Coping With Financial Avoidance
Al Waller: As we mark two years of living amid a pandemic, we know many people have experienced financial difficulties of varying degrees – some small and some large. But as these bills pile up, facing them can be a pretty daunting challenge to say the least.
Welcome back to ClearPath – Your Roadmap to Health & Wealth SM. I'm your host, Al Waller, and with me is Catherine Collinson, CEO and president of nonprofit Transamerica Institute®. She's here to discuss financial avoidance.
Now Catherine, the survey your team did in late 2020 found that 43 percent of workers experienced some form of negative impact to employment as a result of the pandemic. In reviewing the data, you also indicated that 60 percent of workers made one or more adjustments due to pandemic-related financial strain.
So, it's completely understandable that people are having a hard time coping with their situation and instead may simply choose to ignore their finances. Clearly, that's not a very constructive path to follow. Catherine, good to have you back!
Can you help us understand what they mean when they talk about financial avoidance?
Catherine Collinson: So, a great question Al, and by the way it's great to be back. Financial avoidance is a concept or a term or an emerging condition that many people are facing – what it describes is ignoring the management of our finances or financial issues, often as a way to suppress negative feelings.
Financial avoidance could involve procrastination. It could involve denial. It could manifest itself in a stack of unpaid bills…or even worse – a stack of unpaid bills that gets put in a drawer for later and that drawer is never opened. It's something that could not only be destructive to our finances but can eat away at us spiritually and emotionally.
To illustrate why we're so concerned that people may be at risk of financial avoidance – you touched on our survey findings that more than 4 in 10 workers experienced one or more negative impacts to their employment. Those would include things like reduced hours, reduced pay, layoffs, furloughs – things that impact their earning power – and at the same time they've had to make some really hard choices, financially.
What makes this recipe for avoidance even more concerning is our survey found that almost 4 in 10 workers (39%) agreed with the statement “I often feel unmotivated and overwhelmed” – and that combination can lead to financial avoidance.
Al Waller: You're absolutely right. Looking at the Gen Z’s and the Millennials…of which I am a proud parent of two – they have had so much to confront. It's absolutely staggering. But let's face facts – financial avoidance can really keep people mired doing the same counterproductive things with their money, resulting in a very vicious cycle.
Catherine Collinson: Indeed, it can result in a vicious cycle. What might be a temporary relief from stress and worrying, sticking those bills in a drawer or avoiding difficult financial topics can have really serious consequences.
For example, we all know that unpaid bills can lead to a destruction in our credit scores, which can negatively impact us down the road. It could result in increasing debt. It could even put us at greater risk of personal bankruptcy – not to mention it could be damaging to personal relationships with our family and friends if we end up needing to seek their help to help bail us out.
Al Waller: This obviously is leading also to a lot of sleepless nights too, which certainly isn't good. Given what we know about people who are avoiding their finances and struggling, what advice can you give someone to even know where to begin?
Catherine Collinson: My very first suggestion is do everything you can to avoid getting overwhelmed. Start small. Take the first step. Taking the first step, even if it's a teeny tiny baby step can help you start moving in the right direction – and for everyone, that first step could mean something different. It could be opening that credit card bill that you've been staring down. It could be doing your taxes. But just taking that first step can lead to action and taking more steps.
Al Waller: I think at some point you just have to take a pause and to breathe…and by the way, remember to breathe. I think taking the first step building from there is exactly what you've got to do because pulling those covers over your head and hoping that it will go away is not a workable solution.
What other suggestions do you have here for us?
Catherine Collinson: Once you've taken that first big step and it could be a baby step, which is actually a giant leap if it's going to propel you forward in addressing your situation – the next really important thing to do is do an assessment of your overall financial situation.
Gather your documents – your savings, your 401(k)s, your credit cards, and any debt that you may have. Create a full picture of your financial situation, and you've got to document it. There are tools that are out there readily available that you can purchase that can help you do this. You could create an excel spreadsheet or you could go old school and just write it down on a piece of paper, but you've got to pull your numbers together.
As you're doing so, what's going to happen is you're going to see some highlights and then you're going to see some scary parts – and a common scary part is credit card debt because it often can come at a really high interest rate, which can grow and grow until you get it paid off. At least, creating that inventory of where you stand, can help you identify the areas in which you need to step forward.
And Al, I expect you're going to ask this question, so, I'm going to answer it. Look at your credit card bills – and not only for interest and expenses and where you are spending money and where you might be able to avoid spending money in the future.
