I Think the Navi Just About Covered It
Two sections from Haftarat Devarim (Art Scroll English translation):
"Hear the word of Hashem, O chiefs of Sodom; give ear to the Torah of or G-d, O people of Gemorrah. Why do I need your numerous sacrifices?--says Hashem--I am satiated with elevation-offerings of rams and the choicest of fattened animals; and the blood of bulls and sheep and he-goats I do not desire. When you come to appear before Me--who sough this from your hand, to trample My courtyards? You shall not continue to bring a worthless meal-offering--incense of abomination is it unto Me; [New] Moon and Sabbath, calling of convocation, I cannot abide mendacity with assemblage. Your [New] Moons and your appointed festivals, My soul hates; they have become a burden upon Me [that] I am weary of bearing. And when you spread your hands [in prayer], I will hide My eyes from you; even if you were to increase prayer, I do not hear; your hands are full of blood. Wash yourselves, purify yourselves, remove the evil of your doings from before My eyes; desist from doing evil. Learn to do good, seek justice, strengthen the victim, do justice for the orphan, take up the cause of the widow."
"Your princes are wayward and associates of thieves; the whole of them loves bribery and pursue [illegal] payments; for the orphan they do not do justice, the cause of the widow does not come unto them."
Sunday, July 26, 2009
Wednesday, July 22, 2009
Everything Seems Fine On the Outside
Hat Tip: A reader who is free to self-identify
A reader pointed out an op-ed on the Lubavitch CrownHeights Info blog. The author is the CEO of Global Jewish Assistance & Relief Network and a credit repair company. He has discovered what I have been long been talking about: the house might look great, but the foundation is crumbling. In his words: "Most frum couples have been living on borrowed money to make ends meet, but the financial noose is tightening day by day."
As a service, he created an Excel spreadsheet with more categories and sub-categories than you can shake a stick out. The level of detail is a bit excruciating for me, but certainly will be quite helpful to those who have expenses all over the board.
A family that has high expenses that all over the board, is already in debt or nearing falling into debt, has no liquid savings to speak of, and doesn't have an idea of where in the world their money is going would be well served by an extremely detailed budget. When you are spending beyond your means, separating out the bakery expenses from the detergent from the nosh from the groceries is a good way to get a grip on the budget.
A few notes on the Excel Budget:
Hat Tip: A reader who is free to self-identify
A reader pointed out an op-ed on the Lubavitch CrownHeights Info blog. The author is the CEO of Global Jewish Assistance & Relief Network and a credit repair company. He has discovered what I have been long been talking about: the house might look great, but the foundation is crumbling. In his words: "Most frum couples have been living on borrowed money to make ends meet, but the financial noose is tightening day by day."
As a service, he created an Excel spreadsheet with more categories and sub-categories than you can shake a stick out. The level of detail is a bit excruciating for me, but certainly will be quite helpful to those who have expenses all over the board.
A family that has high expenses that all over the board, is already in debt or nearing falling into debt, has no liquid savings to speak of, and doesn't have an idea of where in the world their money is going would be well served by an extremely detailed budget. When you are spending beyond your means, separating out the bakery expenses from the detergent from the nosh from the groceries is a good way to get a grip on the budget.
A few notes on the Excel Budget:
- I noticed that the budget did not include any lines for income. When I help someone make a budget I always start with income. Be the budget personal, non-profit, or business, I don't like discussing expenses without looking at income first (happens a lot with non-profits and fundraising becomes a plug figure).
- One thing I have noticed on nearly every "frum" budget I've seen is that the chagim are separated from the budget. This is something I do not do, and I think that once a budget is under control and sense has taken over, it is best to let the expenses of chagim be absorbed into general budget categories. I have a certain yearly figure in mind for what we should spend on consumer goods and food, and I make yom tov fit inside that budget. Scouring a budget is necessary for getting a budget under control. Once under control, I think it is best to limit expenses and force it all to fit within. Sometimes extra line items trick a person into thinking that the "making Pesach" is like putting on a roof.
- Another area on the excel budget is "personal simcha funds" including births, bar mitzvas, and weddings. Sadly there is no area listed for savings (i.e. retirement, emergency savings, the next car, the next roof, 529 plans). No surprise that I believe the simchas funds should take a back seat to this type of saving.
- Life insurance is thankfully one of the listed expenses. I think disability insurance should make that list too. For many, a personal liability umbrella insurance policy is a good idea. Anyone who can't pay for these should likely reconsider their summer home insurance.
Sunday, July 19, 2009
Burning Down The House
Seems everyone is talking about the riots going on in Israel. One moment a certain element was rioting about this, and the next thing they were rioting about that. Personally, I don't think they really care about what they are rioting about, although some of the issues provide an excuse of sorts.
It seems that most are at least somewhat surprised by the events on late. I am well aware that many of these acts are not new, but the scope seems larger and many are concerned and want to see change NOW! Some are calling for boycotts of Eida certified products, others are trying to get gedolim to speak out.
While I am enraged and saddened by the pictures of young men being egged on by older men and young children (!) burning down the neighborhood, destroying property, and creating a living hell for innocent residents and passerby, I have to say that the behavior simply does not shock me any longer. In fact, I've come to expect it just as I expect a few police cars to be torched and overturned if/when the Lakers or Raiders win a championship. (Although I don't expect any Kobe to step in and take their personal funds to replace the damaged equipment).
Wait a second, did she just say that she expects this behavior from any Yid? Has SL fallen off her rocker? (Perhaps). Yes, you hear me correctly, this behavior no longer surprises me (it did at one time). In fact, I find it (at least somewhat) predictable and a result of a failed experiment cracking for all to see. I'm sure an aspiring cultural/behavioral economist or economic sociologist could write an fascinating dissertation on the subject.
Aimlessness + underemployment + poverty + dependency on government and tzedakah + a one-size-fits-few education system + children raised in herds (the most disturbing pictures to me are pictures of young boys out watching the festivities with nary a mother in sight) + a weakened family unit + overseas teenage and post-teenage boys with little supervision thrown into the mix + "the man" [state] who is out to get them + close living quarters + lack of strong leadership (this Rabbinic statement certainly wasn't unequivocal or forceful) + lack of accountability (the government might deport the overseas trouble makers and they have finally decided to file civil suit again the vandals. . if this happened in America I have no doubt police would have went in in riot gear) = a likely potential for a subculture to destroy itself from within. And that is what we are witnessing.
Years ago, I think I viewed Orthodox Jews from left to right as part of a continuum, the speed of media and the images make it rather clear that much of the affinity is perceived. It might be a terrible thing to state during the three weeks, but I don't feel as there is much in common between my community, or most other American Orthodox communities for that matter, and the Mea Shearim community.
