The Family Loan Fund

WHAT TO DO WHEN THE HANDS ARE OUT

by Suzette Haden Elgin

What do you do when your grandson says, "Grandma, if I don't put new tires on my car I won't be able to get to my job, and Mom and Dad say they haven't got the money"? Or your daughter tells you that a sudden dental emergency has made her unable to pay her mortgage this month? Or your granddaughter has saved enough money to pay for her week at camp but doesn't have any way to pay for the clothes she has to take with her? Or any of the other typical financial crises in the $50 to $1,000 range that are real-that is, that aren't the "But I have to have two-hundred-dollar sneakers!" variety of fake crisis?
You can certainly do what some families do: you can just say no. In the spirit of teaching kids to swim by throwing them in a river, which was the method one of my grandfathers swore by, you can refuse to help. You can say, "I'm sorry to hear you have that problem. I'm sure you'll find a way to solve it." This may be the best thing to do sometimes. It may teach self-reliance and hard work and character. But it may also mean watching your loved ones sink into the river and disappear without a trace. Setting up a family loan fund is one excellent way to avoid having to make this kind of difficult choice.
Early in your family's history, well before the first money crisis, open a savings account-in your name, because you're the grandmother-to serve as a family loan fund. The instructions that follow serve as an example and may not be exactly what you need, but you can adjust them to your own family's situation.

1. Every adult in the family chips in $10 for the first deposit; if that doesn't come to $100, you make up the difference. Every child old enough to get an allowance is also responsible for putting in $10, but is allowed to do it in installments of a quarter from each week's allowance for forty weeks (with the option of doing it faster by using birthday money, money from a part-time job, and so forth, if that's appropriate).
2. Every adult is responsible for contributing another $100 a year, on any schedule that fits. Kids can add more if they like but aren't required to; they're "fully vested" after that first $10. For this fund "adult" is defined as at least eighteen years old.
3. When your grandson urgently needs a new tire for his car because he can't get to work without it, that's a legitimate crisis. Instead of giving him the $50 to buy the tire, lend him $50 from the family fund, with the understanding that he will pay it back at no less than $10 a month for five months. No interest, no processing fees; he is just obligated to replace the money.
4. All crises being approximately equal, a family member who hasn't had a loan yet has priority over one who has. In cases where three people want loans at once and there's not enough money to cover them all, put three numbered slips in a bowl or a bag and let them each draw one to determine the order of the loans.
5. Encourage your family to do projects to raise extra capital for the loan fund. They can have a giant family yard sale, for example, with the understanding that all the proceeds will go into the loan fund.
6. The grandmother is in charge of this fund; people who want loans have to apply for them through her. And the ultimate authority for difficult problems that nobody foresaw well enough to write rules for in advance rests with the grandmother. In return for this authority, she will keep careful records of monies people put into the fund, amounts they take out, the payments they make on their loans, and any other essential data.
7. Anybody who abuses the fund will be given back the money he or she contributed originally and told to sink or swim-no more access to the family loans.

A fund like this, if sensibly looked after, will grow to be a useful resource, always ready for the clothes-for-camp and snow-tires and one-mortgage-payment kind of financial crisis. Everyone involved will be glad it's there, because it eliminates both the demeaning job of going to older family members and begging for money, and the very difficult job of deciding when to give that sort of help, whether to give or to lend, and all the rest of it. It can be tailored to every family's circumstances and customs; if it has to start with only $25, that's fine. If no bank will accept the amount you have available to start with, you, as grandmother, can hang onto the money until it has grown to a sum the bank will allow.
A family loan fund will teach even the smallest children about money. It's good for a child to try to justify a request for $25 for a new Barbie when she already has three Barbies, and to have to explain why that should be looked upon as a financial crisis. It's good for a child to learn that even though the account still has $100 in it he can't have any of it because that's the lowest balance allowed by your bank. It's good for a child to feel that he has contributed to the family's security and well-being by agreeing to postpone a loan in favor of someone else whose needs are more urgent. It's good for a child to understand that borrowing money for legitimate purposes is not only not wicked but is one way to make money do work. And it's good for a child to feel the moral satisfaction that comes from having paid back a loan in full and on time.

From The Grandmother Principles, by Suzette Haden Elgin. Copyright 1998. Suzette Haden Elgin. Excerpted by arrangement with Abbeville Press. $18.95. Available in local bookstores, or by calling 800-ART-BOOK. Also available online from the publisher.