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Tuesday, March 23, 2010

Financial Counseling for Scholarship Recipients?

In the previous post "Overly Invasive?," a scholarship committee member writes:

Of course we do all we can to eliminate fraud, though, frankly, I have found it to be a small problem. The much larger problem is people who have made poor choices. This is a much more difficult problem to address. One thing we have considered is requiring financial counseling for all scholarship recipients. What do you think?

I've thought of this idea and will just open up the comments to readers. I think financial counseling would ultimately be more helpful (although when the kids are already in school, you are playing a game of catch up) than increasingly humiliating processes that probably do more to cause bitter feelings amongst the honest than the dishonest. Obviously not everyone applying for reductions is in need of financial counseling. But some would certainly benefit. And encouraging a culture of stewardship and responsibility would be positive.

But, I'm not really sure who would do such counseling and who would give their stamp of approval. I think if a more uniform approach to career preparation, spending, and saving were in place, as a community we wouldn't be were we are today. Additionally, I have no idea who would do such counseling and there is always an issue if the advice received goes against halacha.


Jerry said...

Good idea. Like, for example, if you already have 2 or 3 kids on scholarship, get on birth control and don't pump out a 4th or 5th kid thereby further burdening the community.

Anonymous said...

Yep, this is the essential example of responsible management of ones life as an adult.

... and it's the one thing the Rabbis will never let you tell them.


Anonymous said...

Yeshivat Rambam here in Baltimore has a form that all potential scholarship parents fill out. One of the questions that irked me was, " Do you eat out?" Yes I take my kids to Tov pizza once a month, so what? We are a very responsible family when it comes to finances. We are both teachers in the public schools so we only had two children. I suffered a stroke so we currently apply for aid. It's important to not be judgemental until you know the full story. I've already been subjected to rude & insensitive comments such as "you could do something." So much for rachmunis. A chag kasher v'sameach.

Sima said...

How about financial counseling offered with chosson/kallah classes? That might actually work, as you are getting to the family before they form a spending pattern and standard of living.

YS said...

What about Mesila? They have some American branches.

Orthonomics said...

Mesila is one option, but I believe they only have branches in Lakewood and Baltimore. Mesila does a fantastic service, but I don't know how much volume they can handle and I'm not sure if they are accustomed to working with high income earners.

Mike S. said...

I am tempted to say sure, as long as the tuition paying families get to offer financial counseling to the school :)

But seriously,

What fraction of the people needing scholarship aid really need financial counseling? That is, are unable to pay because they lack some knowledge of financial management. I'd bet it is pretty small. Haranguing people not to have children, to live in a smaller house and so on, is not financial counseling. It might be moral instruction, but this is not a forum in which it is likely to be accepted. It seems from your and Wolf's threads that it is more likely to be venting than anything useful. And some of the "advice" on Wolf's thread, like "you have to stay in a low-paying dead end job so you can pay a few bucks extra in tuition this year instead of increasing your earning capacity" is just dumb.

Look, private school is expensive. And like most service based costs, has risen much faster than inflation over the past 20 years. You can't import cheap Yeshivahs from China. At one school my kids have gone to tuition has averaged 8.6% increase over the 20 years I have had kids there. That is hard even for a responsible parent to keep up with.

Anonymous said...

I wonder what their advice would be for us. We have two kids- a boy and a girl. We have many many tens of thousands of student loans left to pay back. Our cars are a decade old and paid off. We rent. We make an ok amount of money---- if we were to send our kids to public school (and because they're only in preschool now, we do). But we simply can't afford private school. So, though we don't vacation or have new cars or even own a home, we'll be asking for tuition assistance.

Great advice would be to drive a car way past its point of being paid off. Don't purchase a home if you can't afford it. Don't have more kids. We're already doing all that.

Anonymous said...

I think it's a great idea, although presumably it should be done with frum financial counselors who are under the guidance of Rabbonim who have some understanding of money.

Because honestly, it's not so much the "why did you have 'em so close together," it's "why aren't they wearing hand-me-downs from sibling to sibling at least, and why do they all need to go to overnight camp instead of the perfectly good day camp we have right here in town?"

Avi said...

It's a great idea. Sometimes it's little things which people living in the moment don't realize add up. If flowers for Shabbos is your one indulgence, fine, but many people don't do the math and are astonished when they discover they're spending $2,000 on flowers per year. However, often it's repeatedly making stupid investments, working on get rich quick schemes instead of investing in a career, getting sucked into multi-level marketing schemes... financial counseling can help in either case. If you're asking me for money to send your kids to school, its in my self-interest to teach you how to need less. And your self interest to learn.

dj said...

