One of the artworks on display at the Museum of Old and New Art in Hobart has a caricature of a man turning out his empty pockets with a surprised expression on his face and the word "broke!" next to him.
Underneath is a rhyme that goes: You need your money / And I need mine, / If we both get ours / It will sure be fine, / But if you get yours / And hold mine too / What in the world / Am I going to do?
I was in Hobart last week for the FPA Congress, the annual conference of the Financial Planning Association of Australia, where I caught up with Claudia Hammond, an expert in the psychology of money.
Hammond is a British broadcaster, author and university lecturer in psychology. Her latest book has the same name as this column carries in the print newspaper, Mind Over Money, so I knew I'd be meeting a kindred spirit.
I thought about the artwork when I sat down with Hammond and decided to ask her about how finances affect friendships.
Hammond points out that friends can have very different attitudes about money but it's rarely discussed. "You can know everything about your friend's sex life and still not know what they earn," she says.
Paying friends for favours
Hammond's advice is to never pay a friend for a favour. She gave the example of your friend helping you change a tyre on your car, and in return you offer to pay them for their time.
"It seems like a really nice thing to do because they're going to spend the time so you'd like to pay them some money, but the moment you do it changes from a favour based on friendship and based on them being altruistic and nice, to being a financial transaction," Hammond says.
"The moment it's a financial transaction it changes their mindset into a financial frame of mind and they are then thinking 'is this a good rate for the job?' – and that's even more so if your friend happens to be a mechanic - or 'my hourly rate is three times this; is this all you think I'm worth?'."
Hammond says you are much better off – for the sake of the friendship as well as financially – to let your friends do you a favour, then buy them a thank you gift such as wine or flowers in return. I can relate to this – I'd pay my friends' teenagers to babysit my kids, but I wouldn't pay my friends as it would be insulting to pay them teenage babysitting rates.
But what about trying to employ your friends? For example, you're getting married and your friend is a wedding photographer. "You need to pay them properly or not pay them at all, Hammond says. "Mates rates are really tricky – it should be for them to decide. I think you need to offer to pay full price and they can suggest a discount if they want to."
Loans and investment
"Loans can be a real problem between friends," Hammond says. "A fiver for lunch is different but even then people are embarrassed to ask for that back."
I suggest that apps such as Credi, which help people keep track of loans between friends and family, can make it less awkward to broach the topic of repayment.
"I think that's a really good idea," Hammond says. "Because we all have different ideas about what's a luxury and what's a necessity, if you've got a friend who owes you some money and then you see them buy some shoes or lots of coffees or go out for a big night, you may be thinking 'that's my money you're spending there' and start to resent it."
If you're thinking of investing in your friend's business – it might be the next Google, after all – then be clear about the risk of equity investment and how that's different to a loan, and how you'd feel if you never got the money back.
Splitting the bill
One of the tips in Hammond's book is this: "When you go to a restaurant with a group of friends, don't agree to sharing the bill equally until everyone has ordered."
That's because there's evidence that people will change what they order and spend more liberally if they know in advance that the bill will be split equally. People also tend to round down slightly in their favour, or underestimate the cost of extras such as drinks, so apps to help you split the bill can be helpful.
"It can be tricky with friends earning different amounts," Hammond says. "It's very awkward if one friend earns much more than everyone else and they're the one who chooses the restaurant, so everyone else is looking at the menu going 'I think I'll just have a starter'."
If a friend is having a tough time, it's possible to offer to pay for a meal without being patronising. "I think you need to say 'today it's my treat but another time in different circumstances it'll be your treat' so they feel they're not having your charity."
Rounds are just as big in Britain as they are in Australia, but Hammond says a kitty can work better if there's a group of, say, five people trying to have a quick drink after work without staying for five drinks. If everyone throws a tenner on the table and take turns to go to the bar, then it's communal and efficient but people who leave early won't be either freeloading or ripped off.
Buy experiences and be generous
I've written before about how buying experiences and spending money on other people are both good ways to boost your happiness, and Hammond discusses this in her book too.
Hammond adds that a bonus of experiences is that they're often done with other people. "The more things you do with friends, the more that's going to strengthen those relationships and that then improves your wellbeing," she says.
But again, keep in mind your friends' circumstances. Hammond says many hen nights are now hen weekends and it's become very expensive.
"People need to be very sensitive of how much they're demanding of other people and find a fall-back position," she says.
The book also mentions a trap that self-employed people and professionals who bill by the hour can fall into: "If you are paid by the hour, don't calculate how much money you've lost if someone invites you to go and do something that's more fun instead of working. If you think you'd enjoy it, then just do it."
This article was originally published by the Sydney Morning Herald on 26 November 2017. It represents the views of the author only and does not necessarily reflect the views of AMP.
Check out these five hallmarks of a money-smart life.