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1.11: Family Resources and Economics

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    Chapter 11: Family Resources and Economics

    Since earliest human record, the family has been a group of persons committed to meeting one another's economic needs. This is a vital function of the modern family in our day. As newborns enter the family, they are fed and clothed, protected and nurtured into childhood, adolescence, and adulthood. When they leave home they continue to receive economic support, even into the college experience.

    How many times per month do your parents help you out financially? You'd be surprised to know that many students do receive financial help from family even after they marry, graduate college, and enter the workplace. In my own family I had 2 occasions where my parents helped me financially during my college experience. Other than that, I was completely on my own. It makes me happy that today's students have parental support.

    In a study performed by College Parents of America in 2007, of 1,727 parents it was reported that “college students' finances were of “extreme or great concern to nearly half the parents.” Other findings reported by parents indicated that cell phones were the preferred method of communication (College Parents of America, S. A. (2010). Finances Top Survey List of Current College Parent Concerns. retrieved 4 January, 2010 from , 1-3). The report stated that:

    “What are all those cell phone conversations about? As noted above, student finances are of paramount concern to those respondents among you who are current college parents, with that and health and safety issues topping a list of choices that also included academics, campus or community involvement opportunities, career planning and personal relationships (page 1).”

    So, parents not only continue to provide economic support, they are a social and emotional support to their college-aged children. Many have noted that among college students today, “adulthood” may not be the best word to describe them. They continue to be dependent upon their parents at some level into their late 20's. Perhaps “young adulthood” or in some cases “extended adolescence” is more accurately descriptive. As I mentioned, I am happy to know that parents support their children through the college years. You see, in the US colleges and universities are the gateways to financial security and opportunity; the higher the education the higher the income.

    That's why it is so very important that children get to attend school and graduate with their high school diploma. In 2008 over half the US population had some college experience with 38 percent graduating at some level (retrieved 1 April, 2010 from http:// Table 226 Ed. Attainment...:2008). In 2007 the income levels by education showed a clear pattern of more money earned by those who have more education in college and university (retrieved 1 April, 2010 from Table 227 Mean Earnings by Highest Degree: 2007). About 45 percent of our population never gets to go to college or university and some even drop out of high school. This is a dual-edged issue. On one side of the sword poor people get less quality of K-12 education than middle class and rich people; so, they have financial hardships that prevents their access to the gateway to financial security. On the other side, their lower financial and educational status undermines healthy and self-promoting life styles. Poorer people are more likely to be victimized by crime, commit crime, go hungry, cohabit and/or divorce, be abused, etc. Of most concern to me are the children who are raised in poorer families.


    Children and Poverty

    Childhood in our day does not require children to contribute much back to the family economy for most families. In our society with all the privileges and economic affluence there are still members of families, communities, and racial categories who go without, go hungry, and haven't the slightest notion of ever going to college. Today, many children grow up in poverty, even in the United States. A recent study pointed out the current trends in childhood rates of poverty (see “Child Poverty Rates Increased As Recession Began” Retrieved 30 November 2009 from tabid=18557). Using US Census data this study indicated that in 2008 19 percent of persons below the poverty level were children. New Hampshire had 8.6 percent below poverty while Arizona had 26.2 percent. ). Children of color have a higher likelihood of living in poverty. Wight and Chau also reported that 27 percent of White children; 61 percent of Black children; 31 percent of Asian children; 57 percent of American Indian children; and 62 percent of Hispanic children all live in poverty.

    Poverty in the US is layered across racial categories. What is poverty in the US?

    The US has an official definition of being poor or in poverty. Poverty Line is the official measure of those whose incomes are less than three times a lower cost food budget. This definition has been the US's official poverty definition since the 1930s with only a few adjustments. Near Poverty is when one earns up to 25% above the poverty line. We would say that a person near poverty has more income than someone in poverty, but not more than 25 percent more. In Table 1 below you can see the US Health and Human Services 2009 poverty guidelines with estimates of near poverty levels. Most who qualify as living below poverty also qualify for state and federal welfare which typically include health care benefits, food assistance, housing and utility assistance, and some cash aid.