But, saying that wouldn't be fair either. It is clear when you read comments on any VIN article (or YWN article, although that "new source" basically steers clear of most articles that put the Yeshivish/Chassidish community in a bad light) that the concept of dan l'chaf zechut, an important concept indeed, can be used to excuse nearly any behavior. And, not just excuse it, but even glorify it. Sometimes I think to myself, do you have to be accused of abuse to be labeled a selfless tzadekes or be accused of money laundering or fraud to be labeled a true tzadik, someone with a great helech in olam haba? And lest you think that it is only VIN or YWN commentators that can twist themselves into a pretzel, have a bochur over and you might be surprised just how a neighborhood boy can take a behavior that a simpleton like me views as unquestionable wrong and it becomes not only permissible, but even a kiddush Hashem.
To round off this post, I think that many of the underlying factors that can cause a subculture to degenerate to the point of destroying their own neighborhood. We have a bit more balance here, although plenty of the pieces of the equation are contributing to issues here at home, but the fact that one can expect a riot over nearly anything should give one pause.
Add your comments. Is bad behavior something you have come to expect, or are you surprised?
Seems everyone is talking about the riots going on in Israel. One moment a certain element was rioting about this, and the next thing they were rioting about that. Personally, I don't think they really care about what they are rioting about, although some of the issues provide an excuse of sorts.
It seems that most are at least somewhat surprised by the events on late. I am well aware that many of these acts are not new, but the scope seems larger and many are concerned and want to see change NOW! Some are calling for boycotts of Eida certified products, others are trying to get gedolim to speak out.
While I am enraged and saddened by the pictures of young men being egged on by older men and young children (!) burning down the neighborhood, destroying property, and creating a living hell for innocent residents and passerby, I have to say that the behavior simply does not shock me any longer. In fact, I've come to expect it just as I expect a few police cars to be torched and overturned if/when the Lakers or Raiders win a championship. (Although I don't expect any Kobe to step in and take their personal funds to replace the damaged equipment).
Wait a second, did she just say that she expects this behavior from any Yid? Has SL fallen off her rocker? (Perhaps). Yes, you hear me correctly, this behavior no longer surprises me (it did at one time). In fact, I find it (at least somewhat) predictable and a result of a failed experiment cracking for all to see. I'm sure an aspiring cultural/behavioral economist or economic sociologist could write an fascinating dissertation on the subject.
Aimlessness + underemployment + poverty + dependency on government and tzedakah + a one-size-fits-few education system + children raised in herds (the most disturbing pictures to me are pictures of young boys out watching the festivities with nary a mother in sight) + a weakened family unit + overseas teenage and post-teenage boys with little supervision thrown into the mix + "the man" [state] who is out to get them + close living quarters + lack of strong leadership (this Rabbinic statement certainly wasn't unequivocal or forceful) + lack of accountability (the government might deport the overseas trouble makers and they have finally decided to file civil suit again the vandals. . if this happened in America I have no doubt police would have went in in riot gear) = a likely potential for a subculture to destroy itself from within. And that is what we are witnessing.
Years ago, I think I viewed Orthodox Jews from left to right as part of a continuum, the speed of media and the images make it rather clear that much of the affinity is perceived. It might be a terrible thing to state during the three weeks, but I don't feel as there is much in common between my community, or most other American Orthodox communities for that matter, and the Mea Shearim community.
But, saying that wouldn't be fair either. It is clear when you read comments on any VIN article (or YWN article, although that "new source" basically steers clear of most articles that put the Yeshivish/Chassidish community in a bad light) that the concept of dan l'chaf zechut, an important concept indeed, can be used to excuse nearly any behavior. And, not just excuse it, but even glorify it. Sometimes I think to myself, do you have to be accused of abuse to be labeled a selfless tzadekes or be accused of money laundering or fraud to be labeled a true tzadik, someone with a great helech in olam haba? And lest you think that it is only VIN or YWN commentators that can twist themselves into a pretzel, have a bochur over and you might be surprised just how a neighborhood boy can take a behavior that a simpleton like me views as unquestionable wrong and it becomes not only permissible, but even a kiddush Hashem.
To round off this post, I think that many of the underlying factors that can cause a subculture to degenerate to the point of destroying their own neighborhood. We have a bit more balance here, although plenty of the pieces of the equation are contributing to issues here at home, but the fact that one can expect a riot over nearly anything should give one pause.
Add your comments. Is bad behavior something you have come to expect, or are you surprised?
Friday, July 17, 2009
Would the Financial Gurus Fail If Frum?
Hat Tip: aml
I finally took the time out to review Dave Ramsey's book the Total Money Makeover, which I highly endorsed because of its straightforward approach to money management and the ethic behind it. Sure, I had a few quibbles, but in the larger scheme of things, they aren't particularly important.
A number of months ago, I was informed that the CPA who writes for Baltimore's Where What When also wrote a review of the book. At the end he writes that a frum family that is not careful about budgeting "the average frum family can lose a million dollars and more over a lifetime and have absolutely nothing to show for it." I believe that he is very active in the Baltimore community which makes this statement very eye opening. He too liked the book (although he seemed to like the Tightwad Gazette more-different strokes for different folks. I could not finish that book), and recommends it, but he throws a swipe writing:
It has been said that the more something is said, the more it is believed. The more we talk about just how expensive it is to be frum, the more we believe that we really have no choices and the more permission we give ourselves to just keep spending. After all, there is nothing that we can do, right?
I have no doubt that Dave Ramsey could figure out how to make Pesach. And I think "huh?" is exactly the response that we need to turn around some of the crazy spending on big ticket items. Alternatives can be found when you question the premises.
Hat Tip: aml
I finally took the time out to review Dave Ramsey's book the Total Money Makeover, which I highly endorsed because of its straightforward approach to money management and the ethic behind it. Sure, I had a few quibbles, but in the larger scheme of things, they aren't particularly important.
A number of months ago, I was informed that the CPA who writes for Baltimore's Where What When also wrote a review of the book. At the end he writes that a frum family that is not careful about budgeting "the average frum family can lose a million dollars and more over a lifetime and have absolutely nothing to show for it." I believe that he is very active in the Baltimore community which makes this statement very eye opening. He too liked the book (although he seemed to like the Tightwad Gazette more-different strokes for different folks. I could not finish that book), and recommends it, but he throws a swipe writing:
Ramsey and [Suzy] Orman are preaching to families to stop the cable TV, SUV loans, daily meals at restaurants, and the $4 Starbucks latte habit. That is simple advice to give. If they had to handle frum finances, they wouldn't have it so easy. Frum people have larger families, often with only one wage earner. The expenses are much higher than in the secular world. I wonder if these gurus can imagine making Pesach? Explain to Suzy Orman that some kids need to go to sleep-away camp for the "ruach," because if they stay home they will be influenced by the "outside world." Huh?
It has been said that the more something is said, the more it is believed. The more we talk about just how expensive it is to be frum, the more we believe that we really have no choices and the more permission we give ourselves to just keep spending. After all, there is nothing that we can do, right?
