When I asked readers recently for suggestions for money-related topics, one reader asked what do you do when there simply isn’t enough?
She’s tired of hearing the standard advice on cutting back on expenses – she already tracks her expenses and she knows where her money is going. The lattes went long ago. She’s working full-time in a decent paying job but she is the sole provider for her two school-aged children. Every month there seems to be some unforeseen, unavoidable expenses. Some months there simply isn’t enough money to make ends meet.
She got me thinking about how the standard money life cycle model just doesn’t work for many single-parents. Conventional wisdom puts young adults in the asset accumulation phase – it’s about building a career, starting to save for retirement, building the emergency fund, and frequently buying a house while paying off planned and controlled debts like student loans and mortgage. Somewhere in all that usually comes marriage and children. Some models then talk about an asset preservation phase – I’m not sure exactly what this means but it precedes retirement when typically you stop working and start living off all those hard-earned assets.
Divorce will do a number on this model and will inevitably slow down the asset accumulation if for no other reason than housing costs are more expensive for a single person. It really falls apart though when there simply isn’t enough money and I’m not aware of an alternative model for this situation.
While it’s OK to take on debt for college, a mortgage for a house or a loan for a car, there’s no guidance about taking on debt for being a single parent. I’m not talking about the debt that is driven by lack of money management skills, material desire, impulsive purchases or addictions. I’m talking about controlled, planned, mindful debt.
My sense of our society right now is that having debt is BAD and if you have it, you better be working to pay it off, and fast. Worse than that, if you can’t make ends meet then you must be doing something wrong, failing. But if debt is accepted for college, for a house, for a car why not for parenting our most valuable assets?
What if some enlightened banker said, divorce happens and it’s OK to borrow money to get through the next X years. We believe that parenting is important, we’d rather you be actively involved in child’s life than work a second job. We’ll loan you the money you need at a reasonable rate of interest and allow you to pay it back over fifteen, twenty years. Call it a personal equity line of credit – it would work like a home equity line of credit but without the home as security. You would be the security.
Sure you could use a credit card but I have an intrinsic dislike of credit card debt … it’s the slippery slope. Sure, you can get a personal loan from a bank or credit union today but the loan amounts are small and the payback periods are short. So this would be different.
You’d figure out your expenses (from your records), know your income and know what the gap was each year. Ideally, you’d come up with a projection for what you would need until your children are through high school. The bank would give you a line of credit for that amount and you’d draw on it as needed. If you didn’t need it, you wouldn’t have to use it. When it comes to money, I’ve always found the more you know, the better it is so I would want an online repayment calculator that would allow me to test out different scenarios – what if borrowed more money sooner, what if I borrowed less money, what if I made this repayment now?
I can see that there might be a few underwriting challenges with this but I’m sure they could be overcome or is part of the challenge the stigma of divorce and a view that more single mothers would be bad for our society?
What do you think? If someone told you it was OK to borrow money like this, would it ease your stress and worry? Would you sign on for a loan like this?
If you’re a financial blogger and have an opinion on this or have the answer to what to do when there simply isn’t enough, please contact me about guest posting.
Photo credit: RambergMediaImages – http://www.flickr.com/photos/rmgimages/4882451370/