    Those near poverty may or may not qualify depending upon current state and federal regulations. Absolute Poverty is the level of poverty where individuals and families cannot sustain food, shelter, warmth, and safety needs. Those below poverty are already in a bind. For example, the average home where I live in Utah cost way more than the average poor family could ever afford.

    Table 1: US Poverty Guidelines 2009 With Near Poverty Estimates
    Number of People in Family Poverty Line Near Poverty Estimates (<125% of Poverty Line)
    1 $10,830 $13,536
    2 $14,570 $18,211
    3 $18,310 $22,886
    4 $22,050 $27,561
    5 $25,790 $32,236
    6 $29,530 $36,911
    7 $33,270 $41,586
    8 $37,010 $46,261

    US Census data indicate that people have various levels of poverty by racial grouping. In Figure 1 you can see the poverty and near poverty rates for various racial groups in the Unites States from 1980 to 2006. The thick black line represents the sum of the percent in poverty and below 125 percent of the poverty line (near poverty) for each year. The ranges suggest about 25 percent or just below 1 in 4 being in or near poverty for the US.

    Whites (the redline) have the lowest rate of persons in poverty but make up the largest numbers of persons in poverty because Whites represent about 75 percent of the US population. Asians are slightly higher than Whites.

    The blue line represents the percent in poverty for all races. It's much lower than the high rates of poverty for Blacks and Hispanics because Whites are such a larger portions of the population that it pulls the overall average downward for all races. The near poverty line is tan. Hispanic is second worse and Black is the worse for percent in poverty. We see that the layers in the strata have racial factors for both poverty and near poverty levels.



    Table 2: US Percent of Uninsured by Selected Characteristics 2007
    Category % Uninsured
    White 14.3%
    Black 19.5%
    Asian 16.8%
    Hispanic 32.1%
    < 6 years old 10.5%
    6-11 years old 10.3%
    12-17 years old 12.0%
    <18 years old 19.0%
    18-24 years old 28.1%
    25-34 years old 25.7%
    35-44 years old 18.3%
    45-64 years old 14.0%
    65+ years old 1.9%
    Income Level of Family
    <$25,000 per year income 24.5%
    $25-49,999 per year income 21.1%
    $50-74,999 per year income 14.5%
    $75,000 per year income 7.8%
    Parents' Work Status
    Worked Full-time 17.0%
    Worked Part-time 23.4%
    Did Not Work 25.4%

    What about the nearly 11 percent of children without insurance or the nearly 18 percent of children in poverty without it? This is difficult to justify in today's modern society.

    Every wealthy country that the US compares itself to (Western Europe, Australia, Japan, etc.) offers health insurance as a right to all, not just a privilege to the wealthier people in the higher strata. The less income one has per year the higher the uninsurance rates.

    About 1 in 4 who worked part-time or did not work at all have no insurance, while only 17 percent of full-time workers went without. The 2010 Federal Health Care Reform legislation established the first federal attempt to make health care coverage a right rather than a privilege.

    Figure 2 shows stratification by marital status between married and single households.

    The data is presented in constant 2006 US dollars which simply means they are adjusted for cost of living changes for each year. The first thing you see is that dual-earner marrieds (both husband and wife work in labor force) by far had the highest income levels between 1990 and 2006. Sole-earner married (husband only in labor force) comes in next followed closely by single males. Single females reported the lowest income. In sum, the females with the highest income are married. The male with a co-breadwinner wife has the highest combined income of all.


    Figure 3 shows the stratification in our US society by educational levels. Keep in mind that the higher the education, the higher the annual income in 2007. This is typically true every year. The income levels are again higher for Whites and Asians followed by Blacks and Hispanics. But, the layers are clearly visible by education level. That's what is so cool about studying stratification. Official data begins to tell you the story about how the layers look in a society.


    Not all economic disadvantage results from our choices. In the US, non-Whites, non-Asians, and non-males are more likely to be found in the lower layers. Figure 4 portrays what the layering of society might look like if the US population were divided into 3 groups, the top 10 percent wealthy, the next 20 percent wealthy, and the remaining 70 percent of middle and lower classes.

