Welcome to Ask the Bills, in which Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email email@example.com.
My husband and I are in our late 30s. All four of our parents were well-supported by their parents, including help with college, first homes, and child care. Our grandparents also left our parents enough money to retire before age 65 and buy second homes in faraway climes. Unfortunately, they’ve taken their increases in wealth as evidence that we are somehow less responsible than they are. They’re in total denial that it’s our grandparents’ money—people who worked all day long on the family farm and never vacationed, much less bought a beach house—that has allowed them to stop working. By most measures, our choices have been more sound than theirs. We delayed marriage, delayed childbearing, and both completed our college degrees. (Not all four of our parents did that.) But we’ve faced many more obstacles. Our college educations cost more, and our day care expenses will total nearly $80,000 once we’re done with them. And we were forced to sell our first house—which we bought with savings we both built for years before our marriage—for less than we hoped when a better job opportunity in another city came up. Almost 10 years later, we still haven’t fully recovered. Yet my parents and in-laws are really committed to the story that they are enjoying the bounty of years of hard work, so much so that they tell us our family is in worse financial shape because my husband and I are irresponsible with money and that we shouldn’t spend it on anything fun. They constantly criticize any money they see us spend, down to a doughnut. That’s exacerbated by the fact that the only time we see them is when we are on vacation and thus would like to be having fun. Frankly, it would be great if they were as generous with us as our grandparents were with them, but that’s never been the case. How can I get them to stop treating me like a dingbat with a bank account?
People who came of age in the period between the end of World War II and the early 1980s benefited from one of the greatest periods of economic mobility in U.S. history. It seems like your parents and grandparents were part of this economic leap. You and your husband, however, did not benefit to the same extent. Yes, it sounds like you were raised in more middle-class comfort than your own mom and dad, but you missed out on a lot, too, like inheriting money from family members who lived frugally because they remembered the Great Depression in bone-jarring detail and raising children with the benefit of relatives who live nearby and have the free time and inclination to offer up no-cost babysitting. You came of age in a different world. According to Sentier Research, median household income is still below where it was in 2000. At the same time—to pick one stat that just happens to impact you personally—the cost of child care has been running double that of inflation since 2009. The expense of education, health care, and housing has also outpaced our incomes and the overall consumer price index.
You clearly get this—but it’s not how your parents view the world. It’s too human to forget the help we received while recalling our struggles and setbacks. Put another way, lots of us—lots of us—confuse luck with smarts. And here in the United States, we’re in particular denial about how systemic forces impact us. We enjoy significantly less economic mobility than many European countries, but when surveyors ask, we’re much more likely than our old-world peers to believe our hard work can take us far. This is no doubt compounded by an outsized presence of financial scolds in our culture, people who blame our money woes not on the greater economy we all inhabit but on our occasional splurges on lattes, luxury goods, or doughnuts.
The “vacations” you describe sound more like duty visits to parents who nitpick, criticize, judge, and are otherwise less than supportive. I suspect you are not ever going to fully solve this one, but the next time the subject does come up, you might want to say something like, “We are doing the best we can, given that the government says expenses for childcare are going up at twice the rate of inflation. Despite that, we’ve managed to save up our own money to buy a home, and we did it with no help from anyone else. You no longer live near us, and we don’t see you that often. Instead of disagreeing on money management, why don’t we discuss something more pleasant?”
And then, next time you need to get away, take a real vacation—without your parents, scold-free.
My husband and I are divorcing after 13 years. I will have physical custody of our three children, two of whom are home-schooled for reasons that preclude them from going to public school. I am 34, own a reliable 20-year-old car, and am a pro at raising a family on a poverty-level budget. The divorce agreement allows me to remain in our home for four years, at which point I can take over the mortgage if I am in a financial position to do so. This would be an ideal situation, because the mortgage payment would be half the cost of an equivalent rental. However, if I so choose, we can sell the home at any point in that time frame and split the profits. The problem? I have no credit, I haven’t worked in more than a decade, and I only have a GED diploma. I have zero savings, and at best I can only save less than $100 every month. Do I go back to school, saddling myself with debt I don’t currently have, in the hopes of being in a better-than–minimum wage job so I can purchase this home? Do I instead continue to try to find a job in this economically depressed area and hope that in four years it will be enough to finance this home? And, just as importantly, how do I build my credit between now and then? I don’t even know where to start or how to weigh the financial impacts of any of the options before me. Help!