I have no doubt that Dave Ramsey could figure out how to make Pesach. And I think "huh?" is exactly the response that we need to turn around some of the crazy spending on big ticket items. Alternatives can be found when you question the premises.
Wednesday, July 15, 2009
Monday, July 13, 2009
Book Review: The Total Money Makeover
I have to thank my wonderful readers for introducing me to Dave Ramsey, author of the best selling book The Total Money Makeover. Meeting Dave Ramsey by listening to his radio show and reading his books (I have read a number of them) was sort of like meeting my financial twin. Who would ever imagine that my financial twin would be more fiscally conservative, Protestant, male, and bald? This promises to be a short review because someone has put a hold on this book and I cannot renew it and I'd rather someone who might need this book get their hands on it because I've been practicing "Grandma's Finance" for a long time.
This book is, in Dave Ramsey's own words "NOT sophisticated or complicated." It is not academic, nor is it a finance manual, nor does it present ideas that are earth shattering. Rather it is a presentation of a plan that will help individuals and families tackle their finances head on by getting out of debt and building wealth. Simple as that.
You might ask, what makes this book different from the many other books that outline the same concepts? I would answer that this book is both entertaining and inspiring, plus it has a great, easy to read format where ideas are set off for clarity. Unlike yours truly (that would be me), who has always been unsophisticated and risk adverse, Dave Ramsey has a story, or as he writes, "I have been there, done that. I have a PhD in D-U-M-B. So I know what it is like to be scared and scarred. I know what it is like to have my marriage hanging by a thread because of financial stress. I know what it is like to have my hopes and dreams crushed by my own stupid decisions."
As I mentioned above, Dave Ramsey is a Protestant, and a quite serious one at that. Some of the inspiration in his book does come from the Bible. Some might be afraid of his books because he is a serious Christian. I am not afraid of reading lines from Psalms (Tehillim) or Proverbs (Mishlei) because these passages only reinforce a commonsense Torah approach to personal finance, one of simplicity guided by a consistent philosophy. And if anything was quoted from the Christian Bible, it certainly isn't anything that our great sages have not said. If you listen to his radio show, I think you can appreciate his religious background more. One thing he I have never heard him advise is holding off children as a way to solve a financial problem. He considers building a family of great importance, which is not something I sense from other financial authors. His ministry is named "Financial Peace" the goals go far beyond sensible finance and into building strong marriages and families.
The real inspiration in this book I believes comes from the stories interspersed throughout the book of individuals and families that have "changed their family tree" by turning their lives around. Seeing how other people have succeeded is empowering! Additionally, Dave Ramsey has some great quotes and a good sense of humor. The following are some saying to hang your hat on:
The first part of the book tackles some debt myths, namely that debt is a tool used to create prosperity. As Dave [Ramsey] writes: "Debt adds considerable risk, most often doesn't bring prosperity, and isn't used by wealthy people nearly as much as we are led to believe." Another book that I recommend, which Dave references is "The Millionaire Next Door." I was raised in by unsophisticated parents who taught me to save for the next big purchase. I remember sitting through finance class dumbfounded by the idea that people would actually take out loans against their homes to invest in the stock market. I managed to run all the calculations asked of me, but in real life I've seen these calculations destroy marriages.
Dave also recommends against loaning to friends and relatives (see more notes on that below), cosigning loans (guess who is on the hook should your relative default?!), and payday loans. He debunks the myth that "ninety days [is the] same as cash" and that a person will always have a car payment (nope, "the average millionaire drives a two-year-old car with no payments") .
He doesn't like car leases (which he refers to as fleeces), new cars, 30-year mortgages, whole life insurance/cash value insurance, credit cards (most people spend more and few pay them off each and every month), debt consolidation (because it only treats the symptom) and debt-management companies (too much fraud and a great way to trash your credit in addition to treating the symptom via a 3rd party no less), buying gold, get rich quick schemes, gambling, mobile homes (OK, I doubt any of my readers have a mobile home, but you never know), prepaying funeral and college expenses (you can do better by investing, additionally see my notes below), home equity lines of credit, student loans, and bankruptcy (it might be necessary in some situations, but it isn't painless procedures where "you merrily trot off into your future to start fresh").
What does he recommend? Using cash, frugal living, getting on a written monthly budget, saving for retirement ("Ed McMahon isn't coming". . . certainly not without Techiyat HaMetim), being adequately insured and drawing up a will (auto, home, life, disability, health, long-term care for those over 60), having an emergency fund, paying off the 15-year mortgage, putting away for your children's college education, and having FUN with your money (not before you have some solid footing however).
Before delving into his plan, Dave Ramsey outlines some hurdles which cause people to resist changing their financial lives, namely:
There is a story in this section that I think is worth sharing. Although the story involves Christmas, it could be about making a simcha or forgoing social expectations from what you serve or wear on yom tov, to what you do with your kids in the summer, to what you wear on your head:
The Plan
Now that I've completed the (rather lengthy) introduction I will quickly outline the plan that Dave Ramsey recommends for getting out of debt and building long-term wealth which he calls Baby Steps. I am presenting the Baby Steps in brief. Plenty of questions are asked and answered in this section. If this plan is of interest, read the book!
1. Save $1,000 Fast: To inspire confidence you need to get started and focus your efforts. He recommends getting your hands on $1000, the baby emergency fund because "it is going to rain." Whatever it takes to get $1,000 of cash in your hands, do it. Have a garage sale, return stuff, work some extra shifts, cut coupons, etc. Once you've got it, hide it and keep it liquid.
[Shocking States: 49% of Americans could cover less than one month's expenses if they lost their income].
2. The Debt Snowball: Debt is the enemy and the goal is to eliminate all debt with the exception of the mortgage. Dave recommends lining up all the debts owed by amount and start paying them off from smallest to largest, while making minimum payments on all larger loans. I do have a quibble with this (see below), but he bases his method on inspiring confidence in one's abilities rather than on interest calculations which he calls "behavior modification over math." He has worked with many people and has observed that small victories lead to larger victories. The way to get the snowball rolling, of course, entails radical action and a lot of beans and rice.
3. Finish the Emergency Fund: Kick Murphy Out. "Murphy" is a play on Murphy's law. Dave writes, "an emergency fund can turn crises into inconveniences." Dave recommends a three to six month emergency fund of money needed to pay expenses if you lose your income. He mentions that women are more security oriented and that this step will improve many a marriage.
4. Maximize Retirement Investing. Here Dave recommends 15% of income be saved for retirement. First you put away in a 401(k) what your employer will match, followed by the remainder in a ROTH IRA if you quality. He has a nice (but simplistic) chart which clearly demonstrates just how much easier it is to put away small amounts when you are younger.