    The top 10 percent of our country owns the lion share of all the wealth available to be owned in the US. They own as much as 100 times the average US person's wealth. For a relative few, they make more in a year than most of us make in a lifetime. Theirs is the life of high levels of property, power, and prestige. Among the next 20 percent Upper-class, they hold the high ranking jobs, run for elected office, and run the major corporations in CEO-level positions. These types of jobs: pay more; require more education; require more abstract thought; and allow for more self-directed, autonomy in their daily activities. The blue or largest category includes the remainder of us. We fall in some layer between upper middle class, middle class, working class, labor class, and/or poor.

    Figure 4. Portrayal of United States' Economic Layering

    Purchasing a Home

    For those who can in our current economic conditions, buying a home is the major investment for most US families. Even when interest rates are low, the cost of a home is extremely expensive. If you got a $100,000 home at 8 percent interest for 30 years, then you would pay $100,000 for the home and another $164,154 in mortgage interest. That totals $264,154 for a $100,000 home. If the home does not appreciate in value, this is a terrible investment.

    There are strategies that can be used to minimize the overall cost of purchasing a home.

    You can save money and put a large down payment on the home. This will lower the initial cost of the amount financed. You can make an extra 1/12th of a house payment toward the principle of the loan every month. By the end of the year, you would have made a 13th payment all to lower the overall balance of the loan (principle). Another strategy is to make a 15 year payment instead of a 30 year payment. In the loan above, that would mean making a monthly payment of $955.65 instead of $733.76. How might that benefit you? First, you'd pay off the loan in 15 not 30 years; and second, you'd save $91,626 in mortgage interest. You can ask your lender to give you the 10, 15, 20, and 30 year loan payment schedule when you close on the loan.

    One of the major US financial problems has been the financing of established worth of the home into a second mortgage or home equity loan. Home equity is the value in the home that is higher than the amount still owned on the home loan. My neighbor lives in a $275,000 home and only owes $50,000. He refuses to get a loan against the value, because he wants to own his home outright. Some finance experts recommend doing the opposite, loan against your home and use the loan to invest and make wealth in the stock market. If you are a finance expert that would likely work out. If not, that may be too risky to the family's economy. Debt can be very difficult to a family economy.

    Debt and Spending

    It is estimated that if a family has a credit card, their average credit card balances totaled $16,007. This is important because the US has become a nation with liberal debt and debt incurring policies (retrieved 1 April, 2010 from Credit card statistics, industry facts, debt statistics By Ben Woolsey and Matt Schulz). Woolsey and Schulz also reported that there were over _ billion credit cards in circulation in the US contributing to a total consumer debt of $2.46 trillion! Eight percent of US college students are reported to have credit with an average amount owed of $2,200. They are also estimated to have accrued $20,000 in student loan debt.

    In fact, the US Federal Government is in debt and paid 8 percent of its 2.983 trillion expenditures to pay net interest on the national deficit in 2008. That's $238,640,000 in interest (retrieved 1 April, 2010 from 2009

    1040 Instruction Booklet page 100). The US spent $459,000,000 more than it brought in from tax revenues (15% overspend). This pattern of running a deficit worries many who understand that deficit spending cannot be sustained in families or in nations. Part of the problem is the concept a friend of mine calls “funny money.” He describes funny money as money that isn't printed and handled and therefore misunderstood.

    Many of us buy things with credit or debit cards that give us cash back or other rewards.

    It is also very common to have our paychecks electronically deposited in our banks or credit unions. Our bills are then electronically paid online or with automatic withdrawals. This is extremely convenient, yet it makes it so that we rarely touch “real money.” To illustrate this I took a fresh one dollar bill and slowly began to tear it into small pieces in front of my class. They cringed, asked me to stop, and joked about turning me in to federal authorities. I held up the shredded bill and asked, “Why does this bother you so much?”

    “You are wasting a dollar that can't ever be reused. It's a total loss,” they complained.

    Then I hold up my credit card and ask, “Why can we spend $30-60 dollars on a credit card and not even flinch, yet get bent out of shape over a one dollar bill?” I already know the answer. The dollar bill is tangible and touchable. The credit card works on small numbers which show up as blips on electronic screens or numbers on paper receipts. It's funny money to many of us. We are heavily marketed to go into debt. My wife and I used to keep a tally of all the credit card limits we were pre-approved for that came via mail solicitations-over $100,000 in a 10 day period during the year 2007. The debt was there for the taking without one caution to me the consumer. Very few of the companies that loan money ever warn consumers about the problems of getting into too much debt. Why would they if you make good money you can have what you want immediately and pay it back over the next 5-10 years with massive interest payments? Their ideal customer would run up a large balance of debt and make a minimum payment each month, thereby bringing in the most profits to the company. The wise consumer uses debt to his or her advantage.

