Financial Education

All the information needed to avoid a lifetime of pain can be acquired in a half an hour

I’ve written a lot in this space about the crippling financial pressures faced by many Orthodox families and communities, along with the consequences of bad financial choices. Not all, but an awful lot of that pain can actually be avoided. And the knowledge necessary is widely - and freely - available.

I recently read of a rabbi in Israel who was asked for a segula to help prevent a struggling family’s debt from growing each month. The rabbi answered: spend less than you earn.

That’s about it. The rest is commentary.

15 or 20 years ago, I wrote an entire book on what Chazal felt about these matters. So I thought I’d present some of that content here as a resource and public service.

Now I suspect most of you will already be well aware of everything here. But perhaps you might have some young or vulnerable acquaintances for whom it’ll have value. So please do share this - along with the rest of the book - far and wide.

Preventing Trouble

The first thing is to plan ahead. Perhaps having things all worked out from before you’re married is a bit unrealistic, but at least devote some attention to the question of how you’re going to pay your way through life before things become unmanageable. Here are a few ideas to get you going:

Budget

• Have a clear idea how much money you have in reserve (to cover emergencies or occasional large purchases like a new car), how much is coming in each month and how much you’re spending. Divide your expenses into categories (i.e., food, home, travel, entertainment etc.) and rate each for its importance. If you find that your income doesn’t match your expenses, you will be able to quickly decide which items should be cut first.

• Keep a list of regular bills (credit cards, rent, car lease payments etc.) and the time of the month each is due to make it more likely you will actually pay them…and to avoid late-payment penalties and unnecessary interest costs.

• Write it all down or use software to keep track and to project the consequences of current trends. Remember: you can never have too many spreadsheets!

• Define your goals: what would you like to be able to afford this year or ten years from now or once your children are married. Knowing what you want makes it easier to figure out how to get there…or to know what is unrealistic.

• Share your financial concerns and plans with your spouse. He or she has a right to know how things are going – and two heads are better than one (you got married for a reason, right?).

Sensible Credit Card Use

If you absolutely must borrow money, do just about anything (legal) to avoid leaving a balance on your credit card. Find a free loan or a line of credit secured against your home. Anything but a credit card. Why? Because banks charge frightening rates of interest for credit card debt.

If you happen to own a home, you can find a secured line of credit these days for rates of interest significantly lower than you’ll pay on your credit card. That means, for an outstanding loan of $30,000, you will be paying $1,850 a year in interest (at, say, 6%). Many credit cards charge 28% interest. That, for our $30,000 balance, will hit you for $9,500 a year in interest! That’s $9,500/year just for the privilege of owing a bank money. But paying that $9,500 won’t get you any closer to paying off the actual loan.

That’s why you should never keep your debt on credit cards.

You should also remember that the very convenience of cards makes them all the more dangerous. Can’t decide whether you can really afford something? Charge it now and figure things out later. Can’t decide which item to buy? Get ’em all, and work out the details later! Well just suppose you never get around to “later”?

What about using cards for their convenience and loyalty reward points? If you are careful and disciplined enough to pay the outstanding balance on time each month – and there isn’t a prohibitive annual fee associated with the card – this isn’t a bad idea at all. Just make sure that you keep a good eye on your account to ensure that it hasn’t been compromised by identity theft criminals (sure sign of trouble: large purchases suddenly appear on your statement of which you’re not aware). If in doubt, call your card issuer immediately.

Tax Planning

Get to know your government well. After all, you’ll be spending a lot of money together over the years. Understand the tax consequences of any decisions you’re making before you sign on any dotted lines. You have the right to legally arrange your financial affairs in whatever way provides you with the greatest benefit and lowest liability and you’d be a perfect fool not to. Take the time to learn for yourself how things work or sit down with a competent and honest tax accountant and let him figure it out. The payoff can be huge.

Don’t just close your eyes and hope for the best. One couple I heard about ran a private business for years and simply assumed that their income wasn’t taxable. Predictably, government auditors eventually caught on and paid the two of them a friendly visit at home, leaving behind a bill for many tens of thousands of dollars.

