by Scott Pape - September 30th 2006
I have always wondered why people go to such great lengths to achieve their 15 minutes of fame.
I pondered this while attempting my sixth take of a simple set-up: “Hi, I’m Scott Pape, I hear you need help with your finances.”
“Cut,” yells the director, “let’s try it again Scott, but this time with more e-n-e-r-g-y.”
I have spent the last few weeks filming for Channel Nine’s new Money special.
Paul Clitheroe is back as the host, while I earned my stripes in suburbia doing a number of financial makeovers.
Pretty on the outside
These assignments gave me an insight into the stress that many Australian families face in dealing with the financial ramifications of the Triple Ms – marriage, mortgage and midgets.
Standing on the outside and looking in, many families appear to be living the Australian dream – beautiful new home with a two-car garage and the status symbol of choice, the plasma television.
Yet delving a little deeper I found a high interest rate house of cards, ready to topple and perhaps take everything with it.
That’s hardly breaking news, given that we all know Australian families are carrying record household debt and have no savings.
Of more interest is what happens to these families now and in the long run.
Masked mistakes
The Baby Boomers would like to believe they’ve been prudent financial managers, although it’s this generation that has presided over falling savings rates and exploding levels of personal debt.
The reality is that rising asset prices, particularly property, has masked many of their mistakes.
So what becomes of the next generation – those with telephone-number mortgages, and accompanying sky-high personal debt?
Out of the loop
What happens if they don’t get the free kick of another property frenzy, which The Economist magazine has labelled the biggest bubble in history, before it’s time for them to strap on their gold watch?
The problem is compounded because the people in this situation are generally out of the financial advice loop.
They aren’t hot prospects for the bulk of the commission-driven financial planning community, simply because they don’t have enough money to invest, and therefore enough crumbs to feed the planner.
Even the fee-for-service financial planners can’t help – few families in this situation can afford to shell out $2000 for a financial plan.
Money makeovers
Moreover, the only financial advice most young families have received is from salespeople selling money – sorry, mortgage brokers – which in most cases is neither objective nor designed to fulfill long-term financial goals. The money makeover that I did was the first time one particular family had ever sat down with an independent professional and discussed their financial affairs – and it showed.
Despite owing hundreds of thousands of dollars in debt, they weren’t sure what interest rate they were paying on their mortgage, or for that matter what they were paying on their numerous credit cards.
This however was no ordinary meeting – it was showbiz, and if television has taught us one thing it’s that a backyard can be renovated in a weekend, you can halve your weight in a 13-week series, and you can transform yourself into an overnight singing sensation with just a little luck.
I have a sneaking suspicion that some of the families I met really wanted to believe that the magic of TV would rub off on their finances the same way it does on those extreme makeover shows, where a woman weighing 250kg with no teeth and grey hair is miraculously transformed into a blonde Californian beach babe by the end of the show.
This isn’t to say that money makeovers don’t work – in fact following good financial advice will produce staggering long-term results that can radically change people’s lives for the better.
Yet the difficulty is that unlike a boob job, tummy tuck and a new set of glowing white choppers, there is no “ta-da” before and after effect in following solid advice in the short term.
The 20 or so hours of filming fumbled lines was reduced to around six minutes, encapsulating the sound bites that tell the story and give the advice. The trick is making sure these snippets are realistic and, more importantly, usable for the viewers at home.
Stop and think
In one situation I took a young girl’s maxed-out credit card, dropped it into a glass of water and threw it into her freezer.
The idea being that the next time she wanted to slap something on the plastic she’d have to cool her heels for 24 hours while it defrosted, which also gave her time to think of another way to finance her purchase, or whether she really needed it in the first place.
In one family, mum and dad were working seven days a week just to keep their heads above water, while paying $7500 a year in interest on their credit cards.
While this seems ridiculous from the outside looking in, statistics (and bank profits) attest that many of us are in the same boat.
The fast pace of TV meant the whirlwind of filming was over in record time – the plan was in place and it was time to move to the next location.
The hard yards
Yet for the families the real work starts after the camera stops. All the good advice in the world is worthless unless they stick to the plan of paying off debt over and above the minimum repayments and stop spending money they don’t have.
The final piece of advice I gave one family is that there is no magic pill that any financial professional or guru can give that will get them out of the financial hole they’ve dug.
At the end of the day, no one cares more about their money and their family than they do.
So, instead of burrowing their head in the sand and living with the stress and struggle of the situation, I suggested that the best thing they can do is to take on another part-time job.
Instead of mopping floors or babysitting for a few bucks an hour, the part-time job should be to learn as much about personal finance as possible.
The long-term payoff of having a good grasp on the fundamentals will work out to be the best paid position they’ll ever have – and their first shift starts this Monday night at 9.30 pm.
Tread your own path!
Photo: http://www.flickr.com/photos/rominita/623124477/
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