    Credit cards are not necessarily a bad thing. They facilitate travel and small transactions for the family. But, credit card balances or unpaid debt can be very burdensome to a budget. I have researched and taught family financial matters for years. I suggest three unique rules that I like to call the “Rules of Three” when it comes to family finances.

    • First Rule, save three months of worth of income and keep it in the bank. That means save enough to meet all your fixed debts (rent, mortgage, car, medical, insurance, etc.) so that you can keep your family afloat if you suffer a job loss or crisis.
    • Second Rule, have only one credit card with no bonus or rewards program. Keep a zero balance on it. Set your credit limit to what it might cost to pay three weeks worth of bills (including your rent, mortgage, and car payments). I'm not suggesting that you never pay your bills with a credit card. I'm suggesting that if you use your card for transactions or travel and have a lower limit on it, you can more readily control your spending. Don't ever use your credit card for long-term debt. It should be a tool for short-term financial matters.
    • Third Rule, whenever there is a consumer item you really want (TV, Cell Phone, Handheld, etc.) wait three full days before you buy it. I've had students disagree with me on this saying that some things go on sale and you will miss a good buy if you wait. My point is that if you haven't planned for it, saved for it, and budgeted for it, then a three day cooling off period may help you prevent unwanted and unneeded debt. Keep in mind that if we are marketed to with an approach of “hurry, sale ends soon,” then most likely the marketing has triggered the use of our rational and emotional decision-making processes (limbic part of brain) and we might rush out and buy feeling like we are actually being responsible purchasing agents; even if we never really needed or wanted what the sale is selling.

    Save for a consumer item for at least three weeks, three months, or three years. If you want or need a new kitchen appliance, save for three weeks and buy one within your budget. If you want a new computer or TV, save for three months and buy one within your budget. If you want a new car, save for three years and buy one within your budget.

    In preparation for buying a car, some find that it works to save as much as a car payment might be, but put the payment into your own savings account. At the end of three years, go buy a car you can afford. By the way here is another three idea-buy a last-year's model new car in the third quarter of the year (especially August) and you typically will save thousands. Budget and plan using these “rules of three” principles. Do you budget?


    Most couples don't have a monthly budget. It makes it very difficult to manage a family's finances without one so I strongly suggest you find one. There are numerous free budgets online. I found 10 really easy formats of budgeting in one internet search for “free monthly budgets.” The two main things about a monthly budget is to be able to know how much money you currently have in your funds and where you are spending it.

    If you haven't budgeted yet and want to start, ask your parents for help. Show them this practice budget and ask them what they recommend from their own experience. There is no “right” way to budget. It's just better to budget than to not.

    To develop a budget, make a list of all your fixed expenses which are monthly expenses that are set and do not depend upon your consumer choices. These typically include: rent, mortgage payments, car payments, and insurance payments to name a few. Now make a list of other things you spend your money on that relate to household matters. These fall under the definition of a variable expense which are expenses that can change from month-to-month based on needs and wants and which are not fixed expenses. These typically include: food, gasoline and car maintenance, dining out, pay-per-view, cold drinks, groceries, clothing, etc. If you want to budget, the next few tables will help you with the basics. Table 3 is simply the tracking sheet you can use to find out where you are spending your money.

    In Table 3 you will need to record every purchase or expenditure you make. I know it sounds tedious but you really need to track your spending in order to estimate a budget for how to spend in the future. Make sure and note what types of fun you spend money on. If you go to a movie once per week that would be four visits per month and might require its own budget. If you golf, attend sporting events, or dance you may find the spending is enough to justify a budget allocation in advance. After you've tracked your expenses go to Table 4 and put them into the next month's budget.

    Table 4 has hypothetical numbers placed in it to demonstrate how the budget works. It budgets $1,091 dollars per month. I am sure this is high for some and low for others, but bear with me and the point will emerge in the end. In the second month, you actually deduct what you spent from each of these categories. You don't have to exceed your total monthly income of monies (that's where savings comes in). I've put in some hypothetical expenditures in Table 4 so you can visualize what I mean by writing down your expenses.

