Competent

Jordan PetersonJordan Peterson is having “a moment”. A widely circulated interview brought his considerable platform into the spotlight with a variety of articles including this David Brooks piece which summarizes things nicely.

In the aforementioned interview, he uses a word I hadn’t fully considered: Competent.

“Competency is power”

I bounced that idea off my kids around the dinner table last night. I do want them to marry someone who is competent. Competent at cleaning the kitchen, competent at raising children, competent at balancing a checkbook, competent at managing conflict in a healthy way, competent at managing the many problems life brings.

When my wife and I started dating, my roommate and I were not competent at lots of things, not the least of which was cleaning. We once went an entire year without cleaning the kitchen. Don’t ask. The bathroom was worse, so it took most of the attention away from the kitchen. People would just leave rather then use the bathroom.

We aren’t born competent. We have to learn, and most learning comes from Someone who already knows how to do it.

It’s ok if we aren’t competent in our personal finances yet. It’s not ok for us to stay that way. We, our (future) spouse, our business partners, our children, and our parents deserve better. Have you ever had a friend (usually when you were younger) that always was asking to borrow money? It’s hard to be friends with that guy.

It’s important to develop competencies at:

No judgement. I doesn’t matter when we find ourselves today. I’m much better at cleaning my kitchen these days. Let’s pick one area, talk to someone who knows that area, and start making small actions.

You and I have the capacity to be financially competent.

Additional Layer of Risk

parents defualt rateI believe one of the most important ideas in understanding debt is what we call “Layers of Risk”. One layer that I have not taken the time to fully consider was brought to my attention in an article today. That layer of risk is student borrowers with children, and specifically single parents:

  • Nearly 50% of undergrad students borrowers defaulted
  • Of those, 70% were single parents
  • 10% of borrowers are single parents, but they represent 40% of all defaults

These stats also include additional factors and layers of risk. For example, as the article points out if you’re a parent of a child under 3, a person of color, or enrolled in a for-profit school your default rates are even higher.

Additionally, many of these defaulted loans are for students that were unable to complete their degree so they are stuck with a non-bankruptable debt and no degree with which to increase their earning potential.

Any system that disproportionately penalizes the most vulnerable needs to be reformed.

Loan Forgiveness and PSLF

Tnythis article surfaced in The New York Times a couple weeks ago:

They Thought They Qualified for Student Loan Forgiveness. Years Later, the Government Changes Its Mind.

I’ve written several times including this long post in September of 2015 that I thought the Public Service Loan Forgiveness program was risky and I did not think it was wise to plan on the PSLF program to be your primary loan repayment strategy.

The risk that the government could change the rules at any time was one of the original reasons I wrote that I didn’t like the program. That is exactly what happened to the subjects of that NY Times article and we’ll see how the pending litigation plays out.

There are other alternatives. If you’d like some help working through those then hit me up.

Vampire Problems

draculaWhat kind of problems require faith?

David Brooks has highlighted a problem he calls a Vampire Problem. Say you are thinking about becoming a vampire, but you’re on the fence. The drinking blood, sleeping in a coffin, no playing golf during the day…it’s a tough decision. Adding to the problem, once you become a vampire there isn’t any going back. Brook’s point is that the most important decisions in life, who to marry, when and how many kids to have, what job to take, these types of problems are ‘vampire problems’ – they have two main characteristics:

1.) There isn’t any way to fully know what life will be like if you make that decision.

2.) Once you make the decision, you can’t go back.

These type of problems can’t be solved with logic, knowledge, analytics, research, or education. As the article points out: “’You shouldn’t fool yourself…You have no idea what you are getting into.’” These type of problems require faith.

Following Jesus is certainly this type of problem. He promises that (1.) You’re spiritually dead right now and you can’t know what it’s like to be alive but (2.) you can be alive with a life that’s better than you can ever imagine and once you are alive you won’t ever be the same.

A lot of financial problems are like this as well. There isn’t any way to fully know the outcome of a decision you need to make. Can I afford to have a child right now? If I take this 2nd job, will I have enough time and energy for my friends and family? If I commit to paying off debt will I still be able to have fun? Will this investment pan out? Which of these two jobs should I take? Is it worth it to move to a new city to go to grad school? Should I fix this old car or buy a new one?

The good news is that faith isn’t blind. It’s an action in the direction of my hope. That’s why all my financial (and life) choices need to start with an act of the will. I need to have hope in my heart that I can be debt free and that it will be worth it before I can start taking actions in that direction.

Faith is the action toward the thing I’m hopeful for. What are your financial hopes for 2017? How about 5 years and 10 years from now? Let’s write those down as we head into a new year. Do you hope to be debt free? To pay off your student loans? To have a fully funded emergency fund? To pay for graduate school? To land a specific job? To start a business?

