Books And Their Covers

There are a lot of very smart people out there who have no idea what to do when it comes to their finances, and you can't tell who they are by looking at them. Subject Number 1, who we will call Katie, is a life-of-the-party woman in her mid-twenties. She has been out of school just a couple of years, is in the very early stages of her high-paying career, and is living it up: fantastic vacations, cute outfits, fancy (rented) apartment, generously treats her boyfriend and friends to fun nights out. Subject Number 2, who we will call George, is Katie's supervisor, and makes at least twice what she does. He is in his mid-fifties, well established in his career and recognized by colleagues and strangers alike as an expert in his field. He and his college sweetheart wife waited to have children, and are now parents to two very accomplished teenage daughters. George is the primary breadwinner for them all. I work with Katie and George and like and respect them both very much.

Between the two of them, who do you think is more financially healthy? You might think: Well, not the party girl, right? But you'd be wrong.

I don't know all the moving parts for either of them. I know more about Katie's financial life, since we're friends and she has asked my money-nerd advice a few times. But recently at a work event, in a conversation that started out about Katie's househunting process and moved farther afield to other financial matters, I learned a few interesting and surprising details about George's financial house.

Here's a blueprint of the conversation: Katie, who is househunting, was rhapsodizing about some of the dream houses she's seen listed online with asking prices of $500,000 or even much more--way out of her price range. George commented that the hardest part of buying your first place is that you can't afford the house you really want. Now, my house actually was the house I really wanted, at least when I bought it going on three years ago as a single woman with no kids, but I take his point. He said when he and his wife bought their starter home, they took out a fifteen year mortgage and paid it down aggressively so they had a lot of equity built up when they went shopping a few years later for the house they planned to live in until they are old and gray. Smart, right? George explained that he was no good at saving money, so they considered it a forced savings plan that would allow them to buy the house they really wanted. I can appreciate that.

But as an example of how bad they are at saving money, and why they'd needed that forced savings plan, George said they'd financed a big European vacation by taking out a new credit card. "We're pre-apprived? Great! Honey, someone just sent us free money!" Everyone laughed, like tell me about it! I've been there! I laughed, too, because how else are you supposed to respond when your boss tells you he's done something pretty dumb? I can't judge him too harshly. Everyone makes dumb choices sometimes, but at least they realize they're dumb choices. Except that sometimes they don't. Maybe because no one else is willing to tell them they are making bad choices.

Katie said knowingly that she'd done the exact same thing, opened a new credit card to pay for a trip she took after she sat for the bar exam and before she started her job with us. She said it was worth it, but that it had kind of freaked her out to see a balance carried over month to month. Now, I happen to know that that this was a 0% APR card that she knew she'd be able to pay off in full during the introductory period once she started working. Katie fronted the money for a month-long vacation on credit because that would probably be her last chance to take such a long vacation until she retires, and she paid it off before she owed any interest payments on the card. Some credit-haters might think her choice was unwise on principle, but I know she did it thoughtfully, and I think it was quite smart of her to play a game she knew she would win and get a month long vacation out of it in the process. I was willing to give George the benefit of the doubt (remember, I like and respect him!) and believe that he had done something similar.

Sadly, no. He laughed and told Katie that once she got used to it she'd find carrying a balance very freeing. Even so, he said, it could be rough getting to the end of the pay period and seeing yourself scrape the bottom of your checking account. Katie nodded sympathetically, but said even though things felt tight, it was nice to know they weren't really, since every month she was saving toward a down payment and retirement. George looked at her like he didn't know what she was talking about. Retirement? he said. That's so far away!

Hrm. Not perhaps what the casual observer might have been expecting.