    Notice that three of these budget categories broke even. They are also the three fixed expenses. Notice also that three others had left-over monies. The “Fun” category was overspent by $40.00 which could be filled with leftovers from the other categories.

    When a category is overspent you should decide if it requires more allocation (for example make Fun have $90.00 per month) or control spending to keep it under the limit.

    After all the left-over's are calculated, add them into savings or some other category.

    This hypothetical month had $128.00 left over and it could be rolled into the next month in case unexpected expenses show up.

    Table 5 shows you another hypothetical budget with an increase in “Fun” that was taken from the food budget. Fundamentally, a budget tracks where you spend your money, how much you currently have, and how to strategize savings for future plans. The wise college student learns to budget sooner than later so that as family size increases so do their skills in budgeting. Microsoft has a number of free templates for family budgeting available at CategoryID=CT101172321033&ofcresset=1&AxInstalled=1&c=0




    The “hedonistic treadmill” emerged as a concept in recent self-help books of financial matters. Hedonism is the pursuit of pleasure as the main goal of one's life with pleasure being the core value of daily life. Many in the US have fallen into the trap of seeing pleasure as the best goal and a purchase as the best way to acquire that pleasure. Thus, they get on a treadmill of purchasing which cannot provide long-lasting pleasure in most cases and requires new and more varied purchases to renew that short-term pleasure over and over. The hedonistic treadmill would not be a major problem if one were very wealthy. But, for average middle class person, the marketing pressures to buy, the patterns of seeing a purchase as a path to 'happiness,” and the availability of easy to obtain credit make it very difficult to get off the treadmill. This pattern can be very destructive financially and can undermine the family system as a whole. Figure 5 shows a list of financial best practices that can be very useful to follow for stability and security in the family.


    It surprises some people to hear that debt can be a good thing. It can be if debt is used wisely. Credit cards are a necessity for most and can be useful in building a strong credit score. To control credit card use is simple: spend with it very conservatively, pay your balance off every month, never spend up to your limit, and make sure others can't use your card. How well you use and manage your credit card now will influence how well you qualify for car and home loans later in your life.

    Secured loans are loans that have some form of collateral so that the risk to the lender is minimized. Car loans and mortgages are examples of this type of loan. If the borrower can't pay the loan, then the car or home can be legally sold to make up for some of the lost loan value. Unsecured loans have no collateral associated with them and typically are given based on individual credit scores. These would include signature loans or personal loans and are much more risky to the lender.

    Just a quick note on mortgages; some of my students have felt that the mortgage industry is doomed and that they have lost their chance to buy a home and have it work out for them in the long run. Even in today's volatile markets, homeowners have economic advantages that renters do not have. Mortgage interest can be deducted from taxes.

    Having a mortgage and paying your monthly payments on time is an effective way to build your credit score. Finally, in most states and communities, homeowners have more rights and privileges than renters.

    Planning Financially for the Future

    Guarding your credit score is crucial for your family's financial security. In the 1950's two researchers began a scoring system designed to provide a standardized credit score for everyone in the US. The FICO Score is the most common credit scoring system in the world and is named after Bill Fair and Earl Isaac-Fair Isaac Corporation score or FICO. Your credit score is comprised of your payment history, how your credit capacity compares to your usage (not too many unpaid balances), how long you've had credit, which types of credit you've had, and finally how many times your credit was checked (retrieved 2 April, 2010 from ).

    You must become a manager of your credit score. The online article, the “Top Five Money Mistakes College Students Make” has very useful information in it (retrieved 2 April, 2010 from Overdoing credit card debt, ignoring or ruining your credit score, not budgeting, and misusing student loan money are listed. Many other Internet-based articles point to the same mistakes and how easy they are to make for uneducated students who are offered numerous pre-approved credit cards as freshmen.

    There are many studies that demonstrate that misusing credit negatively impacts college students' overall lives and experiences (see for example, Xiao, J. S. (2007). Academic Success and Well-Being of College Students: Behaviors Matter. Take Charge of America Institute Report, November , 1-23). I recently studied this among our own students at Utah Valley University and found that less debt was associated with students being overall more satisfied with their lives (not yet published).