In the UK the government is considering having personal finance taught in all schools.

Although a little late, teaching this to parents would still be very valuable. And even those who don't require financial assistance may still need financial counselling so they don't waste their wealth.

Anonymous said...

I'm comment openly every once in awhile on this blog, but I'm going to remain anonymous for the moment. You'll see why in a second! :-)

We require (and receive) a large amount of tuition assistance due to

* Having made very poor choices made early in the marriage and career. (ie bought a house and car without the income to support it figuring it would happen in the near future)

* We wracked up a lot of debt then thinking "Oh we'll be in the money in a few years and we'll be able to pay it off".

* We did not grow up frum and did not anticipate the tuition costs we would be confronting.

* The business failed (as so many businesses do).

* An injury in the family put one wage-earner out of commission for a significant time period (still hasn't found a full-time job to replace the one lost when the injury occurred).

We've been scrambling to catch up for years. We finally declared bankruptcy -- the injury put us over the edge and curtailed our income enough so that we were able to file chapter 7.

Would financial counseling from the school help us at this point? Not really. We've become very well financially educated in the last 2 years.

Would it have helped in the early years of our marriage BEFORE kids and house and school and car??? DEFINITELY.

I've heard someone in our town suggest that all newly married or engaged couples be required to have a course in financial management. What do people think of that idea? If not compulsory, at the very least make it available and make widely known why it might be in your best interests to take such a course.

I plan to send all of my kids through Dave Ramsey's Financial Peace University when they are reaching the age where it matters to them.

I think all college/marriage age people need to become well-versed in these matters. But once they are up the creek? Well, it can take DECADES to recover from early bad financial decisions.

Anonymous said...

Great post anon 9:07. I agree that getting good financial education early is key. If I had a nickel for everytime I thought if only I'd known X back then . . . . Parents are doing a real disservice to their children if they do not make sure they get a decent financial education before embarking on marriage, college and career choices, buying a home, etc. Of course that needs to be tempered with not turning kids into little money grubbers or stressing them out, but the whole point of a good financial education includes the message of balance and how planning can reduce stress and help enable you to be generous and meet your obligations to help others.

Miami Al said...

Anon 9:07,

I think that financial counseling should be encouraged for all families, it's easy to slip up, FAST.

We were doing well until a business failure, same as you, and our one saving grace right now is that we were diligent savers before house and kids. While our balance sheet is a wreck with debt, we have substantial retirement savings. I don't know that we'll be able to put much away from here on out (digging out of debt is top priority), but with compounding interest, those first 5 years of savings should help substantially.

For us, the housing headwind instead of tailwind hurts, a LOT. We were able to save diligently for a down payment and buy our house early, and if it was a few years later we'd be upside down, but if it was anything but the crazy boom-and-bust years, we'd be far ahead of the game getting in a house 5-6 years earlier than we "should have."

But with kids, bills come fast. The old beat up hand me down cars (a coupe and a small sedan) finally died and we needed larger vehicles, and childcare expenses add up fast. Debts can spiral.

The difference between +500 and building a large emergency savings fund and being -500 and wracking up debt is "only" a swing of $1000, but over time, it get's unmanageable, especially as the credit crisis removed easy 0% transfer rates as a way of bouncing it around.

But 6 months of losing an income can take 5 years to recover from, the inability to get ahead is astounding.

I think that financial counseling for as many people as possible is a good thing... and on the basics of budgeting and planning, not investment strategies.

However, I think it is MORE important for the schools to remove the perverse incentive structure that creates this silly dichotomy: a world of scholarship "abuse" with Pesach vacations, big houses, and expensive cars vs. near poverty with beat up bursting clothing and eating canned beans for every meal.

You need to stop rewarding hyper-consumers with scholarships and punishing the fiscally responsible.

A FAIR system would look at income and let you spend your after-tax, after-tuition money how you want. The current system let's you spend as much after-tax money on housing and cars, but nothing on savings or retirement.

Of course we over consume, some of it is "American materialism," but some of it is an economic system that let's you own the biggest house you can swing before applying for scholarship, and the most expensive cars you can lease, but not allow you to keep any savings.

If you want people to save, exempt savings from scholarship consideration. If you want people to spend, exempt the biggest expenditures from scholarship consideration. Look at what we do.

Also, scholarship for life let's families have a stay at home spouse at no cost to them, since the tuition committee would take 100% of the second income, that discourages income and is a BIG part of the problem.

Once you are getting scholarship, why would a rational family take a 2nd/3rd job, when the benefits all go to the school and not them? Protestant Work Ethic?!?!?

Anonymous said...

