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I don’t like the results — they scare people away from making smart financial decisions. It’s good for the church as a whole, who is on the hook if they get into financial trouble and need assistance. But but the number of times my in-laws have cautioned me from making what have all turned out to be sure fire smart investments, it makes me wonder what this advice costs the membership each year in lost opportunities. My advice is for them to limit their advice to live within your means, avoid consumer debt luxuries and invest wisely and carefully — or get out of the financial advising arena altogether when it comes to debt.
If I can give an example, in Canada, there is a retirement vehicle called an RRSP, kind of like a 401K. Put money in it, and you get an immediate tax deduction, which is substantial in the Tax Kingdom called Canada. If you don’t have the money, it’s worth it to borrow it to get a tax deduction. The bank likes it and gives a decent rate because the money is locked away in a retirement vehicle.
If you lose your job, then you take the money out of the RRSP and pay off the loan. Sure you get taxed, but if you’re unemployed your income is lower so it’s not a bad deal. It’s an investment where the money is still there after you take it out — almost no risk at all…
But my inlaws and wife were all scared out of their wits to do this due to the Church’s advice on debt. They couldn’t see the facts for the blind obedience.
So, if we’re going to teach correct principles, let’s make sure they are really correct and not oversimplifications…
Old-Timer wrote:… I really like the way the Church addresses it.
Now,
there’sa big surprise. 🙂 I do get really annoyed sometimes when I see the advertisements on television here. They advertize short term loans with lots of really happy, pretty people in them. The only thing that they don’t tell you is that some of these have 1500% interest on them! If you borrow even as little as 300, you’re going to pay a vast amount back. The church is actually right about some of these things.
I agree — they are right in that circumstance. I would be on the same team with the Church about avoiding the debt Sam Bee puts forward. But how about a debt that has 3.9% interest, repaid over 30 years, and the asset generates enough income to make the full payment plus another $300 for you to put as extra principal payments toward paying down the debt? And what if you have no other debt and a income from two different sources? So if one source of income goes belly up, you can still live and save money even with the debt using your other income stream? See, a much different scenario.
SD, when you ask: Quote:But how about a debt that has 3.9% interest, repaid over 30 years, and the asset generates enough income to make the full payment plus another $300 for you to put as extra principal payments toward paying down the debt? And what if you have no other debt and a income from two different sources? So if one source of income goes belly up, you can still live and save money even with the debt using your other income stream?
That’s when it’s difficult to give specific advise. I would feel better about talking to someone I know & trust face to face instead of seeking advise on the internet.
For me at this point in my life, the broad strokes are avoid risk & hold on to cash. You notice I didn’t say anything about debt.
What kind of investment are you talking about? It sounds like real estate.
If that is the case, there is a whole different list of issues to consider.
— Where is it located?
— What is the price?
— What is the valuation?
— What is the historical trends?
Whatever it is, good luck.
Mike from Milton.
As I said in my original post, I wasnt’ seeking financial advice. Nor would I seek it over the Internet as it would only prompt questions like the ones you posed, and ultimately, the individual has to run it through their own risk tolerance, judgment, etcetera — I was using it as an example to show how debt can be a not-so-scary thing when it’s calculated, generates instant income, and one has the necessary resources to cover themselves if things go wrong. SD, sincere question: Do you think the Church’s stance on debt is for no member ever to go into any debt whatsoever except for a house, education and maybe a car?
If so, I agree that such advice isn’t wise. If not, I really like giving some examples of reasonable debt and letting the members work out their own actions in situations like you describe.
Doug, it’s no surprise, I’m sure, that I like the way the Church addresses debt – but you know as well as anyone that I don’t champion the way the Church addresses everything. Just saying.
🙂 Old-Timer wrote:SD, sincere question:
Do you think the Church’s stance on debt is for no member ever to go into any debt whatsoever except for a house, education and maybe a car?