    Every family needs a 5, 10, 15, and 20 year financial plan. For the most part such a plan focuses on long-term goals while giving you guidelines to follow in the short-term.

    Answer these simple questions, “What do we need/want to pay for in 5, 10, 15, and 20 years and how do we need to prepare now to accomplish those dreams?” Buying a home, owning a home, planning for retirement, putting kids through college, life insurance coverage, starting a business, traveling the world, being debt free, and other goals might emerge in the planning process. Once you have these goals typed out for the next 2 decades you can couch most of your budgeting, saving, and spending activities into them.

    Remember that the “Rules of Three” suggest not buying in a hurry and that makes even more sense when you think about the nature of each purchase as it fits into the long-term plan.

    There is no such thing as “extra money.” I had a student tell me that she and her husband got some extra money back from an end of year bonus at work. I asked what they planned on doing with it and she replied, “we're still deciding. It will be something fun!”

    I mused over her response. I was teaching a senior-level family finance class and had seen her monthly budget. She had 2 bills that they made installment payments on that she could pay off with her unexpected windfall. But, and here is the main point, she and her husband felt stressed and under pressure and this money represented a gift of relief that in her own words, “we work very hard and we deserve to do something fun with this.”

    All money is real money, even credit card money. There is no such thing as extra money because with a 20 year plan, a monthly budget, and clear-cut goals any money (expected or unexpected) can be applied to a long-term goal or budget category where it can be applied. In fact, had this student and her husband planned for it, it could be applied to a fun category in the budget or split in half with some going to debt reduction and the rest to fun. They actually bought a high-end flat-screen TV, but could not afford cable or satellite to watch on it. All money should be allocated and spent in the larger framework of the family finances. Millionaire Level Plummets by Baum, S. 11 March 2009).

    If you are middle class, you can increase your family's net worth by following a few basic principles. First invest low and sell high. Second, consider real estate investments as a renter-landlord or owner-finance agent. Third, become a full-on, unabashed cheapskate.

    Don't ever pay full price for anything. Don't ever sell below the market value. Fourth, don't ever try to do the expert stuff by yourself. It is very easy to get an advisor, read a book, attend a seminar, or get professionals on your team. Many of my students take an elective finance class from the lower division offerings in the Business Department. I've had one join the ranks of the US millionaires and he makes about $60,000.00 per year.

    To him, his family finance and investment hobby has opened numerous opportunities for his family and given them the freedom to do things they'd like to do. Some of us sabotage such successful efforts as these. Why?

    Undermining Financial Stability

    Entitlement is a feeling of wanting something for nothing, of being justified in having one's wants met, and/or a feeling of being excluded from the same rules that bind most of the member of society. You may benefit from knowing that the concept of “sense of entitlement” is often associated with addictive behaviors and unhealthy relationship patterns. Entitled people have difficulty discerning the difference between “what I want” and “what I need” when it comes to money. A flat screen TV is owed to them if they want it, because they are special and there needs should be met regardless of the finances involved to acquire them. Entitled people feel that it is their right to have what they want. Many of us have feelings of entitlement in some areas of our lives. But, when or if our pursuit of the things we want interferes with our financial security, moral and ethical propriety, or social responsibilities, this entitlement can become pathological.

    In the US, many people feel entitled when it comes to consumer goods. They feel obligated to buy things that truly fall under the category of wants rather than needs.

    Many, who lack enough resources will overspend in the process of acquiring things they sometimes feel buyer's remorse over (remember the treadmill?). It is a painful lesson to learn when debt suddenly becomes overbearing. One of my friends used to say, “never finance a pizza.” He meant that pizzas, movie rentals, new clothes, and other small ticket items add up way too fast and it is unwise to make many small purchases that land you with a pile of debt. Not having the family financial guidelines as listed in this chapter, leaves one with no guidance, little direction, and a vulnerability to financial insecurity in a very aggressive market-place-based society that ours has come to be.

    Why is it that some human behaviors make so very little sense to a reasonable person?

    Why do people spend themselves into a financial hole. Why do they get sexually transmitted diseases or unwanted pregnancies that encumber their lives for decades?

