Got a question about the mechanics of investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at [email protected].
I recently read the article you wrote about a person who had $5 million+ and couldn’t figure out how to spend it. I have felt this — but from the opposite end. I’ve got $120k in debt between car and student loans and I’m unable to shake this monkey off my back. It’s a looming shadow that never goes away. I have my head above water, but with each passing wave it becomes harder to swim. I wish my name was on somebody’s list who wanted to give away money to help because they need to “spend their money quicker.”
-Stranger
Dear Stranger,
When I answered the question of the person who wanted to know how to reduce his tax burden on his tax-deferred retirement accounts, I suggested he start giving some of his assets away in a structured way that reduced his taxable estate and gave him joy. I expected the responses to debate the value of Roth conversions and qualified charitable distributions. Instead, my inbox turned into a kind of wishing well for financial help.
So many people need a helping hand and not always in a way that qualifies for government benefits, charitable donations or a crowdfunding campaign. It does happen every so often that a person shows up with an envelope of cash that can change your life, but not to most people.
There’s a movie coming out this fall called “Ordinary Angels” that tells one such story that happened in Kentucky in 1994, when a local woman simply trying to do good helped a family struggling with medical bills. Then the whole community stepped in during a massive snowstorm to dig a helicopter landing zone to get their 3-year-old to a hospital for a liver transplant.
Could you be one of those people who gets some form of extraordinary help out of the blue? Like many who wrote to me said somewhere in their letters: most likely not, but I guess it can’t hurt to try. Most people’s financial situations aren’t quite so dramatic that you can rally a whole community, but it might seem that way to you about your own situation.
Behavioral finance studies tend to look at this problem only from the giver’s side, figuring out what nudges encourage people to donate money. Then charities use the information in practical ways. For instance, you might often receive mail with unsolicited gifts, like a dime, a sheet of return-address mailing labels or stationary, because research shows people respond to something called reciprocity norms.
“You’re supposed to reciprocate. Then you get a kind of warm glow, you feel really good when you give to other people,” says Andy Reed, head of investor behavior at Vanguard.
But not much is done on the other side of the equation, about what motivates people to ask for help or how to even think about articulating their needs. “This would be a fascinating question for a study: How deserving are you of charity, on a scale from 0 to 100,” Reed says.
The average person would probably say they are on the high side in terms of how much they deserve to be compensated through any kind of heroic act, Reed speculates. If you say you’re below average, that’s kind of a lousy place to be.
The challenge in this kind of scenario is that you have complete knowledge of your own situation and the list of reasons why you deserve help is a million miles long, Reed adds. You don’t have that kind of perfect knowledge of other people’s situations, and so you’re always going to win when you stack yourself up against somebody else in a competition of need.
The practical application of studying what motivates people to ask for help would be to better direct people to the resources they need — not just to sources of cash, but also to emotional support and education.
Stranger, I don’t have any money to give you, but I hear you. There’s no easy answer to your situation, or any of the situations that people wrote to me about. There are probably little things you can do along the way to make it go better. In your case, maybe you can refinance your student debt or apply for a repayment plan that fits better with your current economic situation. With federal student loan payments currently on pause but coming back soon, there are some new ways to get help.
Also, if your car debt is a significant portion of the $120,000 you owe, you can consider trading down. Used-car prices are still high, and so you might be able to sell the car you own now, pay off the debt and get something that costs less. Or, if you’re leasing, renegotiate for something less expensive.
There are debt-counseling services available if you think you need professional help, but be careful what you pay for. Tips from the Consumer Financial Protection Bureau start with making sure you’re dealing with a nonprofit organization, and be wary of credit-consolidation services that promise deals that seem too good to be true.
Unfortunately, there aren’t really any shortcuts to paying off debt. Mostly it’s going to take plugging away consistently over a long period of time, and maybe a little bit of luck. But you can do it. You deserve all the help you can get along the way, but you can also do a great deal yourself. Articulating what you need is a good first step. One day, you’re going to wake up on the other side of your money problems and it’s going to feel really great.
