Grandparents co-sign for grandchildren’s student loans. A single mom working overtime takes in a nephew she barely knows, and the expenses and time that come with that. A working couple makes sure their kids have braces on their teeth and travel basketball opportunities while foregoing many comforts of their own. And ultimately in these cases, debt mounts, credit scores suffer and predatory lenders gain the most through all these altruistic efforts.
This year, my work with Appalachian Community Federal Credit Union (ACFCU) has brought me the privilege and challenge of providing financial coaching to more than two dozen individuals and couples. As relationships have taken root and people have shared personal details, one common thread that often has emerged is a tendency to spend on others. That’s not terribly surprising. Research bears out a psychological reason for people’s desire to help others.
|This ho ho horrible option (279.5 percent interest) can appeal to|
borrowers' longing to give to others.
If “prosocial spending” produces more happiness than spending money on oneself, how should a financial coach address overspending’s cumulative effects on a client’s life? This question seems particularly relevant during the Christmas season, when it is easy to spend more than we plan to or should spend.
Recognizing a client’s desire to sacrifice for others and track record of doing so is a good start. Most clients have made some regrettable decisions, and those decisions haven’t been made solely for altruistic reasons. High-interest lenders may exploit the consequences of those decisions, but they don’t force people into situations in which they have become the only option for credit. Yet with many clients, there are strong undercurrents of sacrifice for family, extended family or friends, including working overtime, taking second jobs and doing without.
Repeatedly recognizing and affirming that sacrificial approach can build trust and appreciation on a personal level. It can also make clients more receptive to the cold facts. Here’s an example based on the need/desire to help a loved one with $1,000 each year:
If you use a “flex loan” line of credit at 279.5 percent interest to access that $1,000 and pay it back over eight months, you’ll pay $286 per month and you will pay the lender $1,290 in interest.
If you use an unsecured personal loan from a high-interest lender at, say, 36 percent, and pay it back over 12 months, you’ll pay $100.46 per month and pay the lender $205 in interest.
If you put $100 per month into a separate account for 12 months, you’ll have $1,000 to give your loved one – just not right now – and you’ll have a $200 nest egg. You won’t have helped make a lender even wealthier. The next time, you can give your loved one even more help, or you can attack other high-interest debt, freeing up ever more cash flow for saving and investing in others.
This example is simplistic. The principle it contains applies not just to helping others but to helping ourselves. As coaches, operating within our mission-driven credit union’s overall approach, we constantly search for keys to motivate clients, because you’d better believe those who benefit from people’s financial vulnerabilities are expert motivators and manipulators.
The sacrifices many coaching clients make for others are humbling and moving. The stress and lost opportunity they experience from financial ill health are grievous. The agape love that represents this season’s ultimate truth is contained within these clients’ desires to bless others. There is a strong root there – one that won’t have an axe laid to it, but rather one that bears good fruit and can bear it even more abundantly. I hope that somehow in 2019, that root can be nurtured and those with whom we work can find greater joy as they become more financially healthy and their ability to bless others is multiplied.