Discussions about money can range from being awkward through to heated and damaging to a relationship.
Understanding modern money manners can make life so much simpler. But financial etiquette is constantly changing so it's critical to be up-to-date and avoid making a faux pas or inadvertently attracting an ugly "cheapskate" reputation.
So here's a guide on how to deal with those money moral dilemmas.
Q: You don't drink alcohol, and had a salad, while your friends had wine and steaks. How do you split the bill?
A: First of all do the numbers. If it turns out to be only a few dollars difference then it's honestly not worth bothering about it. It's a small price to pay for friendship.
But if it's a lot of people together at a fancy restaurant with lots of expensive wine, then the cost differential will be substantial and worth the discussion. Most fair-minded friends will understand completely.
The key is taking charge early and explaining your proposal for splitting the bill before everyone gets carried away. And offer to do the calculations when the bill comes at the end of the night. But ... you can't weaken as the night goes on. If you're off the grog, you stay off the grog. To join the drinkers later and say "I haven't drunk as much as everyone else" just gets messy.
Q: A friend borrowed money from you. They haven't paid it back or even mentioned it.
A: Again, it's a matter of dollars. If they borrowed $50 you just take it on the chin and vow never to do it again. For that amount we always presume from the outset we probably won't ever see it again.
But over $100, you want it back. The best way to approach this is directly but without any confrontation. Simply explain you have some big expenses coming up and whether they have a timetable for repaying the loan.
Do it in a friendly manner, wait for them to commit to a plan, confirm it in an email and then hold them to it.
Q: An adult child wants to borrow thousands of dollars from you for a new home. It's a large amount and you can't afford to lose it.
A: The bank of Mum and Dad has been getting a fair workout over recent years as housing affordability in some capital cities deteriorated badly.
Our view has always been the Bank of Mum and Dad should act like a real bank in these cases.
It is great to help the kids get into property but you also don't want such a hefty commitment to derail retirement and lifestyle plans.
A loan, rather than a gift, should be just that ... a loan. So right upfront explain the conditions of how the money is to be given, repayment terms, whether any interest will be incurred. Also that it will be secured over a proportion of the asset value of the house.
Once it has all been agreed, put the terms in writing. That way everyone knows exactly what's happening and don't presume the loan will turn into a "gift" unless you want that to happen.
Q: A friend or relative wants you to go guarantor on a loan for their business venture. You want to help but it's money you can't afford to lose.
A: This has been the undoing of so many family relationships and is more common that you think. An entrepreneur in the family has this great idea which will be the new Facebook and just needs you to go guarantor with the bank for a loan to get it off the ground.
"I don't want any money from you, just for you to vouch for me with the bank".
You want to help but that guarantee could turn into real money if things go wrong. So protect yourself from the start. Make sure the guarantee is limited to the value of the loan (and not an unlimited one); ask for monthly financial statements and management reports so you have complete visibility over the health of the business (and your guarantee); and cancel the guarantee as soon as the business becomes financially independent.
Plus be very open with other children so you're never accused of favouring one over the other or keeping secrets.
Q: A nosey friend keeps asking questions about how much you earn or what you spent on big-ticket items.
A: Everyone has a sticky beak friend or relative who has no filter when it comes to money. They are not afraid to bluntly ask everything from how much do you earn through to how much you've paid for an item.
Their inquiries are so brazen and bold that you often blurt out the truth ... and regret it. So here are a few responses to keep up your sleeve so you're not blindsided.
- in my mind I'm not paid enough, haha....
- I probably paid more than I should have but I just love it because...
- you can't really put a true price on that because it's been a dream of mine forever...