5. College Funding. I'm going to keep this section really brief. Dave hates student loans, as do I, and recommends figuring out how to do without. Note that saving for college follows saving for retirement. And Dave likes ESA's (Coverdells) over 529s because of the flexibility of investing.
6. Pay Off the Home Mortgage. Here he points out that the tax savings from a mortgage don't justify paying the interest and that leveraging your home isn't the way to make money. We all like to reduce our taxes, but it doesn't make sense to pay more interest in order to pay fewer taxes (a point finance and accounting professors will make which, unlike leveraging your home, is financially sound for those who want to follow Grandma's Money Rules).
7. Build wealth and have FUN. Once you have set up a strong foundation and have built some wealth through investing, there is no reason not to have some fun. It could be a new toy, being super-duper charitable, or a combination while making wealth a blessing, not a curse. Dave notes that wealth comes with responsibility and warns against "affluenza."
All in all, I HIGHLY RECOMMEND this book as a motivator for getting out of debt or just developing a philosphy toward personal finance. I would not use it as an investment manual (see note below). Many readers write me with questions and I am so thankful to my readers for introducing me to this book because I think it presents a simple and healthy view on how to approach finances including the spiritual.
I do have more Dave Ramsey posts coming up, so stay tuned.
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Like I said, I love this book, but I do have a few quibbles, which in the scheme of things aren't anything major which is why I am noting them in small print:
1. I don't like carrying cash, so I have a hard time jumping on that train. That said, I do not recommend taking out a credit card until you have established consistent and frugal spending habits. And I would also say that anyone who has reached the end of the month and found themselves unable to pay their card off in full should immediately start using cash and checks. The same goes for anyone seeing their savings falling in a quarterly period.
2. I think the 15 year mortgage is fantastic, but I can't seem to jump on that train either. A 15-year mortgage would be quite a squeeze for most young people buying into my neighborhood, even if they really have it together. I do recommend budgeting extra each month, but I think the emergency fund wins out over the 15 year mortgage.
3. Dave Ramsey rules against loaning money to friends and relatives as it creates a master/servant relationship and ultimately destroys relationships. (He does not opposed gifting under certain circumstances). This is a tough one to reconcile with what we have been taught about the mitzvah of lending. However, now that I've had time to digest his thoughts and think about some real life situations I know of, I think he brings forward a good point. Certainly that halacha takes into account the changed relationships as you must be careful about not even walking by the home of the person you have lent to unecessarily so as to not badger. Personally I think there is a lot to be said for free loan societies that serve as a middle man between the giver and receiver.
4. Dave Ramsey reminds the reader that over time the stock market averages 12%. While I do believe in investing, I don't ever make my calculations based on such a high return. As such, it is hard for me (a lazy investor) to get worked up about pre-paid college plans for example. I think Dave Ramsey has solid advice, but I look to him more for solving the debt issues rather than the investing puzzle.
5. As a math person, I have a hard time buying into a debt snowball that pays off debt according to the amount due, rather than the APR. But I do understand the reason he recommend this method, but I would probably recommend a hybrid method after building some confidence.
I have to thank my wonderful readers for introducing me to Dave Ramsey, author of the best selling book The Total Money Makeover. Meeting Dave Ramsey by listening to his radio show and reading his books (I have read a number of them) was sort of like meeting my financial twin. Who would ever imagine that my financial twin would be more fiscally conservative, Protestant, male, and bald? This promises to be a short review because someone has put a hold on this book and I cannot renew it and I'd rather someone who might need this book get their hands on it because I've been practicing "Grandma's Finance" for a long time.
This book is, in Dave Ramsey's own words "NOT sophisticated or complicated." It is not academic, nor is it a finance manual, nor does it present ideas that are earth shattering. Rather it is a presentation of a plan that will help individuals and families tackle their finances head on by getting out of debt and building wealth. Simple as that.
You might ask, what makes this book different from the many other books that outline the same concepts? I would answer that this book is both entertaining and inspiring, plus it has a great, easy to read format where ideas are set off for clarity. Unlike yours truly (that would be me), who has always been unsophisticated and risk adverse, Dave Ramsey has a story, or as he writes, "I have been there, done that. I have a PhD in D-U-M-B. So I know what it is like to be scared and scarred. I know what it is like to have my marriage hanging by a thread because of financial stress. I know what it is like to have my hopes and dreams crushed by my own stupid decisions."
As I mentioned above, Dave Ramsey is a Protestant, and a quite serious one at that. Some of the inspiration in his book does come from the Bible. Some might be afraid of his books because he is a serious Christian. I am not afraid of reading lines from Psalms (Tehillim) or Proverbs (Mishlei) because these passages only reinforce a commonsense Torah approach to personal finance, one of simplicity guided by a consistent philosophy. And if anything was quoted from the Christian Bible, it certainly isn't anything that our great sages have not said. If you listen to his radio show, I think you can appreciate his religious background more. One thing he I have never heard him advise is holding off children as a way to solve a financial problem. He considers building a family of great importance, which is not something I sense from other financial authors. His ministry is named "Financial Peace" the goals go far beyond sensible finance and into building strong marriages and families.
The real inspiration in this book I believes comes from the stories interspersed throughout the book of individuals and families that have "changed their family tree" by turning their lives around. Seeing how other people have succeeded is empowering! Additionally, Dave Ramsey has some great quotes and a good sense of humor. The following are some saying to hang your hat on:
"Winning at money is 80 percent behavior and 20 percent head knowledge."
"Ninety percent of solving a problem is realizing there is one."
"It is human nature to want it and want it now; it is also a sign of immaturity."
"We buy things we don't need with money we don't have in order to impress people we don't like."
"The secrets of the rich don't exist, because the principles aren't a secret."
"We have met the enemy and he is us."
"Don't even consider keeping up with the Joneses. THEY'RE BROKE."
"Radical change. . . is required for a money breakthrough."
"Christmas is not an emergency." (I.e. You know it is coming, so plan ahead.)
"Live like no one else today so you can live like no one else tomorrow."
The first part of the book tackles some debt myths, namely that debt is a tool used to create prosperity. As Dave [Ramsey] writes: "Debt adds considerable risk, most often doesn't bring prosperity, and isn't used by wealthy people nearly as much as we are led to believe." Another book that I recommend, which Dave references is "The Millionaire Next Door." I was raised in by unsophisticated parents who taught me to save for the next big purchase. I remember sitting through finance class dumbfounded by the idea that people would actually take out loans against their homes to invest in the stock market. I managed to run all the calculations asked of me, but in real life I've seen these calculations destroy marriages.
Dave also recommends against loaning to friends and relatives (see more notes on that below), cosigning loans (guess who is on the hook should your relative default?!), and payday loans. He debunks the myth that "ninety days [is the] same as cash" and that a person will always have a car payment (nope, "the average millionaire drives a two-year-old car with no payments") .
