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Degrees of Debt: Some Parents, Shouldering Student Loans, Fall on Tough Times

November 12, 2012 by Leave a Comment

It has been six years since Ms. Fitzgerald — broke, unemployed and in default on the $18,000 in loans she took out for Jenni’s college education — became a boomerang mom, moving into her daughter’s townhouse apartment in Hingham, Mass.

Jenni pays the rent.

For Jenni, 35, the student loans and the education they bought have worked out: she has a good job in public relations and is paying down the loans in her name. But for her mother, 60, the parental debt has been disastrous.

“It’s not easy,” Ms. Fitzgerald said. “Jenni feels the guilt and I feel the burden.”

There are record numbers of student borrowers in financial distress, according to federal data. But millions of parents who have taken out loans to pay for their children’s college education make up a less visible generation in debt. For the most part, these parents did well enough through midlife to take on sizable loans, but some have since fallen on tough times because of the recession, health problems, job loss or lives that took a sudden hard turn.

And unlike the angry students who have recently taken to the streets to protest their indebtedness, most of these parents are too ashamed to draw attention to themselves.

“You don’t want your children, much less your neighbors and friends, knowing that even though you’re living in a nice house, and you’ve been able to hold onto your job, your retirement money’s gone, you can’t pay your debts,” said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.

In the first three months of this year, the number of borrowers of student loans age 60 and older was 2.2 million, a figure that has tripled since 2005. That makes them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.

Almost 10 percent of the borrowers over 60 were at least 90 days delinquent on their payments during the first quarter of 2012, compared with 6 percent in 2005. And more and more of those with unpaid federal student debt are losing a portion of their Social Security benefits to the government — nearly 119,000 through September, compared with 60,000 for all of 2007 and 23,996 in 2001, according to the Treasury Department’s Financial Management Service.

The federal government does not track how many of these older borrowers were taking out loans for their own education rather than for that of their children. But financial analysts say that loans for children are the likely source of almost all the debt. Even adjusted for inflation, so-called Parent PLUS loans — one piece of the pie for parents of all ages — have more than doubled to $10.4 billion since 2000. Colleges often encourage parents to get Parent PLUS loans, to make it possible for their children to enroll. But many borrow more than they can afford to pay back — and discover, too late, that the flexibility of income-based repayment is available only to student borrowers.

Many families with good credit turn to private student loans, with parents co-signing for their children. But those private loans also offer little flexibility in repayment.

The consequences of such debt can be dire because borrowers over 60 have less time — and fewer opportunities — than younger borrowers to get their financial lives back on track. Some, like Ms. Fitzgerald, are forced to move in with their children. Others face an unexpectedly pinched retirement. Still others have gone into bankruptcy, after using all their assets to try to pay the student debt, which is difficult to discharge under any circumstances.

The anguish over college debt has put a severe strain on many family relationships. Parents and students alike say parental debt can be the uncomfortable, unmentionable elephant in the room. Many parents feel they have not fulfilled a basic obligation, while others quietly resent that their children’s education has landed the family in such difficult territory.

Soon after borrowing the money for Jenni’s education, Ms. Fitzgerald divorced and lost her corporate job. She worked part-time jobs and subsisted on food stamps and public assistance.

Article source: http://www.nytimes.com/2012/11/12/business/some-parents-shouldering-student-loans-fall-on-tough-times.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

You’re the Boss Blog: Is It a Mistake to Pick an Employee of the Month?

September 12, 2012 by Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

I recently met a management consultant and business author who asked me if I had an “employee of the month” program. I said I did, at which point he reprimanded me for the error of my ways. His argument was that it was a waste of time and was actually counterproductive; only one person wins, and the rest are resentful. My managers and I actually considered that before we started the program, but the conversation with the consultant, Aubrey C. Daniels, got me thinking about it again. As I have gotten older, I have become more open-minded about recognizing that my way might not be the best way.

We name an employee of the month in only one of my companies, the custom framing factory, where I have the most employees working together in the same place at the same time. I have about 30 employees at the factory who do everything from making frames and cutting mats to working in shipping and receiving. We have a meeting every Friday morning for 10 to 15 minutes to announce birthdays and anniversaries, review the progress of the week and discuss what is happening in the company. On the first Friday of the month we also give out the employee-of-the-month award.

Here is how it goes. The manager announces the three people who have been nominated and explains why. Typically, the nominees are an employee who was heads-up enough to catch a significant mistake, someone who filled in for a co-worker or supervisor, someone who went beyond the call of duty to get a job done or someone who did an extraordinarily good job on a difficult project.

