Two money stories

Dinner at a local restaurant with two owning class friends. Suzie's brother-in-law has asked them for money; he has gotten into financial trouble. A week prior Suzie asked me about loan management companies because I have done some personal loans and I asked how that worked out.

Brother-in-law lost his job a couple years ago and had been doing some contracting with the company. Then the company collapsed and so he lost his job and some investments he had made in the company. I can't remember what he's been doing for the last year or so (tinkering with his own biz idea? Looking for work but only at his prior pay level?) and I don't remember what his wife does but he has burned through all his savings and was about to be foreclosed on. He tried to sell his house but the deal fell through and that's when he called.

Mr. Suzie agreed to help. They looked over everything and decided 100K would get B-in-law through the sale of the house and with a 1 year runway to get things together. They poll family for 25K each (Mother and 3 siblings). One brother says no, the other sibling and mom say yes so they end up with 75K. They wrote up a loan document (I think at no interest) and transferred the cash. The question we pondered at dinner is: what next? What if brother doesn't sell his house? What if brother runs out of money again? I suggested that perhaps this is what family is supposed to be about, that perhaps he couch-surfs if it comes to that. Suzie wasn't keen on that idea, but she has a second home out of state and thought perhaps he could move there if it came to it. Brother is not a bad guy (not abusive, not alcoholic) which seems like the situation when I meet folks in social service situations where their family has drawn the line and refused to help anymore.

In our cross class meeting we got into a conversation about self-care vs other-care and as I write this I realize that's probably what the underlying conversation was but since it's at a higher economic level I didn't quite recognize it as such. Suzie is owning class and doesn't need to work and owns multiple houses, but to keep giving large subsidies to family would force her to liquidate something (not easy or advisable in this market) or threaten her current situation which is already under stress, so it is a similar conversation as to "how long does my brother couch-surf?", but it's hard to imagine an answer other than "as long as he needs to".

Conversation 2: someone I've loaned money to. I've since learned that the "applicable federal rate" is the official interest rate I need to lend at to avoid tax issues. We were about 2% higher so I offered to refinance her loan. We made up an excel spreadsheet and updated the numbers and it's just depressing. I financed her graduate degree and she's going to be making loan payments to me through 2024 because we agreed on a low monthly payment. She grew up with no money at all and clearly lives on a cash-flow basis rather than an asset basis. I've talked to her before about making higher payments and paying less interest over time but she resists. I decided this time, due to some recent good news, I'd forgive a chunk to move it forward and get it paid off by 2019 - two years after her kid graduates from high school. That date seemed to get her attention. As we talked about her finances she mentioned she also has credit card debt at 14%, much higher than our loan. I suggested it was more important to pay that down than pay our loan down and we did the numbers.

She estimated it would take her 5 years to pay off her credit card debt at the current time. Apparently the new legislation about statement formatting helps make this clear. I don't really use credit cards and I pay them online so I realized I haven't even seen the new statement format. I also pay them off every month when I do use them. I did the math and estimated that paying the same amount toward her credit card would save about $2,500 in interest, vs paying it on our loan would save about $2,100 in interest. I also suggested to her that the habit of not just carrying debt was the most important thing and that I'd like to see her pay off the credit card and work to use her savings as working capital, even as she's paying off our loan. She agreed, so we re-did the loan and I wrote her a check to pay towards her credit card. Unfortunately I got in a bit of a hurry because I knew her paid parking was running out (she was way less worried than I about this) so we didn't get into her proposed plan for renting a place because she's sick of her current place but it won't sell.

It's just interesting to me that with her and another friend I've helped out, when I really look at their finances it's very tough. It's not hopeless, both of them can cash-flow just above positive, so if they were super-disciplined they could possibly make it work. But there's little room to save or have any kind of fun and it's easy to get thrown off by an unexpected car repair or illness. The net result seems to be it's easy to accept that "I'll just never get ahead" as in fully out of debt and so they don't even try or hold that as a goal.