He doesn't like car leases (which he refers to as fleeces), new cars, 30-year mortgages, whole life insurance/cash value insurance, credit cards (most people spend more and few pay them off each and every month), debt consolidation (because it only treats the symptom) and debt-management companies (too much fraud and a great way to trash your credit in addition to treating the symptom via a 3rd party no less), buying gold, get rich quick schemes, gambling, mobile homes (OK, I doubt any of my readers have a mobile home, but you never know), prepaying funeral and college expenses (you can do better by investing, additionally see my notes below), home equity lines of credit, student loans, and bankruptcy (it might be necessary in some situations, but it isn't painless procedures where "you merrily trot off into your future to start fresh").
What does he recommend? Using cash, frugal living, getting on a written monthly budget, saving for retirement ("Ed McMahon isn't coming". . . certainly not without Techiyat HaMetim), being adequately insured and drawing up a will (auto, home, life, disability, health, long-term care for those over 60), having an emergency fund, paying off the 15-year mortgage, putting away for your children's college education, and having FUN with your money (not before you have some solid footing however).
Before delving into his plan, Dave Ramsey outlines some hurdles which cause people to resist changing their financial lives, namely:
#1: Ignorance or lack of know-how. Somehow when it comes to money, people get defensive. Dave writes: "Ignorance is not lack of intelligence; it is lack of know-how."
#2: "Keeping up with the Joneses: The Joneses Can't Do Math" and they are likely broke.
There is a story in this section that I think is worth sharing. Although the story involves Christmas, it could be about making a simcha or forgoing social expectations from what you serve or wear on yom tov, to what you do with your kids in the summer, to what you wear on your head:
"Radical change in the quest for approval, which has involved purchasing stuff with money we don't have, is required for a money breakthrough. Sara's breakthrough came with family. Her family was upper-middle-crust and had always given Christmas gifts to every member. With twenty nieces and nephews and six sets of adults to buy for, just on her side, the budget was ridiculous. Sara's announcement at Thanksgiving that this year Christmas giving was going to be done with the drawing of names, because she and Bob couldn't afford it, was earth-shattering. Some of you are grinning as if this is no big deal. It was a huge deal in Sara's family! Gift giving was a tradition! Her mother and two of her sisters-in-law were furious. Very little thanks were given that Thanksgiving, but Sara stood her ground and said, "No more.""
The Plan
Now that I've completed the (rather lengthy) introduction I will quickly outline the plan that Dave Ramsey recommends for getting out of debt and building long-term wealth which he calls Baby Steps. I am presenting the Baby Steps in brief. Plenty of questions are asked and answered in this section. If this plan is of interest, read the book!
1. Save $1,000 Fast: To inspire confidence you need to get started and focus your efforts. He recommends getting your hands on $1000, the baby emergency fund because "it is going to rain." Whatever it takes to get $1,000 of cash in your hands, do it. Have a garage sale, return stuff, work some extra shifts, cut coupons, etc. Once you've got it, hide it and keep it liquid.
[Shocking States: 49% of Americans could cover less than one month's expenses if they lost their income].
2. The Debt Snowball: Debt is the enemy and the goal is to eliminate all debt with the exception of the mortgage. Dave recommends lining up all the debts owed by amount and start paying them off from smallest to largest, while making minimum payments on all larger loans. I do have a quibble with this (see below), but he bases his method on inspiring confidence in one's abilities rather than on interest calculations which he calls "behavior modification over math." He has worked with many people and has observed that small victories lead to larger victories. The way to get the snowball rolling, of course, entails radical action and a lot of beans and rice.
3. Finish the Emergency Fund: Kick Murphy Out. "Murphy" is a play on Murphy's law. Dave writes, "an emergency fund can turn crises into inconveniences." Dave recommends a three to six month emergency fund of money needed to pay expenses if you lose your income. He mentions that women are more security oriented and that this step will improve many a marriage.
4. Maximize Retirement Investing. Here Dave recommends 15% of income be saved for retirement. First you put away in a 401(k) what your employer will match, followed by the remainder in a ROTH IRA if you quality. He has a nice (but simplistic) chart which clearly demonstrates just how much easier it is to put away small amounts when you are younger.
5. College Funding. I'm going to keep this section really brief. Dave hates student loans, as do I, and recommends figuring out how to do without. Note that saving for college follows saving for retirement. And Dave likes ESA's (Coverdells) over 529s because of the flexibility of investing.
6. Pay Off the Home Mortgage. Here he points out that the tax savings from a mortgage don't justify paying the interest and that leveraging your home isn't the way to make money. We all like to reduce our taxes, but it doesn't make sense to pay more interest in order to pay fewer taxes (a point finance and accounting professors will make which, unlike leveraging your home, is financially sound for those who want to follow Grandma's Money Rules).
7. Build wealth and have FUN. Once you have set up a strong foundation and have built some wealth through investing, there is no reason not to have some fun. It could be a new toy, being super-duper charitable, or a combination while making wealth a blessing, not a curse. Dave notes that wealth comes with responsibility and warns against "affluenza."
All in all, I HIGHLY RECOMMEND this book as a motivator for getting out of debt or just developing a philosphy toward personal finance. I would not use it as an investment manual (see note below). Many readers write me with questions and I am so thankful to my readers for introducing me to this book because I think it presents a simple and healthy view on how to approach finances including the spiritual.
I do have more Dave Ramsey posts coming up, so stay tuned.
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Like I said, I love this book, but I do have a few quibbles, which in the scheme of things aren't anything major which is why I am noting them in small print:
1. I don't like carrying cash, so I have a hard time jumping on that train. That said, I do not recommend taking out a credit card until you have established consistent and frugal spending habits. And I would also say that anyone who has reached the end of the month and found themselves unable to pay their card off in full should immediately start using cash and checks. The same goes for anyone seeing their savings falling in a quarterly period.
2. I think the 15 year mortgage is fantastic, but I can't seem to jump on that train either. A 15-year mortgage would be quite a squeeze for most young people buying into my neighborhood, even if they really have it together. I do recommend budgeting extra each month, but I think the emergency fund wins out over the 15 year mortgage.
3. Dave Ramsey rules against loaning money to friends and relatives as it creates a master/servant relationship and ultimately destroys relationships. (He does not opposed gifting under certain circumstances). This is a tough one to reconcile with what we have been taught about the mitzvah of lending. However, now that I've had time to digest his thoughts and think about some real life situations I know of, I think he brings forward a good point. Certainly that halacha takes into account the changed relationships as you must be careful about not even walking by the home of the person you have lent to unecessarily so as to not badger. Personally I think there is a lot to be said for free loan societies that serve as a middle man between the giver and receiver.
4. Dave Ramsey reminds the reader that over time the stock market averages 12%. While I do believe in investing, I don't ever make my calculations based on such a high return. As such, it is hard for me (a lazy investor) to get worked up about pre-paid college plans for example. I think Dave Ramsey has solid advice, but I look to him more for solving the debt issues rather than the investing puzzle.
