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Sunday, September 05, 2010

How Debt Can Destroy a Budding Relationship

Hat Tip: A reader who is free to self-identify. That you to all the great readers who continue to send relevant articles and links to me on an almost daily basis. My apologies for being unable to blog at such a speed.

See this article in the NYT that begins with a story of an engaged young lady whose fiancee broke off their engagement three days after he discovered exactly what her debt (in this case student loan debt) actually was. Neither he or she was aware of the bottom line and the grand total was simply something he could not handle.

Bringing in large amounts of debt is "tricky" as the article states and I've heard stories within the Orthodox community regarding handling student loan debt that make me believe this issue is just as relevant to us as to the rest of American society. Who is responsible for that debt within a relationship? Who is legally responsible (in the case of divorce)? How will the debt affect the marriage, and what happens when things like kids come along?

Perhaps the most tricky question is the following: at what point during the courtship, should debts be disclosed? The first indebted young lady in the article has concluded that she should have disclosed her debt between the 8th and 10th date. I'm not quite sure what that translates to in shidduch-land. But I'd like to hear from my readers. Of course, the best course of action for singles is to avoid/minimize debt.

38 comments:

Meag said...

Your token non-Jewish reader here. My husband is Chinese, and he took dating a lot more seriously than most college students. I think we started to discuss financial values about 6-8 weeks into the relationship, and that's when I gave him a number of how much student loan debt I would have upon graduation. (It ended up being an overestimate.) Having similar financial values was very important to us; because we want the same things, my husband leaves all financial management up to me, knowing I will act in ways that are in line with our very non-mainstream values. I grew up in a home with financial conflict, and it created a lot of strain.

Money is fungible, and I've never understood couples who pay her student loans out of her salary or vice versa. I mean, is the other partner really going to let the debts go unpaid or let the other partner suffer for lack of funds if something happens?

I always figured that any significant encumbrances should be discussed before you get really serious with a person--any significant health issues, known fertility problems, desire for an odd or highly demanding career, the existence of children from a prior relationship and, yes, financial particulars.

Meag said...

In terms of other significant disclosures, I told him I had chronic health problems on our third date, about finances 6-8 weeks in, and we got engaged after 5 months of dating.

Anonymous said...

SL: I disagree with your last sentance. I don't see anything wrong with student loan debt as long as you incurred it for a degree that will enable you to pay it off, which, is most degrees since a college graduate will likely earn at least $1million more than a non-grad over a life time, and for many degrees the differential is far greater. Of course, even incurring student debt can reflect good or poor financial choices, including what school you go to, how frugally you live to minimize that debt, did you work during college, etc.

Anonymous said...

One thing thats very important to talk about with student debt is to NEVER pay off the debt with a secured debt (home loan, home equity loan), and to NEVER jointly consolidate student debts between husband and wife etc...

Why? Student loans are dischargable at death, meaning if god forbid one spouse dies, the debt obligation disappears, but if they are jointly consolidated, or rolled into something else, it will remain with the spouse or estate post death. Please don't make this mistake!

LOZ said...

ANON:

"most degrees since a college graduate will likely earn at least $1million more than a non-grad over a life time, and for many degrees the differential is far greater."

and for many degrees the differential is far less. (this is not to say that people shouldn't go to college or finance it with loans, but this is just to reinforce that people have to be realistic in what type of education they chose to finance and how much)

Anonymous said...

I would be interested to see more posts--or reactions to this post--on how to discuss financial attitudes etc. while dating. I think that the person I am dating and I have very different attitudes towards what is and is not a worthwhile expenditure, and this is relevant because neither of us is going to be earning big bucks. We haven't really discussed it; I don't want to even though I know we should. (We're Modern Orthodox and have been dating for four months. The norm in my world is 6-12 months of dating, followed by 4-6 month engagement and then marriage.)

Anonymous said...

I am thankful to G-d for sending me a mate with zero student loans. I see so many friends who are crippled by their debt. Some have $4,000 payments per month (not deductible for tax purposes) for college and medical schools/law school combined. Add tuition and other fixed expenses to that and your $400,000 combined salary will barely afford you a lower middle-class lifestyle.

Orthonomics said...