We all have to be hypervigilant about subscriptions. We live in the era of the auto renewing subscription, and it's all too common – somebody will sign up for a free trial for four weeks. Four weeks blow by, and you forgot you even signed up for the trial and meanwhile, that is a subscription that is renewing itself on your credit card until you turn it off.
It's just really important. There's an opportunity for some found money in just reviewing your credit card statements, being on the lookout for subscriptions – some you may have been in love with at the time that you're not anymore and others you may have completely forgotten that you signed up for in the first place.
Al Waller: Isn't that the truth? Obviously, there's no incentive for them to give you that little reminder that the first four weeks of free streaming service is coming to an end. I agree with you, if you start adding those up (and I know a lot of people that bulked up on loads of cable streaming services), you could be talking about some real savings there.
Could you please speak to financial issues that are specifically related to the pandemic that people may be avoiding – but really should make an effort to try to face head on?
Catherine Collinson: Yes, there are two big issues that I want to share with you that could lend themselves to financial avoidance. One is the student loan payment “holiday”. It is coming to an end on May 1. If you've been part of that “holiday”, you're going to have to make a plan to start making payments again after it ends on May 1st.
Another big one that impacted many people during the pandemic relates to mortgage payments and rent holidays. Throughout the pandemic, we saw different moratoriums on evictions – and the rules vary state by state, location by location. In most cases, they've either already come to an end, or they will be coming to an end soon. So, if you have been impacted by that or affected by it, you're going to have to have a plan to start making those payments again.
A helpful resource to check out, the Consumer Financial Protection Bureau has helpful information on its website as it relates to different loans, mortgage, and the timing of when they're going to have to be paid again – and types of relief that are available and how to apply for it
Then renters – it's really important check with your local city, state, county, government to figure out what types of funds are available to maybe help pay for back rent or at least help you get on your feet so that you can make those payments going forward.
Al Waller: Those are definitely some important issues to keep on your radar, especially that student loan payment holiday, which again is ending on May 1st. You mentioned the Consumer Financial Protection Bureau which I know has information on a lot of topics beyond mortgages.
What other resources could our listeners turn to?
Catherine Collinson: That's a great question, Al – because it's so important for people to realize you're not alone – and many of the institutions that you're doing business with already, have resources that might be able to help. For example, wherever you do your banking, if it's a bank or a credit union – they may have resources available to help.
If you're employed, your employer may offer an employee assistance program that offers either a financial wellness program or resources to help you with your finance. Employer retirement plan providers, your 401(k) provider may also have resources that can help you. And you may want to consider using a professional financial advisor, who you can find through a financial services company – a certified financial planner who can help you pull together your big picture and start setting goals.
Then last but not least, you have to have our consumer warning on how important it is – you've got to be savvy. Do your due diligence, especially if you're looking for debt reduction services. There are many out there that are legitimate, but then there are others that could be cost gougers or there could be fine print that you may not be aware of when you sign up. I think we often hear of debt relief programs on the radio and in other places. In that area in particular, it's really important to do your homework before you sign up.
Al Waller: Well, this has all been really informative conversation and you've provided a number of ideas that I think are not only pragmatic, but workable too. Anything else you want to add before we sign off today?
Catherine Collinson: Yes, I want to give our listeners a vote of confidence. Societally, we have been through such extraordinarily difficult times and so many people have been negatively financially impacted by the pandemic and may be feeling a bit overwhelmed.
I just want to leave everyone with a vote of confidence. You can do it! Taking steps, even if they’re baby steps, can help improve your long-term situation. Frankly, they can be empowering. Often, action leads to taking even more action – and then the next thing you know you are on the path to a brighter financial future.
Al Waller: Catherine, I love the way you think, and as always, it’s a great pleasure to have you with us.
We hope you’ll join us for future episodes including the upcoming episode on something Catherine just mentioned, Employee Assistance Programs and what they are. Also, in case you missed it, check out our previous episodes on International Women’s Day and How to Boost Your Retirement Savings with the Saver’s Credit.
ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about retirement security and the intersections of health and financial well-being. You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org.
ClearPath – Your Roadmap to Health & Wealth is produced by the Transamerica Institute with assistance from WYPR.
The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.
If you have comments or feedback, please reach out to [email protected]. Have a topic you’d like to learn more about? Send us ideas.
Until the next time, I’m your host Al Waller. Stay safe, be well and thanks for listening.
