Drowning in Debt - personal finance management

HR Magazine, August, 2001 by William Atkinson

Poor money management. "People have not been taught how to manage their money appropriately," says Leech. Too many people either don't know how--or lack the discipline--to create and follow a financial plan or household budget. In the recently released "2001 Patents, Youth and Money Survey," sponsored by the American Education Savings Council and the Employee Benefit Research Institute, about 20 percent of responding parents said they rarely or never created budgets for themselves. And, almost 20 percent admitted that they have little socked away in a retirement or savings account.

Living beyond our means. Americans have developed a "consumer mentality," leading us to think of certain luxuries as necessities. To wit: your cell phone, your Internet account, your home fax/modem line, your cable or satellite TV service, your health club membership and so on.

"For a lot of people, each time they get a new job or a promotion, instead of saving or investing the extra income, they spend more," says Debby Vinyard, CFP, owner of Vinyard Financial Planning of Marion, Ill. "People tend to want to 'keep up with the Joneses."'

The overabundance of credit adds to the problem. Take a look in today's mail: How many offers did you receive to sign up for a new credit card? Each represents an invitation to spend money you don't necessarily have. "Most people who 'shop and charge' do so because they really don't think through the consequences or plan properly. Then, they end up with more debt than they can handle," says Vitt.

Overspending even can be the result of psychological imbalances. Although you often see T-shirts and bumper stickers making light of the tendency to "shop 'til you drop," the inability to control the spending urge can be a sign of addiction. "We worked with a single woman in her 20s who was earning $40,000 a year," says Kristine Brennan, executive director of Lincoln, Neb.-based Continuum Employee Assistance, one of many employee assistance programs (EAPs) around the country adding financial planning to the services it offers clients. "She was addicted to shopping and spending, particularly clothing. It was an immediate gratification for her. She knew that she needed to cut back on her spending, but she wasn't able to do it on her own. With counseling, we were able to help her find other more healthy ways to meet her emotional needs."

Not Just a Matter of Money

Still, ask the typical person what will help resolve his financial turmoil and you will almost always get the same answer: "More money." Does that mean employers are underpaying their workers, forcing them into a life of debt and default?

Hardly.

"If you spent a day sitting in a bankruptcy court, you will be amazed at the number of supposedly successful, average-looking people who are there to file," says Vinyard. "It's not how much you earn--it's how much you keep," she says. "One of my very first clients was an 85-year-old man who worked his entire life as a schoolteacher. When he died a few years ago, he had over $800,000 in securities and cash."