Anonymous-I simply don't understand how anyone can disagree with minimizing/avoiding. Even if you don't "compromise" on the cost of college, minimizing living costs and hence the cost to finance those living costs later on, is simply a good move. If you have a choice between two equally reputable programs, with a large cost difference and you can avoid debt by attending the significantly less expensive program, if all else is equal. . .avoid that debt. (I can't even imagine how different our lives would be--should we have made it to the chuppah--if we both hadn't minimized/avoided debt. One thing is for certain, if we can an extra $100K plus of debt at this point, Day School/Yeshiva would simply not be an option. For now, it is a choice we can make).

Anonymous said...

Anon 12:30 - so you are saying that after earning 400,000 and paying 50K a year in student loans, you will be suffering on 350K/year? Even if you pay 100K/year for tuition you are still in the top 2%. Cry me a river.

Dave said...

Part of this is generational.

20 years ago, the "don't worry about cost, you'll make it back" was largely true.

College prices have skyrocketed since then, but the conventional wisdom has not caught up.

While a college degree is still a huge benefit, the cost/benefit analysis for a specific degree/school has to actually be considered, rather than falling under a blanket rule.

Anonymous said...

Anon 1:03 - $48,000 after-tax student payments at their tax bracket (federal, state, phased out deductions)is about $98,00 pre-tax. 4 elem. school tuitions at $68,000 before tax is $136,000 pre-tax, nanny to pick up kids from schools, summer camps (since both parents work), mortgage and car payments, utilities, food and others...you can see really fast how with that level of student debt you barely have enough to live on.

Mike S. said...

Yes, minimizing costs and loans makes sense. But only so long as you do not compromise future earning power. So find out whether all things are really equal before deciding. And you ought to be careful about steps to minimize loans that risk forcing you to stay an extra year to graduate. My wife teaches engineering; I know how frustrated she gets with students who spend so much effort on their part-time jobs that they can't pass a full load of courses and take 5 or 6 years to finish. They can end up with mnore debt than if they just cut back expenses and buckled down to finish in 4 years.

Meag said...

@Anonymous

When my husband and I met, we were both college students, so we didn't have much disposable income at the time. His parents are (relatively) better off than mine, though US Dollar poor, and I grew up in a tuition poor family.

Neither of us were spendthrifts, but when the issues of my health problems came up, we just kind of started talking about costs. A lot of finances is ultimately about lifestyle choices, so that's often a good place to start.

Some questions to get you going might be--is it important to you to live in a particular city or location? Do you see yourself retiring and how will you pay for that? Did you parents pay for your college education? Do you want to pay for our future children's? Would you be willing to live in a tiny apartment for a few years to save money and payd own debt faster? Is money, or career fulfillment, more important to you? Those kind of decisions are usually governed by your financial values, and that's a good place to start before you really get into the nitty gritty of dollars and cents.

I think that, at some point, you do need to start talking actual number, but regardless of who starts the conversation, I think you both need to be willing to disclose, or one party will feel attacked.

We ultimately came to a decision that I would handle the finances. I pay the bills, I determine how much and where we save and I set our spending money "allowances." But that's because we had a lot of long conversations about our goals first. I will say that, after 8 months of marriage, there are still some things that my husband didn't feel a need to know about my finances. He's never even seen a single one of our credit card bills or my student loan bills. He's not a spendthrift, but I worry about where he'd be left if something happened to me, so I'm going to be remedying this.

My husband and I do have different ideas of necessities. We solve this by having separate (but fairly small) discretionary allowances. Provided I stay within my budget, he doesn't comment on my clothing and book buying habits. And I don't comment on how much of his allowance he spends on Chinese takeout lunches.

Orthonomics said...

Mike S-A lot of students (single and married) would be well served if they would "live like a student." Financing an education is one thing. Financing a "lifestyle" is a whole other ball of wax.

GilaB said...

A friend of mine got married while in (non-state) medical school, after attending an Ivy-league undergraduate institution. After their engagement, her father inquired of her fiancee if he was aware that she came with a mortgage.

It's true - the amount of debt she was carrying was (I'd guess) the equivalent of the cost of an average American home (~$200K). While she has good prospects for income when she finishes her residency soon, I'm sure it's impacted their life plans. They're one of the happiest couples I know, so I think it was worth it to the guy.

Jen said...

One of the points I don't see made here is that how much student debt you have on graduation has a lot to do with the frugality (excess wealth) your parents had. If your parents saved money for your college, you're going to have less student debt than someone whose parents perhaps made less. (Or spent more, but in the case of my husband's parents, they were just scraping by, themselves. In my kids' case, every check I write to the day school has a twinge attached: it's money I'm not saving, can't save, toward their college.)