5. As a math person, I have a hard time buying into a debt snowball that pays off debt according to the amount due, rather than the APR. But I do understand the reason he recommend this method, but I would probably recommend a hybrid method after building some confidence.
Sunday, July 12, 2009
Guest Post: Headed Off a Cliff
Thank you R. Chaim B for letting me use your post as a guest post. See original post at Divrei Chaim. Also see notes from Rav Schachter's talk about what constitutes kehilla and how tzedakah should be allocated. Also see post on the Baltimore Initiative which is an attempt to keep tzedakah in the community.
Guest post follows:
You are probably better off reading a blog like Orthonomics rather than mine for discussions of the financial crisis in the Jewish community, but I want to rant about a recent event in my community which I thought illustrative of some of the larger problems. Two newspaper stories that appeared about a week apart: the first about a Rebbe from Boro Park who was hosted for a fundraising breakfast widely endorsed by askanim and Rabbanim on behalf of his yeshiva [Orthonomics: see link], the second about a local girls' high school which the board of directors overseeing it decided this week to shutdown ostensibly because of financial difficulties [Orthonomics: see link]. Question: how can it be that in one of the wealthiest Jewish communities in the Unites States, a community that has the resources to fund yeshivos far afield of its geographical location, yeshivos which will not have kollelniks saying shiurim in that community, which will not have graduates moving back to that community, will not even have graduates who teach in that community's schools, how can this community allow a high school which services its own to collapse? How does this make sense?
But who am I to dictate how tzedaka should be spend -- who indeed can set such terms? The answer is the Torah can. Is there not a halacha of "aniyei ircha kodmin", that the poor of your city take precedence? Is there not a halacha that when hundreds of boxes are being packed on Thursday night for Tomchei Shabbos because people in the community literally need help putting food on their table and there is a shortage of funds and manpower to make that happen that fixing that need should be a priority vastly more important than insuring that a Rebbe from some other community can keep his yeshiva running? I guess you need to be a semi-anonymous blogger to get away with saying these things.
In my not-humble opinion the primary tzedaka directive of any community should be to make sure people have food and shelter. The second most important tzedaka is to make sure there is a place to daven, a mikvah, and schools. Only when those needs are met should members of the community be pouring funds into outside charities, which I have no doubt are worthy and important, but must take a back seat to the community's own needs.
And when I say needs I mean needs. A shul can get by without stained glass windows and a high school can exist without offering 10 AP courses and having a full gym program. A school cannot function without paying teachers and a shul cannot get by without paying its electric bill.
Just like the meaning of "needs" has been forgotten the meaning of the word "community" has been lost. It would perhaps require a miracle for the directors of a shul to say to a person giving a check for those beautiful stained glass windows, "Thank you, but that yeshiva really needs to make its payroll more than we need that window, so maybe you would like to give your check over there..." It is very hard to do that even if that school is just blocks away from the shul... after all, how many of our mispallelim really send to that school? And doesn't that school have its own supporters? And who is managing the money there? etc. etc. And let's face reality: your name looks really nice in stained glass, but no one really knows who helped the yeshiva make payroll.
Even if the community pooled its resources effectively, institutions need to become leaner and better run. The tuition at one local high school is posted at $24,000. Question: when the average wage in the United States is about $42,000, how does it make sense to expect a parent who may have 2 kids in high school to have $48,000 in excess income just to cover both tuitions? It's just not possible. A more affordable program may require sacrifices in terms of courses offered and extra-curricular programming, but it must be done or that school deserves to fail.
The first steps to re mediating issues like these are obvious. How about audits by a community va'ad of rabbanim and professionals, much like annual reports issued by public companies? How about schools sharing resources to garner the savings of economies of scale? How about handling tzedaka through a pool which then is distributed to local institutions based on proven need rather than the whim of individuals? How about reconsidering whether a new shul or new kollel is really needed and can be sustained or whether it amounts to being poreish min hatzibur from existing institutions and robbing them of funding? There are many other good ideas out there which need to be explored.
I'm too cynical to hope discussions about these issues will do much good because the people with deep pockets who have political and financial power will determine their own course of action. We are communally headed off a cliff -- that's the real crisis.
Thank you R. Chaim B for letting me use your post as a guest post. See original post at Divrei Chaim. Also see notes from Rav Schachter's talk about what constitutes kehilla and how tzedakah should be allocated. Also see post on the Baltimore Initiative which is an attempt to keep tzedakah in the community.
Guest post follows:
You are probably better off reading a blog like Orthonomics rather than mine for discussions of the financial crisis in the Jewish community, but I want to rant about a recent event in my community which I thought illustrative of some of the larger problems. Two newspaper stories that appeared about a week apart: the first about a Rebbe from Boro Park who was hosted for a fundraising breakfast widely endorsed by askanim and Rabbanim on behalf of his yeshiva [Orthonomics: see link], the second about a local girls' high school which the board of directors overseeing it decided this week to shutdown ostensibly because of financial difficulties [Orthonomics: see link]. Question: how can it be that in one of the wealthiest Jewish communities in the Unites States, a community that has the resources to fund yeshivos far afield of its geographical location, yeshivos which will not have kollelniks saying shiurim in that community, which will not have graduates moving back to that community, will not even have graduates who teach in that community's schools, how can this community allow a high school which services its own to collapse? How does this make sense?
But who am I to dictate how tzedaka should be spend -- who indeed can set such terms? The answer is the Torah can. Is there not a halacha of "aniyei ircha kodmin", that the poor of your city take precedence? Is there not a halacha that when hundreds of boxes are being packed on Thursday night for Tomchei Shabbos because people in the community literally need help putting food on their table and there is a shortage of funds and manpower to make that happen that fixing that need should be a priority vastly more important than insuring that a Rebbe from some other community can keep his yeshiva running? I guess you need to be a semi-anonymous blogger to get away with saying these things.
In my not-humble opinion the primary tzedaka directive of any community should be to make sure people have food and shelter. The second most important tzedaka is to make sure there is a place to daven, a mikvah, and schools. Only when those needs are met should members of the community be pouring funds into outside charities, which I have no doubt are worthy and important, but must take a back seat to the community's own needs.
And when I say needs I mean needs. A shul can get by without stained glass windows and a high school can exist without offering 10 AP courses and having a full gym program. A school cannot function without paying teachers and a shul cannot get by without paying its electric bill.
Just like the meaning of "needs" has been forgotten the meaning of the word "community" has been lost. It would perhaps require a miracle for the directors of a shul to say to a person giving a check for those beautiful stained glass windows, "Thank you, but that yeshiva really needs to make its payroll more than we need that window, so maybe you would like to give your check over there..." It is very hard to do that even if that school is just blocks away from the shul... after all, how many of our mispallelim really send to that school? And doesn't that school have its own supporters? And who is managing the money there? etc. etc. And let's face reality: your name looks really nice in stained glass, but no one really knows who helped the yeshiva make payroll.
