I'm a money coach, and help people handle the day-to-day aspects of managing their money (to avoid our money managing us!). A local psychologist, Isabella Mori just submitted this great piece for my e-zine, Money Savvy, on what happens when we lend money to our friends.
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Lending, borrowing and resentment

In the eighties, I lived in crazy, bohemian Berlin - then West Berlin, eight years before the fall of the wall. I hung out with all types of interesting people, one of them a highly gifted fashion designer, Maurice. He had a little boutique with his beautiful, ethereal creations in the window. I loved visiting with him, drinking tea, hearing his stories of years of apprenticeship in Paris.

One day he told me he was deep in dept, and if he didn't come up with 1,000 deutschmarks (then about $500) within the next few days, he'd have to close up shop. I had some savings so I told him I'd lend him the money if, as he immediately promised, I could have it back within two months. Sure, no problem.

You can guess the rest. Despite weeks and weeks of stalking good old Maurice, I never saw that money again.

What I remember most about this is not the loss of money but the sudden deterioration and loss of a fun and stimulating friendship. Maurice's behaviour rapidly turned from relieved to grateful to surly to accusatory.

Years later, I learned that there is an interesting psychological mechanism at play: When a person feels "less-than" as well as beholden to someone, they can easily start feeling resentful. Maurice felt less than I at that time for a number of reasons: He had less money; I "rubbed it in" by offering to lend it to him; and soon he also realized that he could not fulfil our contract. He started feeling guilty. When people feel guilty and resentful towards someone and doubt they can do anything about it (he simply did not have the money), they often turn on the most obvious source of the guilt. In that case, that was me.

It sounds twisted and childish - and it happens all the time. It's just one of our many human frailties.

I now try to immunize myself against this by adhering to a few rules of thumb about lending money. I'm never afraid to say no. When I say no, I don't go into a lot of reasons why; I just cheerfully say, "No, I can't do that right now," and move on to another subject. When I do lend money, I realize that I may never see it again and, in my mind, treat it as a gift. I also make sure to tell the recipient that she or he can repay it whenever they can afford it so that our relationship is not strained by money pressure. When, after a while, it looks like it's difficult for them to return the money, I'll just casually tell them not to worry about it anymore. I never hunt the money down anymore.

You see, that way I do my best not only to prevent someone else from feeling resentful towards me - I also prevent myself from feeling resentful towards them. Resentments are the poison of relationships. And relationships are so much more valuable than money.

Isabella Mori is a psychotherapist. Visit her blog, change therapy http://www.moritherapy.com.