"Goals are dreams with deadlines" -- Diana Scharf

Thursday, July 18, 2013

When to Offer Unsolicited Advice



Image credit: iqoncept / 123RF Stock Photo
 
A close family member (let’s call him “B”) mentioned that he recently opened a new credit card through his bank.  He already had a Discover card, but thought that he should have something more widely accepted as some retailers do not take Discover.  This approach seemed logical, until B said this: “The bank gave me a $7,500 credit line.  And, there is a promotional 0% APR for the first 12 months.”  He seemed excited by the high credit line and the promotional interest-free period, but I was concerned.  This family member is very bright.  In most situations, he’s practical and has plenty of common sense. However, I worry that he may be setting a dangerous financial precedent if he starts to rely on credit.  Here are some background details that cause me to worry:


*B and his wife are 24-year old newlyweds.  He financed the engagement ring.   According to the jeweler’s website, loans are interest-free if paid in full within 12 months.  If the loan is not paid in full within 12 months, interest accrues from the purchase date at an APR of 29.99% (oh boy...)  I don't know whether he paid off the loan within 12 months, but I sincerely hope he did.  That’s a super high interest rate.  The ring is quite lovely, by the way.  But I just don’t think it’s a good idea to buy a ring unless you can afford to pay for it in cash. 

*B and his wife just finished Master’s degrees.  While in graduate school, they both had part-time positions as graduate assistants/researchers, but never held full-time jobs.   I estimate that B and his wife each earned $15,000-$18,000 a year as researchers.   Given these modest incomes...

*I don’t believe B has much in savings.  I could be wrong, but I doubt he would have financed the engagement ring if he’d had the cash to spend. 

*B will start medical school in a few weeks.  Over the next four years, he will take out six figures in loans.   

*B’s wife is currently seeking employment (until recently, he had been deciding between a few medical schools.  The medical schools were in different locations, and B’s wife waited to apply for jobs until he had decided on a medical school)

*A $7,500 credit line?!!!  Someone can get themselves into a lot of trouble with a $7,500 credit line, especially if he/she does not have a source of income. 

 
I have an uneasy feeling that B and his wife may get in over their heads with this new credit card.  I inwardly cringed during this conversation because I would hate to see B and his wife make a financial mistake that could haunt them for years.  Perhaps I am being paranoid and should give them more credit (bad pun, I know).  They’re adults and are capable of making their own decisions.  When B told me about the new credit card, I decided not to offer him any advice.  We were in a social setting with his parents and I didn’t think it was an appropriate moment to climb onto my soap box.  I had to resist the urge to tell B what I really thought: 1) Credit cards should be used as if they are debit cards; only make the purchase if you could afford to buy it in cash, 2) Pay off that balance in full, every month, even if there is an interest-free period.  It’s not as though you could leverage credit to your benefit in this scenario, so you’re better off paying your bills, and 3) a $7,500 credit line for an unemployed person seems like predatory lending on the part of the bank.  Be very, very careful whenever you use that credit.  The bank is counting on you NOT being able to pay your balance after 12 months, at which point they’ll slam you with a very high interest rate.

I wanted to say all those things.  Really, I did.  But I thought this might sound too preachy and judgmental.  B was simply making conversation.  He hadn’t asked my opinion, so I didn’t feel it was my place to offer advice, especially with his parents standing nearby.  Instead, I said, “Wow -- $7,500?  That’s higher than my credit line!”  I am hoping that my comment will put his high credit line in perspective.  His parents are both financially savvy, so I imagine that they taught him about credit cards when he was younger.  If not, I’m hoping they will warn him after hearing this worrisome conversation.

 
So, friends, here’s my question: Have you ever offered unsolicited financial advice to a friend or family member?  If so, how was it received?  Do you think I should have said something more forceful in this situation?                

8 comments:

  1. Yea I generally try not to give unsolicited financial advice as tempting as it may be. The only time I remember doing so was when I was talking to a younger cousin who was in college. He looked up to me as a big brother and when I give unsolicited advice, I guess it comes off more of as giving brother advice. I don't know. It probably depends on your relationship with that person.

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  2. I think you did the right thing. Most likely they know their financial situation sucks but they choose to keep their heads in the sand. Your two cents wouldn't have made a lightbulb go off (as much as we'd like to think so) and they wouldn't have said "Omg you are SO right! What were we thinking??" Instead, like you said, you'd come across as judgmental and holier than thou.

    I get really frustrated and jealous when I see friends going on lavish vacations and having the dream wedding I could never afford, but I also know that they're being hounded by creditors. Just got to shut my trap and live my life the way I want to live it.

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  3. I can't say that I never have, but I try not to. If there was a situation that really looked bad then I certainly might, but I haven't come across that yet. Otherwise I would do what you did and keep to myself. Like you said, he wasn't asking for advice and it really wasn't an appropriate setting. But if you really see him starting to get into trouble, it might be worth saying something just to at least expose him to a different mindset.

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  4. JW_UmbrellaTreasuryJuly 18, 2013 at 5:20 PM

    Giving advice is definitely is tempting, especially when you care about someone and are close to them. In your situation, it sounds like it was probably fine to give advice, especially because your cousin was still so young. Thanks for the thoughts!

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  5. JW_UmbrellaTreasuryJuly 18, 2013 at 5:27 PM

    "Your two cents wouldn't have made a lightbulb go off" -- this is so, so true!

    I can also relate to feeling frustrated, jealous, and even resentful when I see people spending money like there's no tomorrow. Sometimes, being financially responsible is really tedious. Being fiscally responsible isn't fun. But I have to remind myself that we're not buying into the hype of "you only live once." Yes, we want to have fun and enjoy the present...in moderation. We also don't want to go overboard and pay for poor financial decisions the rest of our lives.

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  6. JW_UmbrellaTreasuryJuly 18, 2013 at 5:35 PM

    I have to remind myself that the PF community and the world-as-a-whole are two separate places. Not everyone thinks about money the same way that many PF folks do, and not everyone is as concerned with financial stability.
    I'm going to keep my mouth closed for now, but will watch for any signs of serious trouble. Hopefully I'm just worrying for nothing.

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  7. I try not to anymore. People don't listen anyways...and they end up being resentful.

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  8. JW_UmbrellaTreasuryJuly 19, 2013 at 9:55 AM

    Yep, exactly. I don't want to come off as a know-it-all. It would be one thing if I thought the advice could make a difference. But if the advice doesn't make a difference, AND it creates resentment/hurt feelings, that seems like a losing combo.

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