Avi said...

Anon 12:30 - I'm MO like you, had roughly the same dating/engagement timeframe you're talking about (15 years ago, but still...). You can make a relationship work even if you have different ideas on what is/isn't essential, but it requires work. In fact, few people are completely alike in this regard, so everyone has to communicate, make reasonable compromises, and communicate some more. It really doesn't matter whether you have a lot of money or a little - you still need to prioritize and you still need to pay the bills (you can go broke just as quickly with high incomes as low incomes if your expenses are commensurately out of whack). Discussing your attitudes and plans for money/income/housing/expectations/definition of luxuries and agreeing to a common approach is hard, but it is essential. I'm afraid there's no way out of this. If you don't feel comfortable talking about finances with this person or once you do so you cannot come to consensus on basic financial priorities, DON'T MARRY HIM/HER. Harsh? Yes, but a lot better than getting married and then getting unmarried, and financial difficulties can and, sadly, do cause that.

Anonymous said...

Dave: I agree with the generational changes you mention, but there are also many more -- namely, that a college degree is expected for so many more jobs than they were say, 25 or 30 years ago. I know many people in their 50's who work in positions making a good living without degrees who never would be able to get into their fields or types of positions today without a degree, including people in many mid and upper level managerial and administrative positions. Something else that people need to consider is that college degrees let you desk jobs when you are older and for some, can no longer do physical labor or stand on your feet all day. Younger people also get physical problems and if you can't earn your living with your brain, rather than your brawn, you may be in trouble.

JS said...

Really good topic for a post. My wife and I dated for a long time before getting engaged and then married (about 4 years). The main reason is we met in college and wanted to wait till we could support ourselves. It's discussions about issues like that that let you know each other's financial attitudes. We also discussed our family's financial situation and how each of our families viewed and spent money and whether we agreed with it or wanted to live differently. I think these are perhaps more "safe" ways of discussing these topics without outright asking "Would you spend $500 on X?"

Finances is a very tough thing to gauge and attitudes change over time. More important is being with someone you can truly communicate with who believes very strongly in being on the same page and compromising to get there. The rest is details in the end.

As for debt, I left college with nearly 6 figure debt and my wife had none. Having that much debt can be truly frightening for someone right out of college. I'm not saying I recommend this, but for me, it really helped me focus on how expensive life is and that if I wanted to live a certain life, pay off debts, support a family, etc. I needed a higher earning career path. Student loan debt isn't a bad thing in and of itself. It's an investment in yourself and you need to make sure you're getting a good ROI. I went to a very good university and it's served me well in my career even though I've refocused what I do.

However, I see many people taking on a lot of debt at expensive private schools to obtain jobs that pay maybe $30k-$35k starting without much upward potential. That's just foolish in my opinion. If you take on debt wisely, even large amounts of debt are "safe" but if you're entering a low paying career, even small amounts of debt can be foolish.

As for the family making $400k and barely getting by, please. Look around you. You're surrounded by luxuries and you don't even see it. I find this attitude really troubling in the frum community.

Mike S. said...

SL: I have to agree with that. An education can increase your earning power,a lifestyle doesn't

Raizy said...

Very interesting topic. Years ago I was briefly engaged to a young man who was extremely frugal. My father noticed his shirts were frayed, and I noticed we never did anything that cost money, and he would spend very little. He was in yeshiva but he had been in a lucrative career previously and had savings. My father said that if a young man doesn't display a certain modest amount of generosity with a girl at the courtship stage, chances are he will not willingly spend on more than the minimum when they are married. I knew at once we were mismatched. I loved books, and I occasionally bought one. I had certain modest wishes for small items that a young girl enjoys, like perfume. Like cosmetics. I wasn't extravagant, but I could see living with him, I might feel the pinch of deprivation. I had no major career plans, I was bookish and assumed he would earn the living - it was like that then. I never spoke openly about our differences in spending attitudes, I simply assessed his behavior on dates. All this about open communication nowadays - in my day there was no open communication! The purpose of speech was to conceal your thoughts, and as a young woman, your role was to listen and to observe the young man's priorities. We were financially mismatched and in many other ways, too. I have never regretted breaking the engagement.

Dave said...

I'm not arguing against a college education. I'm arguing for cost-benefit analysis considerations of College/Degree pairs.

Anonymous said...

