The Irresponsibility Of Borrowing Money To Borrow More Money

Swans With Their Babies In San FranciscoIf you want to know what’s wrong with people’s personal finances, just observe those who are willing to borrow money in order to borrow more money!  One example is using a credit card you can’t pay off in full each month, for a downpayment on a car.  Since the limit for credit card use for buying at the car dealership is usually $3,000, and given most downpayments on vehicles range from $0 to $3,000 to buy or lease, using the credit card is a tantalizing proposition.

Forget the fact that these car buyers don’t make 10X the value of the car in annual salary.  They can’t even pay cash for the car or come up with even 10% of the value of the car as a downpayment!  Look, I know more than anyone how alluring it is to buy a nice car.  I used to be a car addict with 7 different cars in as many years.  It’s just irresponsibile of consumers to use their credit card for a downpayment when they don’t have a healthy savings account balance to match the entire value of the car before purchase.


The other common example is college grads borrowing a housing downpayment from their parents.  I can live with this, if you are paying your parents back with interest.  What frustrated homebuyers fail to realize when buying in international cities such as San Francisco, Paris, Hong Kong, London, and New York is that they aren’t up against just the buyer, they are often up against the buyer’s bank account PLUS the bank account of mommy and daddy!

I see it time and time again at open houses where a 26 year old is checking out a house with his parents.  He’s asking mommy where he should place the dining table, and daddy whether the big screen TV he’s going to get for Christmas will be able to comfortably fit in a particular nook.  These grown kids are looking at properties valued between $600,000-$1,000,000 here in San Francisco.  Not bad if you have parent’s willing to spend!

People wonder why housing prices haven’t gone down much at all in SF and NYC, and it’s because of the generational bank accounts that keep kids afloat.

The question is, do you ever pay your parents back?  I mean, if you’re 30 years old and still living off the parents, doesn’t that do something to one’s pride and self-esteem?


Borrowing money you don’t have to be able to borrow money on a depreciating asset like a car is one of the dumbest things you can do for your personal finances.  Most “things” depreciate, which begs the question, “What about borrowing money for an experience you can’t afford?

The cruise for two we took last year cost about $10,000 total, including air fare.  We had to put a $2,000 deposit to secure our suite for 12 nights.  This is where the temptation to borrow the $2,000 arises and infiltrates your personal finances like Team 6 getting Osama.  I plopped down my credit card of course, because I wasn’t about to mail a check.  I can see the temptation of just paying the minimum, but even with my good credit, my credit card interest rate is 10%!

Thirty days later, I paid off the balance and a month before we set sail, I paid off the remaining balance.  If I could not pay for the $2,000 deposit after 30 days interest free, I would not have gone on the cruise.  I do believe good experiences appreciate over time.  However, if you are to borrow money, you better hope that your good memories appreciate faster than the size of your debt balance!


It doesn’t matter whether you are buying things or experiences on debt.  If you can’t afford to pay for the downpayment yourself, you certainly should not be borrowing money to borrow more money.  You cannot afford it, just like I can’t afford to fly business class and drive a Lamborghini.

Tell yourself you are poor.  Tell yourself you are unhealthy.  Tell yourself you are undeserving because you did poorly in school, ate too much, and don’t work hard enough.  Whatever the case may be, tell yourself that you don’t deserve these things or experiences simply because it is the truth.  Your personal finances will thank you down the road.


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Updated for 2016 and beyond

Photo: Swans with their babies at the Palace Of Fine Arts, San Francisco, SD, 2015.


Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    You borrow for investments (possibly inclduing an education) and very serious emergencies only.

    Anything else is a stupid and conscious choice to worsen your financial situation.

  2. says

    I agree that we need to borrow for investments that will pay them selves back through time. Borrowing for a car is absolutely stupid. I had a friend who purchased a condo, who makes less than me (he fessed up..dummy!), yet has a more expensive condo. Never made any sense until he admitted its not truly his condo, its a family condo that he lives in, and his parents dropped $60k in down payment. Then it make perfect sense.

    BTW….US Open in your hometown @ The Olympic. Quite the course huh? A lot of bush, tight fairways, and lightning fast greens.
    Have you ever had the chance to play?



    • says

      Hey Eddie, does your friend have no shame in bank of mom and dad buying his more expensive condo for him? How old is he and how much do you think he makes? Is it a he, or a she?

