We of­ten tell our­selves these fi­nan­cial ‘al­ter­na­tive facts.’ Don’t fall for them.

The main rea­son to buy life in­sur­ance is in­come re­place­ment. Un­less your child is sup­port­ing the fam­ily, you’re bet­ter off put­ting money in a 529 col­lege-sav­ings plan.

The Washington Post Sunday - - CAPITAL BUSINESS - Michelle Sin­gle­tary

A friend re­cently joked to me about how peo­ple some­times re­sort to “al­ter­na­tive facts” when it comes to their money.

And it’s true. They tell them­selves false­hoods, such as: “I’m not re­ally re­spon­si­ble for a loan if I co-sign.” Or: “I can af­ford this new car loan be­cause I’m go­ing to cut my spend­ing.”

In case you’re un­fa­mil­iar with the ref­er­ence, it came from White House coun­selor Kellyanne Con­way, who was re­spond­ing to crit­i­cism that Pres­i­dent Trump’s press sec­re­tary, Sean Spicer, had over­stated the in­au­gu­ral crowd size. Con­way said Spicer was merely pre­sent­ing “al­ter­na­tive facts.”

Many peo­ple find them­selves in trou­ble be­cause of “al­ter­na­tive” fi­nan­cial facts. So I asked my Face­book fol­low­ers to weigh in on the fi­nan­cial lies they’ve told them­selves over the years. Here are some I re­ceived: “Hav­ing in­sur­ance on my kids is a good in­vest­ment for the fu­ture.” The truth: This is a false­hood that many par­ents buy in to. They are sold in­sur­ance for their chil­dren as a way to lock in a pol­icy should the child be­come unin­sur­able in the fu­ture. Or they are told it’s a great way to save for chil­dren.

It’s not im­per­a­tive that you buy life in­sur­ance for chil­dren, says James Hunt, a re­tired life in­sur­ance ac­tu­ary who as­sists the Con­sumer Fed­er­a­tion of Amer­ica on life in­sur­ance is­sues.

“Of course, chil­dren don’t need life in­sur­ance, which is re­but­ted by agents who’ ll ar­gue that it pre­serves in­sur­a­bil­ity in case of a med­i­cal in­ci­dent, a very low like­li­hood,” Hunt said. And he added: “Sales costs are usu­ally dis­pro­por­tion­ately high for the need.”

More im­por­tantly, the main rea­son to buy life in­sur­ance is in­come re­place­ment. Un­less your child is sup­port­ing the fam­ily, you’re bet­ter off put­ting money in a 529 col­lege-sav­ings plan.

“He’ll pay me back; we’re fam­ily.” The truth: Many re­la­tion­ships have been ru­ined or strained by the mis­guided ex­pec­ta­tion that a loan will be re­paid.

On­line lender iLoan sur­veyed 800 peo­ple last July about bor­row­ing money from fam­ily and friends. The top rea­sons for the loans were for ed­u­ca­tional needs, ba­sic ne­ces­si­ties (food, wa­ter, elec­tric­ity) or to buy or fix a car.

But the sur­vey found that 36 per­cent of fam­ily and friend lenders weren’t paid back all their money. Four­teen per­cent never got any money back.

Just don’t do it. If you have the money and you don’t need it back, just give it to the per­son. This way, your fam­ily mem­ber or friend won’t be tempted to lie about their in­abil­ity to pay you back.

“If I get that ini­tially 0 per­cent in­ter­est credit card, I’ll have it paid off be­fore the in­ter­est kicks in.” The truth: I’m not to­tally against such of­fers, which are typ­i­cally pitched to help peo­ple pay off other cards. But you need dis­ci­pline when it comes to bal­ance-trans­fer of­fers. If you don’t pay off the bal­ance by the time the introductory pe­riod is over, you could get hit with a mon­strous in­ter­est rate and back in­ter­est that will only ex­ac­er­bate the prob­lem you were try­ing to solve in the first place.

“I can af­ford a trip to South Africa, even though I have no job and $97,000 of stu­dent loan debt.” The truth: This type of lie can cre­ate fi­nan­cial havoc for years to come. Yet, I see it all the time. And I get it.

Peo­ple see the va­ca­tion as an es­cape. But don’t give in to this sense of en­ti­tle­ment. When you get back, your money prob­lems will still be there — only now you’ve added to the stress by pil­ing on more debt.

“I work hard. I de­serve to spoil my­self — shoes, clothes, cars.” Or “I need a big­ger Coach bag. This one isn’t big enough for all of my stuff.” The truth: Many of us have too much stuff be­cause we’ve blurred the lines be­tween needs and wants.

“I am not wast­ing money, be­cause I can af­ford to pay all my bills in full each month.” The truth: You may still be liv­ing above your means. Peo­ple tend to live up to their pay­check, leav­ing lit­tle room for fi­nan­cial emer­gen­cies, re­tire­ment sav­ings, etc.

“Lunch out ev­ery day doesn’t add up to a lot of money.” The truth: Eat­ing out daily can add up to sig­nif­i­cant sums. Visa found in a 2015 na­tion­wide sur­vey that re­spon­dents spent an av­er­age of $53 a week, or $2,746 a year, on lunch.

Stop ly­ing to your­self. Find your fi­nan­cial truth, and you’ll see some en­rich­ing re­sults.

Write Sin­gle­tary at The Wash­ing­ton Post, 1301 K St. NW, Wash­ing­ton, D.C. 20071 or sin­gle­tarym@wash­post.com. Com­ments may be used in a fu­ture col­umn, with the writer’s name, un­less oth­er­wise re­quested. To read more, go to wapo.st/michellesin­gle­tary.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.