Help Yourself

Family members often look to me to “sort out” their financial problems. That’s no great surprise: I’m a fee-only financial planner. But I’ve resisted the “financial fixer” role.

Instead, I try to act more as an educator—by reframing the issue at hand and encouraging family members to take an active role in solving their problem. Consider three examples:

1. I have a relative who graduated from an expensive university. He was understandably concerned about his high level of student debt. Less understandable: He was prepaying his low-interest student loans, while continuing to rack up high-interest credit card debt.

Rather than telling him what to do, I asked why he insisted on paying off his student loans faster than required. He explained that it represented graduating to the next stage of life. I told him I appreciated the emotional appeal—and then reframed it as a financial issue.

I asked him to research his current credit card interest rates, as well as his student loan rates. He found out that his highest credit card rate was 20% and his student loans had remained at 5%. He calculated the actual amount of interest he was paying. It became apparent that he would be much better off by first lessening his credit card debt.

2. My son moved home after college, so he could save money while starting his new job. By living at home, he was able to sock away more than $15,000, which sat in a bank earning 0.03% interest. He’s frugal and good with numbers, so I reframed the miniscule yield as a challenge: If he could earn more than $300 a year by taking an hour to move the money to a higher-yielding online savings bank, would he do it? Rather than me presenting this as something he “should do,” the question left it as his choice. My son researched online banks and signed up that weekend.

3. After I explained to one relative that term life insurance was almost always a better option than whole life, she pushed back. Her good friend, who was aggressively selling her on a whole life insurance policy, disagreed with me. My response: I discussed the relationship between financial advice and incentives—and showed her that this friendly agent would be receiving a much higher commission by selling her the whole life policy. She ended up buying term insurance.