      Yep, the US Open kicked off today. It’s a brutal course which I’ve played several times before. Going to check out the action tomorrow!

  3. says

    It sounds ridiculous to borrow money to borrow more money, but people do it ALL the time. And I seriously doubt the kids who get a downpayment on their house by mom and dad will pay their parents back. But what they might have to do instead is tolerate a lot of unannounced visits from the ‘rents if they live within driving distance.

  4. greg says

    “The question is, do you ever pay your parents back? I mean, if you’re 30 years old and still living off the parents, doesn’t that do something to one’s pride and self-esteem?”

    Shouldn’t this also be the same for all sorts of help including government subsidies? Unfortunately I personally know many that just take without any sense of gratitude (of course, we don’t talk about such things when spending time together). It gets to me sometimes.

    • says

      I’d say, go ahead and take government welfare if it’s there for you. But, if you take it, you better not start protesting against the very people who are providing you these subsidies! A thank you note would be more appropriate!

  5. says

    These days the only borrowing I do is for real estate. I took out a car loan a few cars ago and it was a pain. It took forever to pay off and I hated sending the monthly payment to the finance company. My parents helped out when I purchased my first home. I didn’t have the big chunk saved up and they didn’t want me to borrow from my 401k. I’ve paid back since.

  6. says

    I agree, I would never borrow for a vacation. There are times when borrowing makes a lot of sense, when interest rates are this low and you can utilize the cash in better ways.

    I did use my line of credit to buy my townhouse for the down payment. At the time, I was renting out my home and downsized to a townhouse. I used the rent to pay off the loan within 10 months.

  7. Matt says

    Samurai, I absolutely agree with you here. There is no bigger red flag about people’s knowledge of personal finance than casual use of credit. All those store credit cards just make me cringe–what sort of investment do you get at Target, or Sears, or Best Buy?

    I will say that as an exception I did, on the surface, fulfill one of your scenarios. I did pay for a new car last February with my credit card. In fact, I charged as much as I could! (They would not let me pay in full on the card) This is because as the automotive industry (finally!) sized to demand in 2009, the price of used cars vs. new cars was just as crazy as the yield curve. I paid the rest with cash, but I got 1% back on my charge, and then like you I paid it off in full when the bill came. This gave me $50 back on $5,000 charged. Also, this new car cost $3,000 more than a comparable used car with 60,000 miles on it. So, I am getting those first miles–the most expensive in terms of depreciation– at 20 cents per mile. It was crazy, and I pounced on it before they came to their senses.

    • says

      I think you mean 5 cents per mile, which is consistent with what I see in the used car market, as well. Glad to see more people willing to ditch conventional wisdom when it would lead them off a cliff, and that’s exactly what used cars are doing to people right now.

      • Matt says

        Yes, 5 cents–that’s something to celebrate! Prrofreading on a tablet is not as easy as it should be…

  8. Matt says

    My parents gave me a couple grand to help with the down payment on my home. I had every intention of paying them back but they said it was a gift. It wasn’t a significant amount and I’ve since super accelerated the payoff so I think I used their gift wisely, plus I donated a kidney to my dad so I guess he owed me one lol :)

  9. Kris says

    We are looking to borrow money from my in-laws for a downpayment for a house (around $300k range). When this happens, we plan on paying them back plus interest within 5 years. They told us they didn’t want interest, but we’ll see. This situation hasn’t happened yet.
    We had $30k saved up for our house down payment before our current situation sort of wiped out a lot of it, so my in-laws know we weren’t just being frivolous with our money and are serious about saving. I think intent is important.

    • says

      Intent is important, however if one accidentally runs over someone with their car, there are still consequences.

      Will you feel OK being in debt to your inlaws for tens of thousands of dollars on top of the ~$240,000 in mortgage you’ll have to pay? For me, it would weigh on my soul heavily, especially if I couldn’t pay it back right away. Your next 5 years might be mental torture, always feeling indebted to the inlaws.

      If they were your own flesh and blood, maybe you’d feel differently though…

      • says

        Actually, it would feel horrible if we owed my parents money because they like to have strings attached to money. My husband’s parents – as much as i don’t always get along with them – are very pragmatic about those types of things. To them, us borrowing money is a simple business transaction that we’d conduct. To my parents, money is a method of control. My brother used to borrow money from my parents, and they would either hold it over his head, lecturing him on the evils of his ways, or they would tell him he owed them xyz because they helped him. Money is a huge source of problems in my family, which is why I would never borrow money from them even though they have a lot to spare.

