A thorough review of current events and their effect on the economy.
On Sept. 11, the country’s collective sense of peace fell to the ground, broke its crown and the economy came tumbling after. According to the U.S. Department of Labor, the labor market was weakening before the terrorist attacks, and though it’s not possible to quantify the total effect of Sept. 11, the events clearly aggravated economic decline.
It is impossible not to acknowledge the unique set of grievances suffered by families with children under 18. With bills to pay, expenses to cover and children who will notice things are a little different than they used to be, what are the important steps to take in this uncomfortable time?
COPING WITH THE NEWS
Dr. Brenda Dew, adjunct professor at Vanderbilt University and private practice family and marriage therapist, has recently spent quite a bit of time counseling families through the transition period following job loss. “It’s a real psychological defeat for a person who loses a job, especially if that person is the primary breadwinner,” she says.
According to Dew, that defeat is easier to suffer if both of the parents in the family are working. When the working member loses a job, the stay-at-home member is likely to experience the most anxiety, coupled with feelings of guilt, as if to blame for the dire straits. Stress often manifests itself in secretiveness; Dew says that the most important step for couples coping with job loss is to sit down together and come up with a budget.
“I find that if couples do this immediately, and are very honest and realistic then they bond together, know their parameters and are more able to deal with the stress and feel more at ease.”
Telling the Children
Dew also applies this to the children in the family. People will sometimes think it’s better to conceal the job loss and financial constraints from the children, but Dew says that this only exacerbates the financial situation and puts extra and unnecessary pressure on the parents.
“Kids are pretty resilient. I’ve seen kids just rally — teenagers will go out and get jobs, children will do more around the house than they’ve ever done before. I think that we often don’t give kids enough credit,” she says. Dew believes that the fundamental mistake parents make when talking to their children about financial troubles is to let their stress get the better of them. “It’s never appropriate to yell at children in a way that blames them for contributing to money problems. Never say, ‘If you didn’t need this and this, then …’ That won’t help anyone.”
Dew’s most adamantly repeated advice is perhaps the hardest to swallow.
“I try to make people understand that sometimes something better comes along. This is the time to reprioritize, to examine what you really want in the future and to go after it. For every limitation there is an asset, and what’s the asset here? The opportunity. What an opportunity.”
Dr. Paul Coleman – psychologist, family therapist and married father of three — offers six approaches to talking to children in his book How to Say It to Your Kids: The Right Words to Solve Problems, Soothe Feelings and Teach Values (Prentice Hall Press). Using the mnemonic TENDER – Teach, Empathize, Negotiate, Do’s and Don’ts, Encourage and Report – Coleman suggests basic strategies for communicating productively with kids on a variety of issues, including tight financial situations and explaining the loss of a job. For example:
REPORT the essential facts. “I was laid off at work. They no longer can afford to pay me, so until I find another job, we have to come up with ways to save money.”
TEACH being frugal. “It would help a lot when we buy things if we ask ourselves these questions: Can we get by without it for now? Can we find it at a cheaper price?”
ENCOURAGE helpful attitudes and behavior. “I overheard you tell your brother that we should not go to the movies but wait until the movie comes out in video. That was a great idea on saving money. It must make you feel good knowing you can be patient.”
EMPATHIZE when children desire things they can’t have because of finances. “I know it was hard when most of the other kids bought their food during the class trip while you had to pack a lunch.” And reassure an overly concerned child. “I notice you yell at your brother when he wants to buy things we can’t afford. You seem extra worried. Dad and I know what we can and cannot afford. Eventually we’ll have more money, so you don’t have to feel responsible for your brother.”
Coleman agrees that kids should be aware of financial hardships resulting from job loss. “Taking on a bit of the parents’ burden is not so bad. It teaches pulling together, self-sacrifice, etc. But yes, we don’t want kids to abandon their childhood because they are worrying how Dad and Mom are coping.” Coleman offers that kids are often naturally into their own thing, and will be fairly oblivious to the day-to-day struggles their parents are going through.
He says to mostly keep an eye on kids who might get too serious and deprive themselves in order to relieve their parents – skipping lunch to save money or not telling parents about a school trip to keep the pressure off. Coleman also points out that children will understand the financial burden in different ways at different ages. “With an 8-year-old, you should be matter of fact, optimistic. Let them know how the job loss affects them directly (no McDonald’s for a while, etc.).”
He says that with ages 9 and older to expect more “why” questions. “Expect them to be more concerned about how the job loss will affect the family economically,” says Coleman. “Don’t be surprised if they seem annoyed that they can’t buy the latest video game. With ages 13 and older, this is the time to teach optimism and show the kids that when life punches you, you can pick yourself up and keep moving.”