Yes — that’s what they seem to imply. And even if you believe this is NOT what the church preaches or intends, I KNOW that many faithful members interpret it that way — based on my personal experience — with no correction ever received for this erroneous belief. The church gives very few qualifiers on exceptions to this debt advice. Many members simply will not take any kind of debt risk (no matter how small or calculated) because of the Church’s preaching of this rule.
Quote:If not, I really like giving some examples of reasonable debt and letting the members work out their own actions in situations like you describe.
This is how I chooose to interpret it now. Experience has shown me that using debt responsibly is very wise, and I now understand the “turning debt into wealth” concept has great power to get person into a position where the second they stop working, their income DOES NOT STOP. When their job or calamity strikes, if done responsibly they can still have income meet their needs.
Anyway, I have a goal to earn a certain amount of income each year through wise investing and potentially using debt where appropriate to achieve that goal. I am 20% of the way there now, and hope to get there before retirement through wise use of debt, saving, paying down debt to the extent financially smart, etcetera.
SilentDawning wrote:If you don’t have the money, it’s worth it to borrow it to get a tax deduction. The bank likes it and gives a decent rate because the money is locked away in a retirement vehicle.
Sounds like the banking regulators invented an additional, alternative way for banks to play in the investment markets via government-subsidized funding. On the individual level, it sounds great. This seems problematic on the macro level though. That, or it’s a fantastic setup for highly placed people to pilfer the nation’s retirement savings. That leverage is fantastic so long as the retirement investments earn a higher return than the interest rate for the loan. If the market tanks, and the investments lose their value … then it isn’t such a brilliant idea. Apparently, stock markets, homes and everything else can lose value (speaking of the past 4 years). Who would have ever though it?
I’m no expert. So my opinion and $10.00 will buy you a cup of coffee at Starbucks.
I did it for several years…and it worked for me personally. It does encourage saving. To my anarchist mind, questions like this should be looked at in connection with the Church’s history and the nature of Mammon’s different avatars around the world. I’m pretty ignorant about the status of the average Church member in Peru, the Phillipines, Hong Kong, Mongolia, Ghana, etc. but I have a hard time imagining that many of them are going to be faced with plentiful opportunities such as what SilentDawning mentioned. I know there are a lot of folks in the Church who are into microcredit for third world countries, and I would hope that Church members would feel free to avail themselves of that kind of thing, but again, my ignorance in that sphere is mammoth. Since the leaders of the Church don’t have the nerve to speak out against the immorality of charging interest, much of the talk I’ve heard against debt goes along the lines of “interest: either you’re smart and let it work for you, or you’re not so smart and it works against you.” I never like to hear this because it sounds like “there are winners and losers in this system, so let’s get on the winning side” and that offends my egalitarian sensibilities. We get on the winning side and what – screw the losers? Or get to feel good about ourselves for helping them out of our individual kindness?
The underlying principle of “self-reliance” I believe in with the important qualification that true and sustainable self-reliance has to be communal or at least convivial and not a Rugged Individualist thing. But this is another thing I have to keep to myself mostly, since Mormon culture in the US worships wealthy capitalists so fervently.
Old-Timer wrote:…it’s no surprise, I’m sure, that I like the way the Church addresses debt – but you know as well as anyone that I don’t champion the way the Church addresses everything.
Okay, so that was a cheap shot. Sorry.
Quote:sincere question: Do you think the Church’s stance on debt is for no member ever to go into any debt whatsoever except for a house, education and maybe a car?
The church’s stance on financial issues is the same as the church’s position on pretty much any other topic: once the prophet has spoken, the debate is over. It’s the basis of so many of the things that bother people (well, me at least) about the church that it hardly bears repeating … but I’ll do it anyway.