        • says

          Just read your post Kris. Please don’t borrow to borrow to buy a bigger house when you already have a townhouse while in your current financial situation. A 2/1 townhouse for a family of 3 is good!

          I would really like to hear your perspective as to why you feel you must leverage more while only having what you have saved.

  10. says

    I can fully relate to the part about asking mommy and daddy to fund their housing down payment. This was the exact situation with my sister-in-law and her husband. They had no problem sticking their hands out for a hand-out and I just thought how irresponsible to be asking for money still when they were almost 30 years old! Its so sad really.

    • says

      Did they pay them back? I’m surprised your brother, as a 30 year old man would have the courage to ask. I would do everything I could to be a man and provide for my family at 30 and not go back to the parental well.

  11. says

    I have never borrowed money to borrow more money. I feel good about this. I feel like if you borrow money from your parents (and not pay them back with interest like any other loan) or get sizable cash gifts from your parents you lose all self-responsibility. A lot of parents, I would venture to say, want their kids to have nice things like they do – the luxury cars, the fancy condos, the expensive clothes – to keep up appearances, yet the kids would never be able to afford those things themselves. And what incentive would they have to go out and make that money in order to afford those things themselves? Zero. I like being self-made; I get a lot of satisfaction out of it along with a drive to succeed and meet my financial goals.

    Mr. Everyday Dollar

  12. San Diego says

    Interesting post Sam. I think most people that read this site are conservative with their finances and not the types to borrow money to borrow more money. However, I can’t say the same thing about our government which is very much in debt and continues to dig itself deeper in to debt. If our Uncle Sam doesn’t set a good example of fiscal reponsibility how can we as a society expect anything more from all citizens? Do you feel that the institutions that lend money should excercise more control over who can borrow and how much they can borrow so that an individual can not borrow beyond their means? Would this be an encroachment on our civil liberties to not live beyond our means?

  13. says

    I feel like you are writing this to my sister, who now wants to buy a house and needs mom and dad to help her with the down payment. They’d have to take out a personal line of credit to help her do this, and the kid has 60+ thousand dollars of student loan debt. It scares me a little. That said, once I wrote a $20K check from my credit card, so I know how dumb it is to borrow in order to lend.

    • says

      When you ask your sister, “Why not just save enough on your own to be able to afford the down payment?”, what does she say?

      How about, “Didn’t mom and dad give us enough already? Don’t you feel bad for asking them to borrow to give you money to borrow more money?”

  14. says

    I’ve borrowed money from family, but only with a guaranteed payback plan with a timeline (less than 6 months). I’ve never borrowed on a car and never will. EVER. I also don’t buy new, no matter how “good of a deal” it seems to be, I will always SAVE THOUSANDS buying 5 years or older, private sale. I’ve proven this over and over, as well as my brother who has bought 50+ cars on craigslist (and sold most for a profit). Borrowing to borrow, especially on a depreciating asset, seems like the triple threat of horrible ideas. It’s like, “how can I waste the most amount of money possible while taking on the most liability in one decision.” No thank you.

  15. says

    This is a recipe for disaster. If you can’t afford to make the down payment in the first place you definitely shouldn’t be taking out another loan to do it. The fact you had to take out the main loan should make you stop and reconsider and then if you have to take out a second loan to get the first one you should have some massive warning sirens going off in your head telling you to stop.

  16. says

    Sam, message is loud and clear. Don’t spend money you don’t have to please those who don’t care. Unfortunately, we are in minority. Credit card companies love those who are eternally working on their hedonic treadmill.

  17. says

    Hey Sam,

    I did borrow half of my share for the downpayment from my girlfriend, as I did not have the cash available and I didn’t want to liquidate a big part of my retirement funds for this purpose.

