Sunday, November 9, 2008

Sometimes People Just Don't Get It

I just read 7 Surefire Ways to Stay Poor by Liz Pulliam Weston and, with all due respect, Liz just doesn't get it.

She starts strong, talking about a friend who drives a clunker but pays a hefty car payment. When she asks about it, she finds out that the friend's previous car needed $2,000 in repairs (been there, done that) and she couldn't afford it. Because she had bad credit, a dealership set her up with a used car at an astronomical interest rate. The payments were just barely affordable. But the point is, they were affordable and there was no way she could pay $2,000 up front. Her friend did what she had to do.

Liz is right. It's not a great solution. And it may cause further problems for her friend if paying this big car payment means she can't take care of routine maintenance or put money away in an emergency fund or pay down her credit cards (which were maxed).

But, if you're poor, you do what you have to do. If you think she shouldn't have taken the car loan then come up with a better solution that is actually feasible, given your friend's circumstances.

I've dealt with this situation twice. The first time (before I remarried) I sold the car for scrap and started taking the bus to work. Then we had a bus strike. Two wonderful co-workers drove way out of their way to pick me up in the mornings during the strike and I walked home (an hour walk) at night. This time, my hubby got an advance on commissions and increased his credit limit. But, if we couldn't have done those things or gotten a loan (either from the bank or a family member) we too would have had to trade the car for a used one.

I'm unimpressed by much of the rest of her, well, I can't even call it advice. For example, Liz notes that one of the ways the poor stay poor is by overspending on the big items (rent, mortgage, car payment) rather than on the little ones (too many visits to Starbucks). Her advice, such as it is? Just don't spend more than 30% on shelter or 10% on a car.

If you're poor or if you suddenly become poor (by job loss or divorce) that may be difficult to impossible to do. Moving isn't cheap, even if you do it yourself with a friend's truck. There are still deposits and all sorts of connection fees (gas, electric, phone) to pay. You may not be able to sell your own place or break your lease. You may not be able to move out of an expensive city because of custody agreements for your kids.

Yes, there may be some ways to economize while you wait for a buyer or the anniversary date on your lease. If you have any extra rooms you could try to rent them out to students. If you aren't upside down on your car you could try to sell it privately and then buy a decent used one. If the situation is new to you, there are probably a lot of little expenses you could cut out. But if you've been poor for any length of time you've probably done all that and hearing all the same suggestions over and over is liable to get on your last nerve.

When she talks about credit cards she says to just stop using credit if you can't pay your bill in full. Then pay far more than the minimum until you wipe out the debt. What about when you're a few days from payday and there's no milk or bread in the house, and no gas in the car you must drive in order to keep your job? Do you say "Mustn't use the credit cards?" or do you just charge the minimum amount that will feed your kids and get you to work until payday?

How do you pay more than the minimum payment when you can't even afford the minimum?

Liz talks about the danger of considering only the monthly payment in determining affordability and warns against using payday lenders or rent-to-own places. Now, payday lenders are a huge, huge problem. I hate that they can charge something like 300% interest and would like to see them legislated out of existence. But I know someone who uses them to cash her BC Benefit and UCCB cheques. I think they charge something like $3 per cheque but this person uses them because she doesn't have a drivers licence or any other acceptable photo ID and therefore can't open a bank account.

And, many years ago, I went the rent-to-own route for a VCR so I could play videos for my kids. It wasn't too much monthly and we got a ton of use out of it. Yes, I did pay almost 3 times what the VCR would have cost to buy outright but I was a single parent with 3 small kids and no credit rating. In fact, it actually helped me to establish a credit rating. But don't buy a 42" flat screen on a rent-to-own plan or a big dining room set!

Now, I'm not saying that Liz doesn't make some good points. If you're broke, tracking your money is vital. You shouldn't get yourself in over your head on anything, whether it's too much house, an expensive car, rooms full of furniture (don't pay until 2010), or whatever. Don't confuse wants with needs. Don't cash out your retirement fund when you leave a company.

She just needs to realize that some of her suggestions were unrealistic for a poor person to implement.

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