Al: It sounds like you did the right things, but sometimes even the most prudent people get whip-sawed. You can't predict and plan for everything. Sometimes, people just can't afford all of the prudent measures that they know they should be taking -- i.e. disability insurance, long term care insurance, flood and earthquake insurance (even if you don't live a flood zone or earthquake prone area).

Having said that, not having mandatory financial education in school is crazy. We don't let people get their driver's licenses without learning the rules of the road and going around the block a few times with an experienced driver.

Anonymous said...

more important than financial counseling for parents is career and financial counseling for high school students.
poor career choices result in a lifetime of burdening the community. when a young frum man decides to go for a technical job (handyman, plumber, etc) there ought to be someone out there who can explain to him the financial impossibility of this choice. that should be done prior to his career choice, not once he is married with kids.

Miami Al said...

Anon 10:10,

Less about reasonable choices so much as two correct ones (retirement: open IRAs early, max out SIMPLE IRA in good times, house: save for a down payment from the day of our marriage aggressively and diligently) combined with an extraordinarily good income early on.

Good career choices that start strong, even if they don't finish as high, can pay off IF you save. Doctors will have better incomes than engineers or accountants, but engineers/accountants/financial analysts/etc. can start working between 22/24 (depending on a Masters), and make a decent salary from day one. The lawyers start with crazy hours at 25/26, doctors start doing well post-residency.

If you live high on the hog, then you come out behind because the more educationally intensive paths make more money when a house, kids, etc. starts to crimp the budget. OTOH, if you are a saver, you can have a decent retirement portfolio and a down payment by 25... so when your friends are coming out of law school, you're established, and when they come out of medical school, you have a decent cushion and a home.

However, if you plan to save "later" and you aren't in a back-loaded career, you're screwed. A union teacher can afford to count on increases over time, a computer programmer/IT guy cannot, they won't see a substantial jump in income from age 27 unless they make a career change.

It's also to take the miserable life, high earning positions in consulting at 22 with no kids, a lot harder to transition to there at 35 with 3-4 kids in private school.

Financial planning is key, because front loaded careers are GREAT if compound interest works for you... I know one family that made good money in the early eBay days, their careers aren't so impressive right now, but they own their house in the clear, so their monthly nut is REAL REAL low.

OTOH, if they kept trading up and leveraging up, then when their incomes dropped, they'd have nothing.

The way leverage can clobber you in a down year is hard to explain to someone starting out, someone who thinks that nothing bad can ever happen.

Anonymous said...

More financial consouling in the frum world should be welcomed.

The frum financial situation is bad.

Anonymous said...

Sl said "But, I'm not really sure who would do such counseling and who would give their stamp of approval." It sounds like this is a case where searching for perfect could be the enemy of the good and nothing will get done. Why does financial education have to have a hecsher or the perfect hecsher. Why does it even have to be religious based if there is not a good rabinically-approved program available?

Anonymous said...

I meant to add, I'm not sure what the is about advice with respect to advice being against halacha? There are many financial advisors/educators who aren't jewish who have no problems working within people's religious parameters. For example, many religions are against family planning and require tithing and giving charity. The only real differnce we have is those denominations that won't consider not sending their kids to private schools. As long as the educator/consultant understands that is not an area that is open for debate (assuming that it is not for a particular group), they can still work around that.

Orthonomics said...

more important than financial counseling for parents is career and financial counseling for high school students.
poor career choices result in a lifetime of burdening the community. when a young frum man decides to go for a technical job (handyman, plumber, etc) . . . ..

Haalevi some of young men should choose a solid technical job. Much of the problem I see is that young men (esp) don't choose something employable and end up with the choice of going for a grad degree (read: take on a lot of debt) or "starting a business"/selling something

Too many young men are trying to piece together an income and are not meeting with sucess. Many of them would be much better off if they had a maketable practical vocational skill such as plumbing or handy work. And if you have a vocation, there are places to go.

tesyaa said...

Even with counseling -- people will still make bad choices, because that's what huge numbers of people do. As long as the mandate is "no Jewish child will be turned away..." there will be a scholarship system, with responsible & lucky parents subsidizing the irresponsible and/or unlucky.

If there is no such mandate, you might see a change in behavior, because often social pressure (fueling the desire to keep kids in the socially acceptable choice - yeshiva) trumps bad decisionmaking.

Anonymous said...

Tessya, schools punish kids all the time because of the parents -- i.e. you don't get admitted if Mom doesn't cover her hair, doesn't wear skirts, etc. and it works at controlling parental adherence to certain religious behavior, so why couldn't that also work with financial decisions. Granted the control and not accepting children whose parents aren't frum or sufficiently frum or the right flavor of frum is more charedi/hasidic, but there is some of that in other areas.

tesyaa said...