    She got the rest of my paycheck for a few paychecks after that until she was paid back. She still jabs me about it from time to time, but it’s OK, I can jab her about other things too. ;)

  18. alicia says

    I had to hold myself back from laughing hysterically on this post you wrote. You’re not a fan of borrowing money to borrow money to borrow….yada, yada.yada? And yet you have no qualms about the enormous borrowed debt Obama has put this country in and you advocate collecting UI benefits and whatever else the govt doles out, knowing that the government has to borrow said money in order to pay out these benefits? With a President setting examples like this to the young people, is it any wonder you youngin’s borrow endlessly and needlessly from your own parents? How’s that being health-insured up to the age of 27 Obama made in to law (hopefully to be repealed soon) working out for you guys?
    Oh, and can’t pay back those govt backed student loans? What a pity. Obamama will wipe them out for you too. Don’t worry.

    You’re a bit hypocritical, dontcha think? Duh?

    Don’t respond to me. I’m too busy LMBFAO.

  19. says

    I love all the self-righteous comments flowing through this comment stream. It’s as though no one in this thread has ever borrowed a dime from someone else. Borrowing is borrowing, whether people borrow and then pay their balance in full to avoid interest, or whether they know they may not be able to pay their debts off in full. People are free to borrow as they may feel as long as they understand the consequences for their actions. It doesn’t make them stupid to me. Irresponsible, maybe?

  20. says

    I believe it, the bank of mom and dad helps to fund more than 50% of down – payments in CA. I have had an instance where borrowing to borrow was brilliant. I paid my college tuition on a rewards card, then reimbursed myself with a student loan I was taking out anyway. It was a very easy $200, every semester.

  21. says

    The bank of mom and dad never really contributed directly to anything. We had to pay for our way, but we do have family properties for vacations, etc. I wonder if that counts?

  22. says

    I was one of those people who borrowed money in order to get more and borrow more. I think I did it all. However, from the positive point of view – I learned from it (the hard way), I know better now. Sometimes you have to do it yourself in order to understand. :)

  23. ap999 says

    Sam, I could never understand why so many college kids and my work peers would get into so much credit card debt. I was actually oblivious to the amounts they were racking up, I honestly thought it was normal to pay off a credit card in full every month. I thought no one would be stupid enough to actually pay such high interest on stupid day to day expenses.

    Why are we not teaching our kids about credit card debt, car loans, personal loans etc. I am 29 now, and I have never had revolving debt on my credit cards. I have had 14 accounts in total, and currently have 10 active cards with a 789 credit score. I haven’t paid a dime in interest.

    I believe it was my parents who taught me well. From a young age I always saw my father pay all the bills and credit card bills on time and in full. He also told me the consequences if he did not pay them on time or late. From my fathers example, I learned to do the exact same. An that is do not spend what you don’t have. The only time I saw my father borrow money is when we went to banks to get approved for loans on properties he would buy and rent. He explained to me why people do this and that we are hoping that this investment will grow in the future. He taught me from a young age about good debt and bad debt. For those that are parents are you teaching your children before they go off to college and get all them credit card offers? Did your parents teach you so you didn’t have to learn the hard way?

    When the topic of credit card debt comes up with my friends. I always tell them “unlike you guys I am too much of a cheapskate to be paying interest on credit cards” haha.

    • ap999 says

      As for the question of have I ever paid back my parents. I have never had to borrow any money from them ever for big purchases such as a car or house or vacation. I have made my own to cover those things. I don’t own a house yet, but before when they knew I didn’t have enough for a down payment they offered to give me some money. But I did not take them up on their offer at the time. Now I have my own savings to put down 20% when I want to buy some property.

      • ap999 says

        My parents of course took care of me during my high school days. Clothes, books, tuition for college evening classes, computers. Things that parents do for their kids, things that I am very appreciative of.

        I have always had a positive cash flow bank account even when I earned next to nothing. I made it a point to save something every month and increase it. The problem I had most my friends and peers knew I was good with money and never broke. Never lived that pay check to pay check lifestyle or be broke before I even got my next paycheck. So called friends and peers would always ask to borrow money. Most the time I said no, some times I just gave in and lent the money feeling guilty that I should be a “good friend”. After a while this got old because these so called friends would never pay me back, and no matter what they were always broke and never made it a priority to pay me back. I noticed they would ask others for more even. Realizing that I have probably gave away about close to a 1000 dollars in total to people who never will pay me back I just learned to say NO. today a 1000 dollars not a lot for me, but the days when I was only making 1500 to 2000 dollars a month. That’s more than 50% of my monthly pay. I just started questioning every ones motives after, for the most part these were all people making more or the same money as me. Had more or less the responsibilities as me. It just showed me these people were just overspending and looking for people to pick up the tab.

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