I know when I was dating, as a modern orthodox young woman, during and after university, one of the ways I got a feeling about my date's attitude towards money had a lot to do with where we went and what we did on our dates.

If someone who was a full time student wanted to go out to pricey dinners or other costly activities, that was a red flag for me as I am more of a 'don't spend what you don't have' orientation. Likewise, I was aware of what profession someone was and their assumed income range relative to what we would do - not that its inappropriate to sometimes go out nice even when you aren't wealthy, but to do it all the time would make me uncomfortable.

Its not just a matter of affordability - I'm just not a 'fancy' sort of person and so going out to nice restaurants all the time or other $$$ activities was just not at all a priority to me or something I was looking for. I was more interested and comfortable with picnic lunches, hiking, museums (many at least then were free or low cost) and the like. I'm sure there are people who tend to spend more than they earn who enjoy those low cost activities too but in my experience, it seems less likely that will be their choice on a day to day basis.


I was very open about my desire to make aliyah which probably also made it easier to get to the $$$$ topic - since having some savings and not having large loans to take with you are factors in aliyah success.

I took on many extra jobs during my years at university in order to keep student loans to a minimum and then I paid them back aggressively right after graduation to get debt free within 3.5 years. I was also lucky enough to have a large scholarship that covered most of my tuition - I'd not have gone to school where I did without such a provision - my parents were not willing to go into debt themselves for a private school instead of state school and I completely understood and agreed (and back 20+ years ago, state school tuition was very affordable).

Loz said...

"I was very open about my desire to make aliyah"

People who want to make Aliyah should be especially careful about their student debt because it is very difficult to pay back large student loans on an Israeli salary. And some jobs that pay well here pay very poorly there, which can make it impossible to pay back a loan.

Anonymous said...

If you want to make aliya, then doesn't it make more sense to go to college in Israel?

JLan said...

"If you want to make aliya, then doesn't it make more sense to go to college in Israel?"

Anonymous- depends on what you want to do. One of the easiest ways to go about aliyah is if you're in a field where you can transfer from a US office to an Israel office, in which case an American degree (in English), and a start in America can obviously be very useful.

Fleeced said...

I didn't have debt coming in to my marriage, but I did have significant savings- in the 100K+ range. My wife had none (that is, after she bought a couch and a table for our apartment :)). I think I can relate well to this discussion, from the opposite side of the tracks.

As you can guess, I am the one with the more conservative financial values. My savings came from a lifetime of careful money management and minimizing expenditures. I am not like the man in Raizy's story- I did spend money appropriately, and on dates I never held back or cut corners. I am simply someone who worked hard to earn my money and didn't want to see it frittered away on things that were not as important as the effort that went into acquiring the money.

My wife is one of those people who consider themselves frugal but can only be described as such under her own very subjective standards. As in, 'I always use coupons if I have them' but 'I will buy whatever I want regardless'. She's good with budgets, as in if you give her a budget, she'll overspend by less than 1%. In contrast, give me a budget and (assuming it is a sufficient amount) I will bank or return some of the money every time.

As she slowly burned through my savings (the bulk of it went to buying an overpriced house during the bubble-way before we needed a house, and to replacing a perfectly good but not flashy car with a late-model SUV that we did not need), I started to realize how detrimental her financial values were to mine right away but in the early stages of marriage the tendency is to forgive over and over. Eventually though, I realized that I had married a gold-digger. Between my savings and my career (I was earning 100K+ before I was 30, and no debt of course), she could easily stay home to 'take care of the kids' (even before there were any kids) and go mall hopping to fill out her day. Of course, she doesn't see herself in that way- to her it's just a case of continuing to live in the comfortable style she grew up with, namely spending all the money that is available so that you don't have to 'rationalize everything you spend'.

I was too slow to realize this, and so divorce was not a sensible solution. By the time I was ready to stand up for myself, it was too late. Divorce wouldn't make up for my savings, and it wouldn't give me back my full income. After considering the option, I came to realize that I could stay married to her for the same price as divorcing, so I dropped the suit. We're still married.

Tying this back to the point of the post, I think that any finacial disparity can destroy a relationship. Whether one spouse has debt or one spouse has income/savings- both cases are a situation that one of the spouses can or will be drain on the other's hard work. There's a reason why traditionally people only married those of similar station or social standing.

