Last Word on Money: February 2019

Thursday, February 21, 2019

Blackface and Bankruptcy: the Case for Forgiveness

The governor and attorney general of Virginia find themselves fighting for their political survival after it came to light that they each, on a single occasion, wore “blackface” during their college days.

I find it remarkable that in this age of investigative journalism, no one had dug this up before now. I mean, if I wanted to get the dirt on someone, his or her college days would be THE first place I started looking. The late teens/early twenties—that’s when we feel invincible; when we think we can do anything and get away with it; when our reasoning abilities have not caught up with our capacity to imagine all sorts of stunts and our physical wherewithal to pull it all off.

So now—belatedly, in my opinion—we have a discussion about forgiveness. Should our past be used to judge us in the present, even if our present is 180 degrees different? Can there not be a statute of limitations that says the pranks and foolishness of our past, even those acts and attitudes that are hurtful or even perceived as hateful, cannot be used against us decades in the future? Can we agree that a single indiscretion from our youthful days should not be used to define us forever?

Here I could launch into a diatribe against social media and how they feed the tendency to judge harshly, especially when the critics and accusers can hide behind online pseudonyms and do not have to come face to face with the accused. Instead, I will point to the financial world for an example of forgiveness and grace and second chances: bankruptcy.

I think most people see bankruptcy as a bad thing. I’m glad. It should be that way. Bankruptcy should not be something that is glorified and entered into lightly. But think about it. Isn’t bankruptcy an “out” for someone who has made some financial mistakes or maybe been overwhelmed by life circumstances, like critical illness and accompanying large medical bills? There is a price to pay for being excused from debts: a mark on one’s credit history that makes it harder and more expensive to borrow. But this is light years ahead of the debtors’ prisons of past centuries, and it’s only for a defined period of time. After that, it falls off the records and the person can establish a new credit history without being judged harshly by that part of his financial past.

As a society, we in part subsidize this grace to debtors through generally higher prices for goods and services and higher credit card fees and interest rates, etc. I’m okay with that, actually. I consider that capitalism at work. I can always shop around for better rates and manage my financial affairs in such a way as to avoid the higher fees. That’s the freedom that comes with this economic system.

I do oppose the gratuitous and frequent use of bankruptcy as a way to avoid paying one’s creditors. That becomes stealing at some point and should be punished, or at least actively discouraged by the way we write the bankruptcy laws. Finding the balance between forgiveness and accountability is not easy.

Have you ever been in bankruptcy? I hope not. But unless you used the law to evade your creditors (and keep in mind the distinction between “evading” taxes, which is illegal, and “avoiding” taxes, which is legal), don’t let that episode of your financial life define you forever. You learn from it, you don’t repeat the mistakes that got you to that point, you plan more carefully in the future, you live with a spending/saving plan.

Finally, if you can get yourself to the point where you could repay the forgiven debts, give some thought to doing so. Some moral and conscientious people have done so. But be sure to consult legal counsel before taking such an action since it could have some legal ramifications.

Until next time,

Roger

“Remember, Lord, your great mercy and love, for they are from of old. Do not remember the sins of my youth and my rebellious ways; according to your love remember me, for you, Lord, are good.” Psalm 25:6,7 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

Monday, February 4, 2019

Lessons from the Shutdown

Whatever your political views about the recent partial government shutdown, the five-week layoff of 800,000 federal workers offered a powerful lesson on the state of family finances in America. Seemingly within days of the shutdown, the media were running stories of the newly jobless lining up for food stamps, pawning jewelry, and taking out payday loans to cover essential expenses.

When we got tired of that, reporters should have done us all a service and started running stories about how much debt these same workers had incurred before the shutdown, how they had not saved anything for a rainy day, what nice things they had bought themselves on maxed out credit cards. Maybe that would have awakened the rest of us. After all, study after study shows that 40% of Americans are “just one missed paycheck away from poverty”. I would argue that they are already poor. Being that close to financial crisis is not living rich, no matter how many and how nice the things with which you surround yourself. And government jobs are stable and come with good benefits, yet so many of them fell into hard times by the time they missed their first paycheck.

I don’t mean to blame and shame all the unfortunate furloughed workers. It seems everyone goes through tough financial times at some point and lives paycheck to paycheck, or even without a paycheck for a period of time. But that number should not be four out of every ten of us, consistently, even in good economic times because the studies show that even among those making $75,000 or more per year a high percentage still would have trouble accessing enough cash to even cover a $400 emergency expense—essentially a minor car repair, these days.

History should teach us how to avoid financial trouble and not be caught off-guard when the inevitable hard times come our way. Yet here we are, still not saving money and still charging everything on plastic. Consumer debt stands at an all-time high, just as it did before the Great Recession. And “institutions” (I use quotation marks because aren’t businesses just collections of people with a collective purpose?) are no better. I just read this week that banks are back to writing more unconventional home loans, including no-doc loans, where the borrower doesn’t have to demonstrate income from a steady job. It’s little wonder those loans came to be called “liar loans” in the industry and were ridiculed as a contributing factor to the housing crisis of the last recession. But again, here we are, giving them new respectability.

It’s a fragile situation and bound to eventually collapse and cause national financial angst. I hope you are regularly saving not only for retirement but for a rainy day. Think twice before putting a purchase on credit. Is it really essential? Are you living above your means? Do you have too much “stuff”? Now is the time to prepare, not after the stock market crashes again, unemployment shoots back up, and home values fall. The recession will come, and we’ll cycle back out of it once again. But wouldn’t it be nice not to have to fret while we’re on the downside?

Until next time,

Roger

“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock.” Matthew 7:24,25 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®