ANNOUNCER: Michelle Hunt on ABC Radio Melbourne
MICHELLE: How itchy are you right now? Every part of me I want to scratch.
Look, before we were talking about bed bugs and lice and crabs and all those exciting things.
We were talking about whether or not you should lend a friend money. ‘Mate Debt’. Is it something that you’ve done, is it something that you try and avoid? And if a mate does come up to you and say, “Can I lend some money?”, how do you feel about that? And do you work out some kind of arrangement or, depending on the mate, is it just “Yep, no worries. Can I have it back by this date, by x date?” And it all works out okay.
Chris Browne is the founder of Rising Tide, he’s a money expert and financial advisor. Chris, ‘Mate Debt’: it’s kind of a thing, it’s becoming quite a big way that people lend money to each other. Is it something that you advise?
CHRIS: Look, it’s a really, really, sensitive topic. Because these little loans, and sometimes big loans, can end up ruining a friendship. So, you need to proceed with caution.
MICHELLE: What are the first things you need to think about if a friend has asked you to lend some money? And you know, in this case, if you’re having to think about it, it means it’s probably a sizeable amount. So you know, let’s say a couple hundred dollars and then some. You know some people are even talking about mates asking them to lend $50,000.
CHRIS: Wow wow wow. If it’s a small amount, what I tend to recommend is ‘be prepared to lend what you’re prepared to lose’, because often that money is not a boomerang; it doesn’t come back to you. And you don’t want to be bitter and twisted at the end of it. So that would be my first piece of advice.
And my second piece of advice: if the amount ends up being a little bit bigger, and like the amount that you’ve just mentioned, 200 bucks, capture the terms of the loan in an email, and get them to acknowledge that email. Just say, if it does blow up, then you can forward that email back to the person and say, ‘As agreed, I wouldn’t mind seeing that 200 bucks again.’
MICHELLE: And does that email then stand up as a legal document, because technically it’s in writing?
CHRIS: Yeah look, I’m not a lawyer, but I reckon that it helps. I know I did spend a bit of time in VCAT once with a disagreement. It was a really positive process, but I noted that the person who presided over my case looked at a lot of the email correspondence left between me and the other party, and it really helped with the conversation, and it really helped get a positive outcome for me.
MICHELLE: Chris Browne is with you, founder of Rising Tide. We’re talking about ‘Mate Debt’; whether or not you should lend money to friends. Whether you should ask, and whether you should borrow money from friends. And whether you should put some kind of little plan into place if you’re worried about that money.
Chris, if it is a sizeable amount, and you’ve both agreed, and you say, ‘Look, yes I will, but I want something in writing.’ You know, what are some of the key things you should pop in?
CHRIS: Yeah, look, I reckon the key things you’ve gotta do, and I’m talking from experience here Michelle; look, when I first set up Rising Tide, I actually took out a home equity loan against my mum’s home. So, it was a big amount, it was a really sensitive topic, but it was a really important thing to happen to get me going. So, mum and I trotted off to a lawyer, and in the agreement that we eventually drafted up, it just said who are the parties involved, how much money’s involved, what’s the term of that loan, and in the event that Chris was to default on that loan, what was to happen. So, in this case, it meant that I had to sell my home first, and I’d have to clear the debt within a set period of time. So, I think everyone’s gotta have a willingness to do that. Because, you know, friendships and family relationships are so so important, and you don’t wanna do anything that could jeopardise them.
MICHELLE: And what about the trend – which a lot of people have been forced to do because housing is just so difficult to get into, and so expensive – you’re seeing friends or even, not colleagues, maybe a little closer than that, but you’re seeing friends buy together, siblings buy together. Are these very similar kinda things you should think about going in to an arrangement like that?
CHRIS: Yeah, totally. Like, if you’re looking to buy a property with your brother, don’t make it a handshake agreement, just put it in writing. Sit down with a lawyer, they’ll recommend things like tenants in common.
If you’re asking your mum and dad to be guarantor on your home loan – which is increasing in popularity and I actually see it as a good thing, if you’ve got the right sort of kids – again, make sure that you protect mum and dad. Get independent legal advice, get an agreement in place, and just have things sort of set out if the proverbial hits the fan. Start with that.
MICHELLE: And it’s more than just kinda how you start, there’s all the other things I guess you would have to think about, like, if one, you or your friend or your brother, whoever it may be, something happens, and you want to get out of the deal. You need to have a little plan in place there, as to maybe they get first option to buy, or what you should do, because that can get a bit tricky as well.
CHRIS: Yeah spot on, Michelle, and look, I find that a lot of people just go, ‘It’ll never happen to me. She’ll be right mate.’ That sort of typical Australian sort of attitude. I’ve been in the game for about 20 years now, and stuff does happen. People do die prematurely, relationships do end, you know, married relationships; this sort of stuff happens, and you know you can’t cover them all, but you can cover a fair few of them. So, just be really open minded, be really collaborative, keep your cool, and the person who’s asking for the money, if that person wants to sort of sit down with a lawyer to draft something up, don’t see it as an insult. I think its really well considered advice.
MICHELLE: It’s a tricky one isn’t it, because if you don’t feel comfortable to do that then maybe it’s not the best arrangement to be going into? And you have to, I guess just trust your gut a little bit, do you?
CHRIS: Yeah, I think so. I mean look, all of us have got those friends or family members who are constantly sort of sticking their hand out for money, and if it’s getting under your skin, just feel free to say no. it doesn’t mean that you’re a bad person, it doesn’t mean that you’re a bad friend if you put the friendship over money.
MICHELLE: And you’ll be able to sleep that night and not be awake at three in the morning.
MICHELLE: Very sound advice Chris, thank you.
CHRIS: My pleasure
MICHELLE: ‘Mate Debt’. Chris Browne, the founder of Rising Tide. Money expert and financial adviser.