Even if the community pooled its resources effectively, institutions need to become leaner and better run. The tuition at one local high school is posted at $24,000. Question: when the average wage in the United States is about $42,000, how does it make sense to expect a parent who may have 2 kids in high school to have $48,000 in excess income just to cover both tuitions? It's just not possible. A more affordable program may require sacrifices in terms of courses offered and extra-curricular programming, but it must be done or that school deserves to fail.
The first steps to re mediating issues like these are obvious. How about audits by a community va'ad of rabbanim and professionals, much like annual reports issued by public companies? How about schools sharing resources to garner the savings of economies of scale? How about handling tzedaka through a pool which then is distributed to local institutions based on proven need rather than the whim of individuals? How about reconsidering whether a new shul or new kollel is really needed and can be sustained or whether it amounts to being poreish min hatzibur from existing institutions and robbing them of funding? There are many other good ideas out there which need to be explored.
I'm too cynical to hope discussions about these issues will do much good because the people with deep pockets who have political and financial power will determine their own course of action. We are communally headed off a cliff -- that's the real crisis.
Tuesday, July 07, 2009
Ask Orthonomics: A Tuition Dilemma
I always love getting reader questions and I received a number of questions this past week. I'm going to start labeling reader questions as "Ask Orthonomics."
A reader writes with the following dilemma:
1. The short-term: If the school makes a counter offer less than two months before the start of school, I don't think accepting the counter offer can be viewed as taking tzedakah funds. Enrollment is in, teachers have been hired, the fixed costs should be known at this point, and if there are empty seats in any classroom, it makes sense for the school to try to fill them with students that can pay more than their marginal cost. A family that has left the school because of cost issues, yet returns at a lesser cost is helping the school, even if they are receiving a discounted price. Likely the board member trying to win you back is well aware that
2. The long-term: Assuming the school comes through with a counter-offer this year, 2 months before the start of school, it is unlikely that the school will continue to extend such an offer in future years. That means that come year two you will be back in the same boat where you have to choose between a) applying for financial aid or b) switching to the less expensive school. I imagine that you could switch to a less expensive school and then be invited back, but chances are you don't care to be in limbo months before the start of school.
I don't think that you can view a potential counter-offer on the tuition cost this close to the new school year as robbing the scholarship fund. If there are empty seats and you can pay, you are contributing to the school's bottom line.
Ultimately it looks as though switching schools is likely inevitable. If that is the case I think the decision you make, should a counter-offer materialize, would be best based on educational and social factors. Will an extra year in the original school be of benefit to your children? Will switching schools in the future prove difficult for your children? Is there a particular teacher/resource you would like your child to have this coming school year? Is there a particular class grouping you would like your children in/rather your children avoid? If there are differences in school schedules, which schedule best suits your children for the coming year?
Hope this helps.
Readers, please do comment.
I always love getting reader questions and I received a number of questions this past week. I'm going to start labeling reader questions as "Ask Orthonomics."
A reader writes with the following dilemma:
I think there are two ways of evaluating this situation:
His family came to the decision that they would remove their children from a school that they really like and that they want to see prosper, and enroll their children in a less expensive school that they also like. They are pleased with their decision.
However, a board member contacted them and asked them if they would stay if the
school matched the tuition of the other school. No official offer has been made by the school yet, but it is a possibility that one will come through. The family is uncomfortable accepting tzedakah, but the school really wants to retain students.
1. The short-term: If the school makes a counter offer less than two months before the start of school, I don't think accepting the counter offer can be viewed as taking tzedakah funds. Enrollment is in, teachers have been hired, the fixed costs should be known at this point, and if there are empty seats in any classroom, it makes sense for the school to try to fill them with students that can pay more than their marginal cost. A family that has left the school because of cost issues, yet returns at a lesser cost is helping the school, even if they are receiving a discounted price. Likely the board member trying to win you back is well aware that
2. The long-term: Assuming the school comes through with a counter-offer this year, 2 months before the start of school, it is unlikely that the school will continue to extend such an offer in future years. That means that come year two you will be back in the same boat where you have to choose between a) applying for financial aid or b) switching to the less expensive school. I imagine that you could switch to a less expensive school and then be invited back, but chances are you don't care to be in limbo months before the start of school.
I don't think that you can view a potential counter-offer on the tuition cost this close to the new school year as robbing the scholarship fund. If there are empty seats and you can pay, you are contributing to the school's bottom line.
Ultimately it looks as though switching schools is likely inevitable. If that is the case I think the decision you make, should a counter-offer materialize, would be best based on educational and social factors. Will an extra year in the original school be of benefit to your children? Will switching schools in the future prove difficult for your children? Is there a particular teacher/resource you would like your child to have this coming school year? Is there a particular class grouping you would like your children in/rather your children avoid? If there are differences in school schedules, which schedule best suits your children for the coming year?
Hope this helps.
Readers, please do comment.
Powerless Parents
The powerlessness that parents in the Yeshiva world seem to have never ceases to amaze me. In this letter, a mother sends her teenage daughters off to work in the Catskills as mother's helpers, and now claims she hasn't slept all week because she is worried about what her daughters might be tempted to do.
Her concerns are perfectly justified. Despite some (likely childless) commentators declaring that if the kids were raised right they won't find trouble, the fact remains teenagers + lack of supervision + lack of physically present family and others for which a health attachments exists + a peer dominated mob scene is a good equation for some children to perhaps not exercise the best judgment.
The mother asks: "Do we stop sending our children to the country as mothers helpers? As day camp counselors? Do we shield them from outside influences?"
It is a sad day when a parent goes with the flow first and asks questions second. Reasonable people might come to different conclusions regarding these questions, but it would make sense to think first and act second.
The sense of powerlessness is truly sad.
The powerlessness that parents in the Yeshiva world seem to have never ceases to amaze me. In this letter, a mother sends her teenage daughters off to work in the Catskills as mother's helpers, and now claims she hasn't slept all week because she is worried about what her daughters might be tempted to do.
Her concerns are perfectly justified. Despite some (likely childless) commentators declaring that if the kids were raised right they won't find trouble, the fact remains teenagers + lack of supervision + lack of physically present family and others for which a health attachments exists + a peer dominated mob scene is a good equation for some children to perhaps not exercise the best judgment.
The mother asks: "Do we stop sending our children to the country as mothers helpers? As day camp counselors? Do we shield them from outside influences?"
It is a sad day when a parent goes with the flow first and asks questions second. Reasonable people might come to different conclusions regarding these questions, but it would make sense to think first and act second.
The sense of powerlessness is truly sad.