    Why do people persist in getting into hurtful relationships? Why are so many of us unhealthy because of our eating patterns? The answer is simple-we are human beings with choice and intelligence but emotions play a significant role in how we think and feel our way through the many decisions we make each day. A few emotions are very caustic to our sense of self-value: shame is a feeling of being flawed at our very cores; guilt is a feeling of remorse for having done wrong in our actions or inactions; and fear is a feeling of anxiety or apprehension over uncertainties in our lives.

    Shame, guilt, and fear underlie many unhealthy financial decisions in our lives. I once witnessed a power struggle between amother and son in a small-town grocery store. The mother refused to buy her son a certain brand of cold cereal. He insisted and parked his shoes right in front of her shopping cart. Emotions elevated, tempers flared, and eventually the mother slapped him across the face. I was proud of her for holding the line on her decision, but disappointed that it came to violence. As I continued to act uninterested, the son cried, the mother bought the box of cereal and I wished in the end I had chosen another store to shop in that day. Her guilt and perhaps shame lead to an unhealthy yielding to her son's feelings of entitlement.

    Many of us who suffer guilt, shame, and fear medicate these feelings when we buy. We are not thinking rationally as much as feeling irrationally. Some people even become addicted to spending and are called “Shopaholics” because their spending habits interfere with their normal daily activities. When spending is obsessive or out of control it is often because of suffering from caustic feelings and not responding to them in appropriate ways. I've had my finance students answer these four questions when it comes to understanding their own unhealthy spending habits: “Does more money make you feel better about yourself, more loved by others, or happier? Can you find the chains binding you to your shame and self issues and severe them? Do you deserve success? Is spending like perfume that hides a guilt or shame odor?” Notice these are not budgeting and planning questions. They are based on understanding our feelings.

    Figure 6 shows some of the emotionally driven unhealthy financial motivations that sometimes plague us. A metaphor that I've used with my students involves being thirsty but drinking from the wrong cup to quench that thirst. Many people eat when they are really thirsty. Others drink soda pop when they crave water. Some drink alcohol when they would probably benefit more from a sports drink with electrolytes. In the US we are notorious for drinking from the wrong cup. We keep ourselves so busy and distracted that we struggle to identify what is truly going on and how best to solve it.


    When we misspend or manage our finances poorly or in destructive ways we often have legitimate needs but are trying to meet them in the wrong way. Some people shop when they feel lonely. They might also spend money for cruises or fun, but soon find that being with other people is not always the cure for loneliness and that happiness is a choice only they can make for themselves. Others spend to make up to themselves (or their own children) for neglectful, abusive, and traumatic childhood circumstances.

    Money in this case is used both to medicate the problem (with a cure that doesn't work) and to reinforce their shameful feelings of worthlessness. So if they misspend and mismanage their money, they simultaneously create problems that prove what they've felt all along-they are not worthy of happiness or success.

    There are those who put a tremendous amount of energy into looking good, appearing to be wealthy or privileged, or being more sophisticated than they truly are. One of my buddies who kept bankrupting finally realized his emotionally-based pattern of financial self-destruction. He said, “I have a millionaire's taste and a janitor's income. I'm tired of suffering to prove something to others when I'm not that something.” The medicating phenomenon in money mismanagement is similar in many way to the medicating phenomenon in drug and alcohol abuse. People who hurt try to distract themselves from it by getting a short-term high from their money or spending. They go to Vegas, buy something new, take friends and family out for diner, and other activities that keep them from feeling whatever pain that hurts them.

    I worked for hours one day trying to untangle a knot in my tow strap that I had used to tow a friends car down the mountain. My friend watched me patiently and when I finally asked him for his pocket knife because I was just ready to cut the knot out and shorten the strap, he asked, “can I show you a trick?” He pushed the knot in onto itself and with the material in this strap it created slack enough to untie the knot. Because I did not understand what he knew, I was willing to cut the knot. People do this with money at times, especially when they are irrational in their thinking and entangled in an emotional issue. Trying to instantly solve a deeper emotional problem is not sustainable in the long-run.