THE RECESSION HITS HOME
The National Bureau of Economic Research officially proclaimed the “R” word last November and cannot predict when the recession will lift. It is likely to peak during the early part of 2002, causing industries to continue downsizing through the second quarter of the year.
“When someone suddenly loses their job,” says Edie Milligan, certified financial planner, accredited financial counselor and author of the new book, Blindsided: Financial Advice for the Suddenly Unemployed (Alpha Books), “they are affected both emotionally and financially. Therefore not only are their questions and priorities different from others in need of financial advice, their ability to address key issues is temporarily compromised.
They find themselves making some of the most important financial decisions at a time when they are doubting their value in the workplace and finding it difficult to communicate with their family.” One option for families in the situation that Milligan addresses in her book is consolidation.
According to Steve Curnutte of Security Capital Group in Nashville, there are three bases on which a person’s eligibility for loans are judged: credit, collateral and capacity. “Credit is your credit score, as judged by Experian, Equifax and Trans Union. Collateral is the amount of equity you have in your home – if your house is worth $100,000 and your loan is for $60,000, you have 40 percent equity.
When people lose a job, they can’t prove any of these three ‘C’s and they feel they can’t get a loan,” says Curnutte, “but sometimes they can.” Programs such as Stated and NINA provide consolidation loans at a decent interest rate based on the loan recipient’s high credit score or good collateral. Basically, if you could make all of your payments before you were downsized or affected by cutbacks at work, you can probably consolidate.
For example, if your mortgage payment is $1,027 (based on a mortgage of $140,00 at 8 percent interest), and you’re paying somewhere around $500 a month in credit card payments (based on $20,000 in credit card debt at 9 percent interest), you could consolidate your debt through the Stated program at 7.25 percent interest and make one payment of $1,046 – $481 less than what you were paying before. That would help your immediate cash flow.
SHOULD YOU REFINANCE?
Greg Fairbetter, also of The Security Capital Group, notes that a lot of people refinance in January because that’s when the holiday bills start rolling in, but he says this isn’t the best option for everyone.
“Really, it depends on individual situations. It’s different for everyone, and there are companies out there that will refinance for anyone, but at what cost? It’s just not always the best idea for someone who is unemployed, especially if your emergency cash fund is low.” Fairbetter suggests instead that people check out borrowing against their 401K’s.
While there is a 10 percent penalty tax for deducting from your 401K before you are 59, there is no cost to borrow against that money, except the interest accruing as you pay back the loan, and — good news — that interest is usually very low. “Some companies will charge you 8 percent interest, but they’ll credit you back seven percent, so the net cost of the loan is 1 or 2 percent,” says Fairbetter. There are limitations however; many companies will only let you borrow 50 percent or less of what you have in the 401K.
There are also some incredible rates to be found on credit cards right now and Fairbetter suggests that using one of these cards for living expenses, versus your emergency cash, is an option to consider – especially if your emergency cash fund is limited. “There are some cards out there right now with close to 20 percent interest rates. People don’t realize that they can do this, but call your credit card company and tell them you want a lower rate because you know you can get one on another card. Without one of these low rates, credit cards are a bad option — the interest isn’t tax deductible like the interest on a mortgage.”
Fairbetter says that the most important thing the newly unemployed can do is to stay insured. “Many people have no idea how much health insurance costs, especially if the company was covering the whole family. I’ve seen people go bankrupt over medical expenses alone – you must keep some kind of insurance.” Most companies will offer COBRA, or a similar health plan, which you have 60 days to opt into after leaving the company.
“If COBRA isn’t viable for your family, the cheapest policy on the market right now is called Temporary Insurance, which would cover the whole family and is usually available for six-month spans.” As for protecting yourself against financial hardship for future layoffs, Fairbetter suggests the perennial “emergency fund.” “People should have three-to-six months worth of living expenses in an emergency fund, something liquid like a money market account, something you can get your hands on when you need it.”
For many, emergency fund advice is almost as hard to hear right now as Dew’s main mantra about the closing doors and opening windows. But if we cling to glimmers of hope in bleak times, Dew’s is a lovely and age-old glimmer: “For every limitation there is an asset, and what’s the asset here? The opportunity. What an opportunity.”
Jennifer Frisvold is a freelance writer and former editorial assistant for Elle magazine. She resides in Nashville.
Communicating with Kids During Financial Strain
Use the mnemonic TENDER to lead the way: Teach, Empathize, Negotiate, Do’s and Don’ts, Encourage, and Report.