Insurance

Do life insurance and bitachon in God’s providence get along? That’s a good question that deserves attention. Ultimately however it’s something only you can answer. Nevertheless, for most of us at least, practical considerations require good coverage: in a well-known teshuva, Rabbi Moshe Feinstein (Igros Moshe Orach Chaim 2:111) strongly advised men with wives and children to buy term life insurance as an extension of their responsibility to care for their families. He even expressed happy surprise at just how much a beneficiary could expect when compared with the relatively low monthly premiums.

Similar practical considerations suggest we take other simple and relatively inexpensive steps to protect our financial health. Insuring our property against various common risks is one. Investing in sheltered retirement plans is another.

Avoiding Unnecessary Expenses

How much trouble can you avoid by foregoing some small but frivolous indulgence? Lots. Consider this:

Suppose you choose not to smoke (you’ll thank me later for giving you the idea). The pack each day that you won’t buy will save you around $12.00. Assuming you wouldn’t be smoking on Shabbos and Yom Tov, that’ll come to around $3,600 a year.

Now just imagine if you instead invested those savings each year in a conservative index fund earning annual returns of around 8%. After fifty years (from a smoker’s first puff at 15 until his last breath at 65 – if he lives even that long), those regular investments would translate to nearly $2.6 million! Happy 65th birthday!

Now that’ll solve a lot of problems, won’t it?

Scams

There is no end of too-good-to-be-true, stay-at-home-and-earn-thousands-per-week offers out there. Perhaps it’s an on-line job requiring no experience or skills and promising instant wealth (“just send us $50 for your starter kit!”), or the infamous email offer from the widow of Nigeria’s former minister of defense who needs a trusted friend into whose bank account she “will deposit $26,583,928.56 in gold bullion – of which you, because you are such a reliable associate, will get to keep 25%”.

Here’s the quick and ready formula to keep you and your money living happily ever after together: if the offer is too good to be true, then it isn’t true.

If the offer involves divulging any of your banking information to strangers, then the scam almost certainly involves a crime – of which you will be the victim. And don’t assume the police or your bank will be able to get your money back for you.

Finally, for an extra level of protection, carefully read credit bureau reports on your financial activities that are freely available.

Digging out of Trouble

Even if you’re already facing serious headwinds, all is not lost. There are plenty of areas where a little work can make a big difference.

Attitude

First, develop an appropriate psychological relationship with money. Take responsibility for yourself (and your family) rather than expecting anyone else to take care of you. That means that, for all intents and purposes, you have no guaranteed right to any particular home (in any particular neighborhood) or to any particular level of income or to any particular lifestyle. While they might choose to act with great generosity, from a moral (and often halachic) perspective, your parents, your community, your government and even God owe you absolutely nothing.

Next, educate yourself. Understand the consequences of things like credit card use and tax laws. Take some time to read through a reliable collection of basic financial advice. Knowing how money works will give you the confidence you need to make the right choices. Before I purchased a used car from a dealer for the first time, I spent a few hours researching the negotiation process. As a direct result, I came out of the deal having knocked 15% off the sticker price and left with the salesman’s friendly respect.

Dealing With Debt

You’ve fallen into the soup, so to speak, and you’ve got no idea how you’re ever going to climb back out. You allowed bills to go unpaid or you paid them with credit cards whose balances now seem beyond reach. You used credit to purchase appliances or cars and now face heavy payments each month. You sometimes don’t answer the phone in the evening because you’re afraid it’s a financial institution calling. You often can’t bring yourself to even open your mail.

Sound familiar? It needn’t continue this way. Plenty of people – frum families facing the same kinds of pressures that confront you – have won back their lives with hard work and discipline. You can too. It’s a simple matter of making correct choices.

Beating the Deficit

First, stop the bleeding. Eliminate your deficit. To do that, you will have to sit down and draw up a detailed budget. You will carefully list all your sources of income and, in a different column, all of your expenses. ALL of your expenses. Do you buy take out for lunch instead of preparing more economical meals at home? List it. Do you take the kids to a restaurant once or twice a month? List it. That urgent out-of-state flight last month? Figure out how often you take such flights during a year, divide the total cost by twelve (to get a monthly rate) and list it. The new smartphone? All together now: list it.