Wednesday, July 01, 2009
Regardless of the Ability to Pay:
A policy that simply is not working
If you are a Lubavitcher, today is a really bad Wednesday. Articles pertaining to the financial crisis of two different Lubavitch schools in two different locations appears on my Google Alerts this morning. The same issues that are causing financial collapse of these schools are certainly not unique to Lubavitch, so read on.
The Canadian Jewish News is reporting that the 68 year old Rabbinical College of Canada (RCC) needs $600,000 to get out of their current cash crunch. Of course $600,000 won't actually solve the issue. The issue is that the school has expanded with a high birthrate to 400 students, but revenue hasn't expanded along with it. The policy of the school is to accept all applicants, regardless of whether or not they can pay. Most, of course, can't pay. Naturally, a growing student body needs a larger building. Two years ago a $1,000,000 was given for the purpose of expanding the building. But construction cost $2,500,000 and the additional amount was borrowed.
So the situation now is that the revenue stream from tuition has not increased, donors affected by the economy are not donating, and a larger student body means more staff costs and more overhead costs in the form of utilities and maintenance. [Something to consider: The hidden costs when accepting a donation].
The campaign to get out of the current cash crunch has been described as "tepid." The solution certainly must include a tuition raise. In a previous post we learned that in (at least some) Centrist/Modern Orthodox schools tuition includes a premium to cover those on scholarship. Yeshiva, Bais Yaakov, Lubavitch, and Chassidish schools generally set tuition lower than the average per student cost. The Canadian Jewish News reports the tuition is set at $5,200, while the average cost per student is $8,000. Of course, the larger problem is that the average family is only paying between $2,000 and $3,000 per student.
I know minimum tuitions are considered abhorrent by many. Part of the reason I support minimum tuitions is because I believe that when parents know that they must be responsible for pulling a certain amount of weight, that they will make decisions that make that possible (simple economic theory).
Meanwhile, down in Flordia, another school, the Lubavitch Educational Center, is being sued by Regents Bank in a foreclosure lawsuit to the tune of $8,000,000. In 2004, the eight million was borrowed to finance three buildings. There is a main campus, another campus, and and an apartment building. The school itself is over 40 years old.
Here too, donations have tapered off in the economic crisis, the school has expanded to serve 800 students, and 90% (!!!!) of them are reported to be on some sort of scholarship. It doesn't surprise me that a school where nearly ever student is on scholarship can't pay its mortgage, just like it doesn't surprise me that families that decided to take out mortgages many times their incomes can't pay their mortgages.
Sadly, the head of the school, is clearly out of touch with the reality. It seems that he believe all should be in the tzedakah business. His response to being sued is reported by CBS4 was: "It's even more difficult and astonishing when you hear a lender say callously to you 'just give us the building and close down.' What happens with all those student that were serving that have no where to go?"
What happens to those students? I'm not sure, but I figure the parents will figure something out and the community will assist in those decisions. But to expect Regents Bank to "be understanding" is quite frankly ludicrous. They also are living during the "seven bad years" and likely won't be bailing anyone out.
Lest non-Lubavitchers think that they share little in common, this article in the Jewish Week demonstrates that when it comes to finances, there is plenty of commonality. All should take note before the new school year begins.
Reed College has discovered that "no matter what your financial circumstances are" doesn't pay the bills. Now is the time to make peace with this and concentrate on trying to serve the most students and their families, even if serving all is impossible.
A policy that simply is not working
If you are a Lubavitcher, today is a really bad Wednesday. Articles pertaining to the financial crisis of two different Lubavitch schools in two different locations appears on my Google Alerts this morning. The same issues that are causing financial collapse of these schools are certainly not unique to Lubavitch, so read on.
The Canadian Jewish News is reporting that the 68 year old Rabbinical College of Canada (RCC) needs $600,000 to get out of their current cash crunch. Of course $600,000 won't actually solve the issue. The issue is that the school has expanded with a high birthrate to 400 students, but revenue hasn't expanded along with it. The policy of the school is to accept all applicants, regardless of whether or not they can pay. Most, of course, can't pay. Naturally, a growing student body needs a larger building. Two years ago a $1,000,000 was given for the purpose of expanding the building. But construction cost $2,500,000 and the additional amount was borrowed.
So the situation now is that the revenue stream from tuition has not increased, donors affected by the economy are not donating, and a larger student body means more staff costs and more overhead costs in the form of utilities and maintenance. [Something to consider: The hidden costs when accepting a donation].
The campaign to get out of the current cash crunch has been described as "tepid." The solution certainly must include a tuition raise. In a previous post we learned that in (at least some) Centrist/Modern Orthodox schools tuition includes a premium to cover those on scholarship. Yeshiva, Bais Yaakov, Lubavitch, and Chassidish schools generally set tuition lower than the average per student cost. The Canadian Jewish News reports the tuition is set at $5,200, while the average cost per student is $8,000. Of course, the larger problem is that the average family is only paying between $2,000 and $3,000 per student.
I know minimum tuitions are considered abhorrent by many. Part of the reason I support minimum tuitions is because I believe that when parents know that they must be responsible for pulling a certain amount of weight, that they will make decisions that make that possible (simple economic theory).
Meanwhile, down in Flordia, another school, the Lubavitch Educational Center, is being sued by Regents Bank in a foreclosure lawsuit to the tune of $8,000,000. In 2004, the eight million was borrowed to finance three buildings. There is a main campus, another campus, and and an apartment building. The school itself is over 40 years old.
Here too, donations have tapered off in the economic crisis, the school has expanded to serve 800 students, and 90% (!!!!) of them are reported to be on some sort of scholarship. It doesn't surprise me that a school where nearly ever student is on scholarship can't pay its mortgage, just like it doesn't surprise me that families that decided to take out mortgages many times their incomes can't pay their mortgages.
Sadly, the head of the school, is clearly out of touch with the reality. It seems that he believe all should be in the tzedakah business. His response to being sued is reported by CBS4 was: "It's even more difficult and astonishing when you hear a lender say callously to you 'just give us the building and close down.' What happens with all those student that were serving that have no where to go?"
Rabbi Korf, you entered into a contract to pay back an EIGHT MILLION dollar mortgage. The bank is not a charitable institution. The bank is responsible to its shareholders and those shareholders aren't investing their tzedakah money! The bank is not responsible for these students. The bank has no mitzvah of chinuch! [Something to consider: how you will repay obligations in the worse case scenarios].
What happens to those students? I'm not sure, but I figure the parents will figure something out and the community will assist in those decisions. But to expect Regents Bank to "be understanding" is quite frankly ludicrous. They also are living during the "seven bad years" and likely won't be bailing anyone out.
Lest non-Lubavitchers think that they share little in common, this article in the Jewish Week demonstrates that when it comes to finances, there is plenty of commonality. All should take note before the new school year begins.
Reed College has discovered that "no matter what your financial circumstances are" doesn't pay the bills. Now is the time to make peace with this and concentrate on trying to serve the most students and their families, even if serving all is impossible.
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