Because of his understanding of people,William Shakespeare would have made a great financial planner.  Look at the advice he gives in Hamlet.

In Act 1, Scene 3,Polonius, an advisor to the king, is speaking to his daughter, Ophelia and his son Laertes.

Polonius advises Laertes:

“Neither a borrower nor a lender be:

For loan oft loses both itself and friend,

And borrowing dulls the edge of husbandry.

This above all:  to thine own self be true,

And it must follow, as the night the day,

Thou canst not then be false to any man.”

I, and probably all, or most, financial planners have given similar advice, although in less loftier language.

To observe full disclosure, I must admit that this particular verse from Hamlet is one of the few that did not have me looking to the notes to see what was really meant.  I did look up husbandry which I thought had to do with farming.  It does, but also means thrift.

When it comes to borrowing, I imagine we all stress keeping debt to the minimum – 15 year mortgages rather than 30 years. Keeping one or two credit cards and paying off the balances every month. 

When buying a new car, I advised financing four to five years and keeping the car for eight to ten years, and continuing paying car payments to a savings account after the car was paid off so the next car could be bought for cash.  I don’t think anyone other than me ever followed that advice.

Lending did not come up often. When it did, I agreed with Shakespeare.  Do not lend money, for you will lose the money and the friend you lent it to.  But, I found that when someone asked about lending money, it is because they had already made up their mind to lend the money and wanted my affirmation.  I never gave it. I gave the same advice for cosigning a loan.

The one instance that stands out in my mind is a client who generally followed advice and overall was one of my easiest clients to work with.  She came to me to ask my advice on lending money to her friend, but she had already made up her mind.

Her friend was asking for a loan of $15,000 to open a bed and breakfast.  At the mention of a bed and breakfast I was reminded of a friend whose wife said she wanted to open a bed and breakfast when they retired.  He was 100% opposed to the idea but did not argue.  He simply asked her “who was going to clean the toilets?”  She never mentioned it again.  That man was a genius.

Anyway, my client, who I will call Marsha, said she was sure that her friend would repay the loan.  I pointed out that if she came to you for a loan it was because a bank, or any other lending institution, considered her a poor risk and knew that they probably would not be repaid.

I also pointed out that if she was not repaid she would lose her friendship. They would no longer be friends, but creditor and debtor. Once her friend realized that she could not repay Marsha, she would avoid her and eventually resent her because she owed her money.

I urged Marsha to refuse the loan and accept the momentary discomfort.  Ultimately she would be doing her friend a favor if she kept her from making a very questionable decision.

It was obvious that my argument was having no impact so I gave the best advice I could. I advised Marsha to mentally consider the loan as a gift so that when she wasn’t repaid she could forgive the loan and their friendship would remain intact. Marsha felt that this option made sense and I kept a client.

Epilogue:  Marsha was never repaid.  I never said “I told you so.” As to their friendship, I believe it survived, but that $15,000 elephant will probably always be in the room.

To recap and paraphrase:  Neither a borrower, nor lender, nor cosigner be.