Anon 1:31, you make a good point. Also: it's a dirty little secret that the concept of admitting every Jewish child is not even true. First of all, as you said, admission often depends upon the level of Jewish observance of the parents. Second of all, innumerable kids are denied admission or shunted off to more lenient schools because of perceived "flaws" in behavior or academic ability.

JS said...

Financial education is a good idea, but I think the larger problem and one I hinted at in a previous post, is that there is no set criteria for what defines financial responsibility in the frum world. They can't even agree if having a savings/retirement account is allowable!

You have so many conflicting statements you can't make heads or tails of it. At the same time, there's no set criteria for what defines "bad behavior" when on scholarship/assistance.

So you have problems such as should one build up an emergency fund at the expense of tuition, save for retirement at the expense of tuition, rent vs buy, how much house is acceptable, how many children are acceptable, is it ok to be a stay at home mom, is paying for graduate school ok, etc. These are large issues that define the boundaries of how tuition should be valued against long-term, life decisions.

Then you have issues such as is it ok to eat out, have cleaning help, go on vacation, have large simchas, sponsor kiddush, give large gifts, etc. These are smaller issues that define the boundaries of how tuition should be valued against day to day expenses.

There are simply no guidelines. Just having guidelines in place would help parents plan financially.

If a parent knew that a school doesn't give out assistance to families that go to pesach hotels (whether this is right or wrong is irrelevant), it would cause an instant change in behavior. Same with no assistance for families that have cars less than 3 years old (again, right or wrong is irrelevant).

It's the lack of guidelines that also cause so much animosity when families see neighbors eating out at a local restaurant and impose their preconceived ideals that "no family on assistance should eat out." Guidelines would allow better policing and less animosity as it would be understand that X is OK, but Y is not.

dj said...

Further to my comment earlier, it seems that the UK is not just considering financial education in schools but they have actually just launched compulsory financial education in schools.

BTW for anyone in the UK the above site is one of the best around to learn and improve your finances.

FI said...

I was the anonymous who wrote the original comment. I agree that financial counseling would be better at the time of marriage, before problems have become acute. However, we're not in a position to require that.

We have, to the points of many, tried to be generous to those who have made good financial choices(i.e retirement savings, frugality), though such people also tend to be generous in regards to what they offer to pay.

Unfortunately, there is no good way to "punish" those who have made poor choices. If your house is underwater with a huge payment, you have 100,000 worth of credit card debt, and can barely put food on the table, we don't have a lot of choices if we're not willing to not let your child come.

I know our policy of Jewish Education for all, regardless of financial ability deeply offends Tesyaa, but I remain convinced it is essential. If the parents are unable to educate a child, Beis Din, meaning the community, has a responsibility. The secular world has recognized this with compulsory, free education for all, and in an ideal world, the Jewish community would prioritize this, step up, and provide the same. It's certainly no less important then a free trip to Israel for every Jewish college kid.

The other recurring point in the comments has been the role of the Rabbis. Ain Kemach, Ain Torah. The Rabbis need to preach that debt is bad, and that choices can't be made at the community's expense. The story is told that Rabbi Yaakov Kamenetsky once asked a member of his community whether they had life insurance. "No, I have bitachon," was the response. Reb Yaakov, replies that this was a mistake, one must have bitachon on one's own cheshbon, but not on the community's. For if something would happen to him, the burden of supporting his family would fall upon the community. This message has not reached many of our friends and neighbors, who make what they believe to be "frum" choices and ask the rest of us to foot the bill.

It would also help if there was more emphasis on local giving and on elementary and secondary education. This is especially true "out of town". The amount of tzedaka that leaves our city is mind boggling when there are many legitimate needs right here. We can't offer 96 Rabbis simultaneously davening at 47 kevarim, but we can allow you to fulfill the mitzvoh of tzedaka in its purest form.

tesyaa said...

FI: Yes, I think I should bow out of discussions here because I don't view yeshiva day school education as the mandatory way to provide chinuch. It does have many benefits, and it's good for a lot of people. My issue is that I see that it's unsustainable. If others disagree and can make it sustainable for the community, they have my admiration. But I'm very concerned that people who do not see the financial realities will end up with no choices, while those who accept the financial realities will have had the chance to make a lot of choices for themselves.

dj said...

A quick point on what FI said. I agree that Rabbis should be encouraging people to be responsible financially but I think its incorrect and too simplistic to say debt is always bad. Have a look at this blog post which discusses why only bad debt is bad.