The New Home Economics – Overcoming Overdraft

by Jody Blum

There are three things we’re not taught about growing up that would enable us to become more productive, efficient, and happier adults: how to have a great marriage, how to be a superb parent, and how to manage our household finances so we don’t fall into debt.

Debt is a universal problem, but locally it’s reached epidemic proportions. In Israel, approximately 70 percent of our households are in “minus” or overdraft. Another 25 percent would like to be, but the banks actually won’t allow them to be anymore.

As a nation, we pay out some 9 – 14 billion shekels annually in overdraft interest alone. Divide that by the 1.5 million families that make up our country and you’ll see that an average Israeli family pays between 6,000 – 10,000 NIS per year in overdraft interest payments to the bank. This is the equivalent to a half to a whole monthly salary that we’re paying to the banks. It’s horrifying to think about!

But why should it be any different? We’re not taught money management in school, and very few of us ever broach such a “taboo” subject at home when we’re growing up. So how can parents who are already suffering from overspending and debt possibly be qualified to educate their children properly about healthy spending habits?

They can’t; as a result, the problem has become the reoccurring vicious cycle that has led us to where we are today. But if we don’t combat this problem now, our children and grandchildren will not know how to put away money towards a secure financial future. And that spells national economic disaster.

What’s actually happening “on the Israeli street” today? Many people choose to cover their debt with a loan. If they secure a good enough loan, they might be able to save a bit of money, but this approach is really just a way of “transferring” one debt to another. I prefer a more comprehensive approach of debt management to such a “band-aid” approach.

Debt management includes 4 steps:

  • Commit to not creating more debt
  • Record expenses
  • Set up a monthly budget
  • Control that budget weekly

People fall into debt for many reasons. Not only are they not taught money management skills; there are often emotional issues that drive the way people spend or overspend:

  • Parents often neglect to set limits when spending on their children, since they have no limits on their own adult spending.
  • High expenses become so frustrating and anxiety producing that people avoid the bank altogether.
  • It’s very difficult to stay on top of the various (and high) fees the bank collects – including for overdraft interest.
  • Some people have a need to impress others; others have a sense of entitlement.

When these problems start at an early age, they tend to drive our spending as single adults and then well on into our marriages. If a young couple doesn’t have good communication skills and aren’t able to solve a serious money issue from the start, their money issues will snowball, often ending up in divorce. In fact, thirty-percent of divorces are due to financial issues.

I know a newly wed couple living in Jerusalem. She is 36 and this is her first marriage. He is nearing 50, his second marriage. She has natural money sense and is gently helping him realize that he needs to not only stay out of debt, but also put away for his retirement which is not that far down the road. I say “gently” because in the beginning he didn’t want to hear from this. For 49 years he’s been spending money his way. He doesn’t want someone else, not even his beloved wife, to control the way he spends money. Now he is beginning to see she’s making “cents.”

In the courses I teach, “Overcoming Overdraft: Your Journey to Financial Empowerment,” the majority of my students are 40 and above. But the real “darlings” of each class are the twenty-somethings who are just starting out. Why? Because the students in their 50s know that these young couples have a chance that they didn’t have. It’s never too late to start, but with youth does come the inarguable advantage of time.

Ideally, money management skills should be taught early – in school. However, this comes with its own challenge: I have found with my courses that people need to be motivated to change the way that they are doing things. Imposing money management on kids before they are ready – or motivated – to learn it may simply be ineffective at best and backfire at worst. Students need to admit that they have a problem, that this is a real issue that needs to be addressed.

Once I had a non-profit loan organization send someone to my course as a condition to receiving a loan. He came to the first two classes and never came back again, calling me in the middle to say he’s considering declaring bankruptcy. I’ve also had a mother pay for her son and daughter-in-law to have private sessions with me. After one meeting, the daughter-in-law decided she didn’t want to change her spending habits even though they were seriously in overdraft…and even though her mother-in-law was paying!

If teaching home economics in school is dicey, there’s still hope for teaching kids at home. This can begin, as early as age 3 with simple concepts like “keeping” money. Later, cost comparisons, needs vs. wants, healthy spending habits, decision-making, and eventually record keeping and setting up budgets can be introduced. With proper education in the family, there would be a real chance of reinforcing good behaviors as part of curriculum starting in kindergarten and finishing in 12th grade.

A large percentage of the world is in debt. There is no question that things have gotten out of hand. My prayer is for money management to naturally be part of our children’s and grandchildren’s education at home and at school.

Jody Blum teaches the popular course “Overcoming Overdraft” and offers one-on-one coaching on financial empowerment through her organization minusPLUS. Visit the website: www.minusPLUS.org.