Yes, the party line is that we are to eschew debt, except in cases of purchasing a primary residence, paying for education, and, possibly, purchasing a vehicle, no exceptions and no equivocation. That is the end of the story. My case in point is DW, whom I consider to be a highly intelligent person and one possessed of a good deal of common sense. In her view, and I am extrapolating a bit here, any pursuit that requires a person to undertake debt for any purpose that is not one of the three church-approved ones mentioned above is not an appropriate pursuit for a devout latter-day saint. So when the prophet speaks, common sense often goes out the window.
Personally, I think the church advocating frugality and wise use of credit is a great thing, and on the face of it, I don’t see how you could fault that kind of advice. The problem is that it was given within the framework of a black and white, all or nothing mindset. I have a hard time believing that the brethren don’t fully realize that this is the way their words are received.
The Dunkers (The Church of the Brethren — we’ve talked about them here before) were hesitant to write down their beliefs for fear of creating a rigid orthodoxy by which they would be judged and bound, and which would prevent them from making changes in accordance with whatever new light and knowledge they might obtain. But in the LDS culture, we get the worst of both worlds: we have a kind of semi-rigid orthodoxy and at the same time, we’re encouraged to take the utterances of GAs as if from the mouth of God. The church is naturally somewhat reticent about advertising any changes — and making the faithful wonder why God changed his mind — so instead, we get a kind of trickle-down revelation and are left to our own devices to figure out what the latest “stance” might be. For instance, the church won’t come out and say “hey, remember when ETB launched into his thing (with a little help from SWK) about women finding fulfillment in washing their husband’s socks? Well, he was speaking from an outdated worldview that we don’t necessarily cotton to any more”. No, instead, they will quietly stop publishing that sage bit of advice from ETB and hope that it just goes away on its own. Those who are daring and like to live on the edge might muse about the latest leanings from church headquarters. Those who like to live on the safe side or are just sick of trying to figure out what’s going on will stick with what they know until they’re dead … it’s just so much easier that way.
So, yes, I believe that is the church’s stance on debt.
Doug said it. I agree, to the power of 10. ….+2^10
I think we may be making a lot of assumptions about what Church leaders have actually saidwhen it comes to debt. Does anyone dare brave the Church website and see what they’ve been saying? I suspect almost every instance of counsel against “debt” is referring to consumer debt and spending more than you make, not leveraged investments.
Here’s my favorite bit of advice. From President Monson in 2006, they heyday of the housing bubble:
Quote:The final [trap] I wish to mention today is one which can crush our self-esteem, ruin relationships, and leave us in desperate circumstances. It is the [trap] of excessive debt. It is a human tendency to want the things which will give us prominence and prestige. We live in a time when borrowing is easy. We can purchase almost anything we could ever want just by using a credit card or obtaining a loan. Extremely popular are home equity loans, where one can borrow an amount of money equal to the equity he has in his home. What we may not realize is that a home equity loan is equivalent to a second mortgage. The day of reckoning will come if we have continually lived beyond our means.
My brothers and sisters, avoid the philosophy that yesterday’s luxuries have become today’s necessities. They aren’t necessities unless we make them so. Many enter into long-term debt only to find that changes occur: people become ill or incapacitated, companies fail or downsize, jobs are lost, natural disasters befall us. For many reasons, payments on large amounts of debt can no longer be made. Our debt becomes as a Damocles sword hanging over our heads and threatening to destroy us.
I urge you to live within your means. One cannot spend more than one earns and remain solvent. I promise you that you will then be happier than you would be if you were constantly worrying about how to make the next payment on nonessential debt. In the Doctrine and Covenants we read: “Pay the debt thou hast contracted. … Release thyself from bondage.” 7
Thomas S. Monson, “True to the Faith”
http://www.lds.org/general-conference/2006/04/true-to-the-faith?lang=eng
How many countless LDS (including a few in my own ward) would have been so much better off if they had only listened to him?
Full agreement on this one. But I’m disenchanted with how so many members interpret that to mean “don’t have any debt except for house, car, and school”. To the point they give up sensible opportunities.
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