When should the savings/debt be disclosed? I think that most people would be able to recognize "when" on their own, if they are cognizant of the fact that the issue needs to be brought up. Around the same time that you are ready to discuss your plans/hopes for kids, or the family black sheep/skeleton in the closest, you are ready to be sharing important financial discussions. It's just that people dating are not aware that the subject should be on the "must discuss" list.

JS said...

Fleeced,

I feel really bad for you, but probably not for the reasons you'd like. You come across as a self-congratulatory, controlling jerk, in my opinion. The entire comment is you patting yourself on the back while berating your wife. If divorce was ever in the cards, I doubt her "overspending" was the leading cause.

First of all, why not accept your share of the responsibility for the financial decisions that were made? I don't think your wife bought that SUV or that house behind your back or stole money from your accounts to do so. If you didn't agree with the purchases, you should have communicated and compromised. Or, you could have sought out marital or financial counseling to get on the same page.

You make it sound like all your wife does is spend and yet you acknowledge that with a budget she'd only overspend 1%. Sorry, I'm very frugal and careful with money and I think that's pretty impressive. In fact, I blame you, since you should always budget in wiggle room and savings. Whenever I budget I take into account money to go straight into savings and a fudge factor. If you never did that or never even bothered to budget (which would have handled the SUV/house issue), you can't blame her.

Further, sorry to burst your bubble, but $100k+ by the time you're 30 isn't all that impressive. Again, sorry. You make it sound like you're some high-powered big shot compared to your wife who you conceive of as a waste of space, gold digging, mall hopper. If she's a gold digger, she's probably the least ambitious gold digger I've ever seen - an attorney at a big firm is easily earning well over $200k by the time they're 28.

Finally, I like how divorce and marriage are financial decisions to you. Real classy. Sounds like you calculated the ROI on getting married to your wife and are now upset the asset is underperforming. I guess you should have read the prospectus.

LoZ said...

FLEECED:

are you sure you meant to call her a gold-digger? that's a pretty negative term and there is a difference between a gold digger on the one hand and someone who simply overspends, is lazy and/or has a flashy lifetyle on the other hand. do you really mean to imply that she specifically married you even though she didn't love you, in order to get at your money? i would say that is fair grounds for divorce. otherwise there must be something else going on that we don't know about. good luck in any case.

Miami Al said...

Fleeced,

Sorry you are upset that you made bad decisions and lost money in this economy, but it happened to lots of people. If she stayed within budget and you got in trouble, I'm hard pressed to blame her as well, as JS said.

Your wife is not a gold digger, perhaps a copper digger.

Sounds like you guys made bad decisions, perhaps because she wanted a nicer lifestyle than you could afford, but you didn't say no.

If you knew the numbers, and she didn't, blaming her is BS, you made the bad call, not her.

I get it, you blew your life savings with 2 major financial screw ups and a series of minor ones. That sucks, but man up, take responsibility, and fix your life.

Ariella said...

Recent studies bear out what Dave says about the cost of college not necessarily paying off. Those of us in New York (and many Teaneck residents who take apartment in Queens to attend the college there) can take advantage of very low cost college education through the CUNY system. I am all for education, but I don't believe it's a guaranteed payoff in terms of earnings.

Ariella said...

I didn't see that anyone addressed the "at what point to bring it up" question for shidduch type dating. Those who are in the type of circles in which people are expected to get engaged around the 7th date should probably bring it up on the 3rd or 4th. Those who date longer, can figure out their approximate midpoints.

LoZ said...

Ariella,

I don't know this world too well, but in circles that expect an engagement by the 7th date, aren't these financial issues left to the parents to work out?

Anonymous said...

For those of you who are anti-debt to finance college, consider military service and taking advantage of the GI bill, not to mention all the good technical training. Yes, I know there are some risks attached, and being in the military has some extra challenges for orthodox, but since the orthodox often support right wing policies and the u.s. having and using its military might, its a perfect fit.

Ariella said...

LoZ if the debt is for college tuition, they should at least have degrees, so they wouldn't be 18 year-olds fresh out of seminary. Their parents may be taking care of the finances, but once they are married, they would have to know how much money and debt they have. Sometimes the parents regard the debt as their own obligation, but legally it is usually in the name of the student. So it is something the couple should be aware of.

Charlie Hall said...

My wife let me know about her large medical school debt on the first date. I considered that entirely appropriate and asked her to marry me on the second date. Transparency is good, while secrets destroy relationships.

Ariella said...

Charlie, I agree with you. But that was quite a whirlwind courtship! You don't waste any time, do you?

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