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Question:


My mother-in-law wants us to lend her a large amount of money. I’m against it 100 percent because I know we won’t get most of it back. Any tips on convincing my spouse otherwise?
-HopelessHubby


Answer:


This is more a matter of interpersonal relations – a subject about which I claim little, if any, expertise – than of economics or finance, but I’ll take a stab at it. You might want to acquaint your wife with a recent study that bears the cumbersome title “Lenders’ Blind Trust and Borrowers’ Blind Spots: A Descriptive Investigation of Personal Loans.” The study, by George Loewenstein of Carnegie Mellon University and Linda Dezso of the University of Vienna and published in the Journal of Economic Psychology, surveyed nearly 1,000 people who lent or borrowed money in the last five years in a deal with a friend or relative. The researchers were interested in whether the two parties in each transaction had discrepant views about the basic details. Here’s how a Washington Post article described the findings:
 
“Not surprisingly, at least to anyone who has personally lent money, borrowers can remember the transaction quite differently [from how] lenders do. [Borrowers] are more likely to forget having taken the loan and are more likely to view it as having been paid off. Or if the loan hasn’t been paid off, they think they’ve made more payments than they have. They also might reframe unpaid loans as having really been gifts. ‘All of these patterns pose hazards for lenders, especially if they hope that their magnanimity will be rewarded with ongoing appreciation,’ the researchers said.”
 
What the study evidently did not address is the cost of not making a loan in terms of ill feelings, in this case between you and your wife or between either or both of you and your mother-in-law. As long as it’s not an exorbitant sum, you might want to lend the money and write it off as a cost of keeping peace in the family. Then if you get the money back one day, you and your wife can count yourselves lucky. On the other hand, this study suggests that there is a fair chance that your generosity will go unnoticed and may even be resented. Could you plead poverty and say you used a chunk of money to pay off debts of your own or maybe blew it in a poker game?
-Conrad de Aenlle



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