I can see why you’re obsessing over the home. It no doubt feels like a bastion of permanence in a suddenly uncertain world. Your marriage is over, you don’t know what your financial future will bring, but the house will always be there—if you can come up with the money to buy your ex-husband out.
I’m about to tell you something you don’t want to hear: Don’t think about the home, at least not now. You need to take the next four years to prepare for your future, and if you can do that in a home you are not paying rent or mortgage to live in, so much the better. Yes, you need to return to school, because people with only GEDs who haven’t worked for more than a decade don’t fare well in our current economic environment and probably won’t in the future either. The best way to minimize the debt is to attend a nearby public college and only borrow money from the federal government so you can pay it back on an income-driven repayment plan when the time comes to do that. I know student loans mean debt, but as long as you graduate from an accredited and respected institution, having that tab is better than not attending college at all.
I’m not going to second-guess your decision to home-school your kids, but I will remind you that public school districts are required to educate all children. If you need help in getting your district to provide appropriate accommodations, you could contact an interest group specializing in whatever your children’s issues involve and seek guidance. You at least need to investigate. If you’re unable to pursue further education because of the demands of home-schooling, you’re jeopardizing both your own and the children’s financial future.
As for credit, if you don’t have a credit card of your own, I would suggest applying for one. If your credit record is bad or nonexistent, your best bet is likely something called a secured card—credit card you are issued in return for putting down a deposit. I know your budget is tight right now, but this is something better done sooner rather than later. You’re going to need credit when it comes time to buy the home—or move away from it.
My husband is 67 and retired. I’m 57 and plan on working until 60 or the day our first grandchild is born, whichever comes first. We’ve calculated that we need an income of $110,000 per year in retirement and are 90 percent certain (according to my stockbroker’s tally) that our retirement savings, Social Security, and other assets will provide this income. Our dilemma: My husband just inherited those “other assets” from my late mother-in-law. He wonders if we should pay the balance of the mortgage—and a small home equity line balance we also have—with it. According to the mortgage company’s amortization calculator, if we paid off the mortgage today, we’d save about $50,000 in interest. Since the home equity line doesn’t have an end date, the calculation doesn’t work the same way, but obviously we would save $125 a month forever. And paying off our mortgage would mean our retirement income requirement would drop to about $91,000. We can easily handle our mortgage payment, which is probably less than anyone in our Bay Area neighborhood pays. Do we really need to pay off the house? I am worried about breaking off such a large chunk of our retirement money up front, never to see it again. Would we be better off to invest the money to generate income to pay the mortgage? But isn’t paying it off like getting a guaranteed $50,000? As a compromise, I suggested to my husband that I divert some of my current income to paying down the principal over the next three years then reconsider whether we want to pay it off upon my retirement. That way we’d still get the benefit of the mortgage interest deduction while I’m working. But what’s your take?
Oh, how I wish I could see the future! Then I could tell you for certain whether to pay off the mortgage now or invest the funds for the long haul. But I can’t do that. What I can say is that I think you need to give this some time—maybe until you retire, in fact. While you feel quite settled now, it’s possible you won’t want to keep the home after retirement. You might decide it’s too large or not near enough to those future grandchildren, or you might simply decide to relocate to a place with a lower cost of living. It doesn’t sound like you’re thinking that way, but things could change once you and your husband have both exited the workforce. Not earning an income has a way of making people much more conscious of their financial outflow, and the Bay Area—well, it’s an expensive place to live. As a result, I think the plan you propose makes a lot of sense. It results in some of the mortgage being paid down, and it doesn’t stop you from eliminating it in full when you both retire if that’s what you both want to do at that time. I would only add that you could consider using some of the money to also eliminate the home equity line. You don’t need it, and shutting it down would be a way of giving your husband some of what he would like.