    People with deep feelings of shame and worthlessness will often go out of their way to distract others from that part of their being. They dress, act, and live extremely unusual lives and hope that others will notice the more superficial aspects of their natures and not see the perceived flaws. “look at me, but don't notice me” is a common theme among those who take on a persona (punk, emo, goody-two-shoes, etc.) that is more of a distraction than anything else. I see this commonly among celebrities who get caught doing outrageous things. I sometimes see it in my students who are so very fragile, yet outwardly look extremely capable.

    Trying to feel loved and needing to feel loved is by far one of the strongest human needs we have. I watched a set of grandparents in my neighborhood who recently file for bankruptcy. They mortgaged the equity in their home, spent their savings, and used all those funds trying to facilitate “great memories” with their children. Amusement parks all across the US had better revenues thanks in part to their efforts. When the party ended they found themselves broke and still alone. Their children and grandchildren had very busy lives and could not give Grandma and Grandpa the time.

    Today's elderly have a reputation for being conservative in their spending and in saving.

    Yet, more and more elderly are mismanaging their money. USA Today online reported that “From 1991 to 2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150%, according to AARP, which will release the new research from the Consumer Bankruptcy Project. The most startling rise occurred among those ages 75 to 84, whose rate soared 433%” (“Bankruptcy Rising Among Seniors” retrieved 5 April, 2010 from ). Reasons for this trend include medical bills, wanting things they can't afford, maintaining a higher status, being taken advantage of by predatory lenders, and inflation that makes the spending power of their retirements less powerful. I once saw a bumper sticker that read, “I'm spending my grandchildren's inheritance.” For some elderly this is literally the case. If shame guilt and/or fear are interfering with your money management there are self-help books and therapists who can help you work through it. Taking control of your money and how you manage it is best done now than later. Point number 10 back in Figure 5 repeats the theme of making your savings investments and other financial assets hard to reach. I have a millionaire friend who has a bank in Illinois. He never lived there, but he set up a savings account that can only be used over the course of three days. In other words, he can get money out of it through a complicated and safe withdrawal process that he put into place on purpose. This keeps him from spontaneous purchases and spending. Besides, there are very clever con men and women in the US who will take your money from you with smile on their faces and without remorse.

    The most common theme of their ploy is the quick cash, something-for-nothing, rare opportunity approach that makes you feel pressure to act now or you might miss the payoff. By far the most notable US con man was Bernie Madoff (Born 1938 in Queens, NY). He was one of the most notorious con men, having conned millions form the country's elite class who invested with him in order to get a huge and quick payoff on their money. Confidence scams tend to exploit our greed, vanity, and ignorance as they promise quick profits, low risks, and certain outcomes. Confidence scams are as old as time and rarely ever produce the desired outcome for the investor. They are fundamentally unsecured loans with huge risks and will cost millions of dollars this year to naïve investors. There never has nor never will be a “something for nothing miracle investment.”

    The last two points in Figure 5 are very simple. First, unless you are that genius who can invest and plan and predict stock markets, then hire a genius. Let the experts with high ratings (bonded) and a track record of proven success and references do what you cannot do for yourself. It cost money, but typically pays more money in the end. That financial expert will help you assess your 5, 10, 15, and 20 year goals and how best to achieve them. Finally, treat your money with dignity and respect and it will respond in kind.

    Don't put your money in a humiliating role of debt, earning interests that works against you. Put your money in a dignified interest-earning place where you can buy low and sell high and show profit in the end. There are many self-help books on managing your money. I'd recommend that you get some and read them.

    One final thought about money and spending it in a marriage or couple relationship; there is often a debate between spouses and partners about what is a need and what is just a want. Many define a need as something as important that demands their attention. A want to most is superfluous and not required. The trick of being united in your budget and spending choices is to working together, communicate about needs and wants, and to yield to one another's wants at times, even if to you it only feels like a need.

    Unfortunately there is no universal standard of a true need versus a true want. It depends on each individual family member.

    You might use these questions in distinguishing needs from wants: “Do we value owning things over doing things? Do we value doing things over owning things? Given our long-term goals do we value investing in things more than owning or doing things? and/or finally, Do we value supporting people over all the rest?” Taking the time to discuss and evaluate your points of view, then negotiate together on them as a healthy financial resources management strategy.

    This page titled 1.11: Family Resources and Economics is shared under a CC BY 3.0 license and was authored, remixed, and/or curated by Ron J. Hammond via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.