Sunday, October 7, 2007

No Easy Answers, but the Advice Seems Questionable

The Boston Globe presents a money makeover for a 55 year old single school teacher with a son who is a junior in college.

As a single parent in my late '50's I'm drawn to these stories. I wind up measuring my progress against others in my age/financial bracket with similar life circumstances.

Diane's financial situation is serious, but I wonder at some of the advice the counselor is giving her. Initially, he suggests foreclosure on her condominium as a viable option. Really? While it is certainly an option, it appears to me that it would be among Diane's worst choices. Her credit rating is already trashed due to payments she missed while waiting to get on a professional debt-reduction plan. Fortunately, she refuses to consider a foreclosure. Good for her.

Then the financial "expert" suggests that she retire from teaching in order to access her pension funds. He says she can get some other job. This strikes me as crazy. While teachers are in demand, it takes awhile to "grow into" one's position at any given school. I assume she would have to change school districts and possibly even states in order to access the pension if she intends to teach somewhere else. At age 55, I also assume she enjoys teaching as a career. How emotionally healthy would it be to change careers at her age, even if she wanted to? What about health insurance? She would have 18 months of health insurance coverage under COBRA, but only if she can afford the monthly costs. Given that teachers tend to have unusually good health benefits at unusually high costs (for the employer, not the employee), COBRA may be too expensive an option for her.

In the end, the "expert" does give Diane enough ammunition to approach her lenders and secure a two-year moratorium on an interest/payment reset. This is temporary, of course, but in two years, her son will be through with college. One hopes he would be employed and able to help out on any remaining loan payments. At the least, she will have had two years to build up equity in her condominium in the event she has to sell it.

I am no personal finance expert. Part of the reason I read as much in the field as I do, and all of the reasons for having this blog center around the expertise of others. It bothers me to read advice such as that given to Diane--so much of it appears to me to be downright harmful.

How does one wade through it? How does one know who to trust? How does anyone in crisis figure out what the next step is for them?


MEG said...

No one is going to care more about your money or your finances than you do, which is why everyone needs to educate and inform themselves. Expert advice is often needed/useful, but you have to be able to critically evaluate the advice you're given. You can't just blindly trust a lender, financial advisor, or any other "expert."

Although I'd like to point out that the financial advisor in the article never suggests that the teacher consider foreclosure. The paragraph where the advisor lists her options is ambiguous as to whether the advisor even brought up foreclosure. It could have been the teacher or the article writer who inserted that topic.

Boomie said...

what is the original link of the story? i'd like to check it out. thanks.

Anonymous said...

Most people are looking for the easy answer to all of there questions... The fact of the matter is that you really do have to sit down and try to understand things for yourself... As metnioned above, no one will know your finances better than you... I am a Financial Consultant and I find that most of the clients i deal with, during the initial consultation, are looking for the easy answers to their problems, and I find myself spending the majority of my time breaking them out of that shell...

So I definitely agree that it is always best to do some research for yourself and try to understand how things work, and then seek professional adivce once things get a little too complicated for you to handle...