wary if the loan is being used to stave off bankruptcy unless you are willing to lose the money in the process.
Are You Taking on Liability?
If you cosign a loan, you accept liability. Even if you are just investing in a business venture, you must consider whether that opens you to liability for the actions of that business.
Give Time Along With Money
If you are unsure about giving money, give time instead. It supports the person without creating financial tension and often strengthens the relationship. Even when giving money, time, and effort signal care more clearly than dollars do. It also gives you more pleasure from giving.
Still, some people just want money and no other infringement on their autonomy. If unsure, ask. Don’t assume—and miss the chance to participate rather than just sponsor.
If part of why they are asking you for money is due to financial illiteracy, spend time helping them learn some basics and take basic actions. Like making a budget. Pointing them towards The Loonie Doctor Blog is the gift that just keeps on giving.
Sage / practical advice, per usual, Dr. Soth!
Thanks Mike,
This was a topic that we have learned about through trial and error. The right answer depends on the relationship and situation, but I find a framework helps to ground me.
Mark