You’ve now got two columns of figures. Go ahead, add ’em up. The odds are that the “income” total is lower than the “expenses” total (if it’s not, the odds are that you’ve left out some expenses). There’s no way that you’re ever going to get anywhere in dealing with the mess until you can at least bring those two totals together. In other words, either reduce your expenses or increase your income. Or better yet, both.

But where do you start? The reason you took on these expenses in the first place was because you needed the goods and services that they bought. The trick will be in carefully redefining the word “need.”

You need kosher food everyday for yourself and your family. You need to protect yourselves from cold and rain. You need clothes so you can go about your daily activities free of the shame of nakedness.

But, at the root of it, that’s about all you really need. Everything else is stuff you want. Now, of course, there’s usually nothing wrong with wanting things and many of those things are quite reasonable; things normal people living in our day and age cannot really be expected to do without. But it’s important to properly identify and characterize your various expenses: “this is what I need and this is what I want.”

As we said before, every purchase is a choice. As you look through the items in the expense column, which are “needs” and which are “wants”?

• Do you really need two (or three, or four) expensive cell phone contracts?

• Is that lease on a late model car more than you can manage? Should you get rid of the car and buy something simpler, smaller or a bit older? Could you live for a while with only one car – if you’ve got two – or no car at all?

• Can you provide tasty and nutritious meals using simpler or other expensive ingredients? Do you have to rely on more expensive prepared foods or restaurants quite so often?

• If you do keep your car, could you walk more and drive less? By carpooling when possible, combining shopping trips and buying more things on line, you can save many tanks of gas!

I think you get the picture. Here’s the overriding key principle: never (ever) spend more money than you earn. Put it all on paper. Keep eliminating expenses until you’ve balanced your budget. Let nothing stop you.

But what about those things you can’t control? Some things really are “off the table.” What about yeshiva tuition, which can hardly be called a choice and certainly can’t be ignored? Ok. We’ll leave yeshiva and Bais Yakov tuition out of the discussion. But I don’t think there are all that many other items that deserve a place in that class.

“But what about the bar mitzva we’re making in June? What about our daughter’s seminary year? What about her chasuna? What about supporting her future husband in kollel?”

Those are all choices. There is no halachic or moral requirement to spend beyond our means on such events. For thousands of years, Jewish children made their way through such important life experiences without financially crippling their parents. Bar mitzvas and chasunas can be simple. (Remember COVID?)

Some people choose to make them expensive. Others choose differently. Learn to make decisions based on what’s right for you and your family, rather than on what you think neighbors expect of you. In fact, many of your neighbors might secretly be hoping that you will provide them with an example of a more rational approach to spending. Or in other words, learn to use the good, sound mind and common sense that God gave you.

It’s about priorities. Sure, lavish simchas are all nice enough, but giving in and choosing them might mean a great deal of suffering down the line. Weigh the benefits against the cost:

• How will losing your car or house or credit rating affect your ability to raise the rest of your family the way you’d like?

• How will failing to pay back the money you owe other people affect their lives?

• How will financial collapse affect your sense of self-worth in your community?

• And what about your standing with God (Who doesn’t think much of people who borrow knowing that they will likely be unable to repay)?

If you have managed to apply everything we’ve discussed until this point, then you should celebrate having successfully balanced your budget. Your debt is no longer growing. Go out and get yourself an appropriate treat. A long, cool drink of water from a public fountain, perhaps.

Seriously though, you should take pride and pleasure at every step of your financial recovery. Gaining control over your life (even while acknowledging that it’s really God Who is in charge) can be an exciting and deeply satisfying experience. While the appropriateness of feeling joy over the purchase of a new designer suit or sheitel may be an open philosophical question, there should be no equivalent guilt for feeling good at real spiritual accomplishments – like protecting your family’s future.

In other words, this process is actually fun – and the kind of fun that’s unspoiled by guilt!