Payment Calculator Link

payment-calcThe two most common financial questions students have are “How much will my income be once I graduate?” AND “What will the payments be on my student loans?“.

We’ve looked at different income questions before (here, here, here, here), and we’ve looked at some of the payment questions (like is Public Service Loan Forgiveness (PSLF) a good option?), but as a regular reminder you can go to this link and run your future payments for yourself:

STUDENT LOAN PAYMENT CALCULATOR

DEBT AS SOCIAL JUSTICE

words on justice.jpg Articles like this make me angry when they use a college education as the “carrot on a stick” that makes student loans a good thing:

“Student loan debt is also an investment in your future. Simply put, you will be more employable and earn more with a college degree.”

I believe this is a straw man. The argument for or against a college degree is irrelevant to the structural problems that student debt brings. I believe that student loan debt is a social problem, a social justice problem even, because it is most egregiously harmful to very specific segments of our society.

  • 1 out of 3 student loan borrowers don’t graduate. This immediate invalidates the ‘college is worth the debt’ argument. If as many as a third of borrowers aren’t graduating, they are stuck with debt they can’t get out of and no increased earning potential. There is myriad of reasons they might not be graduating, including being poorly trained for college, health, financial, family instability, substance abuse (yo Madison!), and more. More on that here.
  • If I default, the government will withhold low-income benefits. Because the government is the debt collector, if I default on my student loan debt the government will withhold my tax returns (including Earned Income Tax Credit and Social Security benefits). These social safety nets aren’t a big deal if I’m wealthy, but it’s devastating if I’m poor. Between the socio-economic classes (rich and poor), who is more likely to default?
  • The highly indebted are borrowing even more. We’ve discussed before that there is a bifurcation of healthy borrowers and unhealthy borrowers. The healthy borrowers borrowing is remaining level, but the unhealthy borrowers are borrowing even more than before. Some estimates put these borrowers at around 17% of all borrowers. In my experience, this sounds about right. We know that if you are female, of color, or an older student you are significantly more likely to be a highly indebted borrower.
  • Borrowing to make an “Investment” is extremely dangerous. Quoting a 15% financial rate of return is just lying if it doesn’t take into account borrowers who don’t graduate and the higher interest rates and fees on defaulted student loans. If you can’t bankrupt out of a ‘bad investment’, it can cause decades of pain for defaulted borrowers. High returns don’t mitigate risk. This is why the lottery is a bad investment. A potential 15% ROI doesn’t offset the inherent risks of student loan borrowing.

So to summarize, “it’s okay to have student loan debt!” as long as you’re intelligent (with an aptitude for intellectual studies, healthy family structures, and safety nets that allow you to graduate), are not poor, and are not a woman or minority.

There are a variety of potential improvements that could be made on the legislative level (realistic hard cap on borrowing, lower interest rates, larger Pell grants, allowing bankruptcy), but these are out of our ability to change right now.

Instead, let’s focus on personal behaviors I can change RIGHT NOW to reduce my risk of being a statistic. These include borrowing as little as possible, fully understanding my current situation and risks, and building healthy personal financial habits.

Debt Reduces Academic Performance

Scrabble LoanDaniel Pink  pointed to this research paper which suggests:

Those paying for college with loans perform significantly worse than students receiving other forms of aid.

Why is this? It may be because of increased financial pressures, or stress about the future, perhaps debt is a trailing indicator of some other instability, or it may be caused by many factors.

We don’t need to know the ‘why’ to understand that if we’re headed toward large volumes of debt we need to pump the breaks and really calculate if it is worth it. As educational institutions, we need to dig deeper to provide alternatives to debt.

Debt and risk taking – article reflection

AtlanticDoes debt influence risk taking? In this article on Millennial entrepreneurs, that is one of the propositions:

The answer begins with more debt and less risk-taking. The number of student borrowers rose 89 percent between 2004 and 2014, as Lettieri said in his testimony. During that time, the average debt held by student borrowers grew by 77 percent. Even when student debt is bearable, it can still shape a life, nudging young people toward jobs that guarantee a steady salary. Entrepreneurship, however, is a perilous undertaking that doesn’t offer such stability. There is also some evidence that young people’s appetite for risk-taking has declined at the same time that their student debt has grown. More than 40 percent of 25-to-34-year old Americans said a fear of failure kept them from starting a company in 2014; it 2001, just 24 percent said so.

Assuming that hypothesis is true, what risks are required for those going into Occupation Ministry?

Are church planters inherent risk takers? Does a candidate need a willingness to relocate? Do financial constrains restrict a pastors ability to start with a small congregation? Are church staff less likely to stand up to improprieties in leadership if they are financially stressed?