Then the ceremony begins, and Alex, one of the supervisors, hits the button on the boom box and the “Rocky” theme song comes blasting out: “BUM-bum-bum-BUM-bum,  BUM-bum-bum-BUM-bum.” And the winner is … !

A small Rocky statue is handed to the winner, who also receives a free framing certificate and use of the employee-of-the-month parking space. In addition, a photograph of the winner is taken with the big boss (that would be me) and displayed with the statue in the cafeteria for the month. Everyone applauds. People seem happy, but the question I now ask myself is, Is it all a front? Do the employees really seethe and grumble and leave sad and rejected? I do not want to be naïve or delusional — at least not that delusional. (A little delusion, I’ve found, works for me.)

So I did three things. I asked my managers, I asked a few hourly employees, and I read Mr. Daniels’s book (“Oops: 13 Management Practices That Waste Time and Money”). After what I believe to have been a thorough analysis, I concluded that the program is in fact worth doing. People seem to look forward to it. They say they like it, and I think it helps reinforce the mission of paying attention and trying to operate in a quality-driven, efficient manner. Are my employees just telling me what they think I want to hear? I don’t think so. Two reasons: First, this is not some pet project of mine, and I have made it clear that if people don’t appreciate it, we should stop doing it. Second, my “corporate culture” is very noncorporate. People tell me all of the time if they think there is a problem — even if they think I am the problem.

Even so, can I be sure that no one is resentful that he or she hasn’t won the award? Can I be sure that there are not some employees who really don’t care if they ever win or not? Actually, I wouldn’t be surprised if there are people who feel that way — but I still think that, on balance, the program has a positive impact.

Has everyone won the award? No, but probably 80 percent have. And here is the harsh and nice reality: I do believe that the best employees have won, and I would rather not punish them by trying to avoid bothering others who have never done anything special to be acknowledged.

The final part of my analysis was an attempt to reconcile the consultant’s view with my experience. That was easy. After I read his book, it was obvious why Mr. Daniels had such disdain for employee-of-the-month programs. The examples he cites all have obvious flaws: they aren’t clear about why someone wins or they just give everyone a turn. He offers one example where he asked someone why he or she won, and the employee had no idea.

In those cases I would agree. A bad or meaningless program is worse than no program. But that doesn’t mean that a well-run program can’t have a little magic: “BUM-bum-bum-BUM-bum,  BUM-bum-bum-BUM-bum.”

Besides, who doesn’t love the “Rocky” theme song? O.K., maybe that’s me being delusional again.

Jay Goltz owns five small businesses in Chicago.

Article source: http://boss.blogs.nytimes.com/2012/09/12/is-it-a-mistake-to-pick-an-employee-of-the-month/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Corner Office: Dominic Orr: Yes, Everyone Can Be Stupid for a Minute

May 8, 2011 by Leave a Comment

Q. What were some early lessons for you as a manager?

A. The biggest feedback I had from my people is that I didn’t give them feedback.  I was running along.  I had a pretty high standard for myself, and I assumed that everybody who joined my team was operating at the same level. Good work was assumed, so I let them know only when something didn’t go well.  People started telling me it would be nice if I gave them a pat on the back rather than only telling them when things were not good.

  Another thing I distinctly remember is that I had trouble having a difficult discussion with employees because, as a young manager, sometimes you don’t really know how to tell somebody to their face that they’re not doing a good job.  I also struggled at first with this whole process of running a staff meeting. I remember bringing my H.R. person in to have her run meetings so that I wouldn’t take over, express my opinions and then everybody would sit there silently.

Q. What are some other important leadership lessons?

A. I have had a very good mentor — Wim Roelandts, who worked for H.P. for about three decades.  He rose to become the No. 2 executive of H.P. under Lew Platt. He is someone who embraced the old H.P. way. 

Q. What were some lessons you learned from him?

A. I would say empowering people. Basically, he would push you and give you as much as you could handle until you started failing. He would encourage you to not be afraid of failing — because when you start failing, that’s when you know where your limit is, and then you can improve around that.  So he actually sometimes would reward failure because that means that you have pushed yourself.

That is an unusual approach, so people under him tended to be able to really find their limits. And once they do that, they figure out a way to overcome it, because they don’t feel that inhibition. I think that is a very big thing. The whole H.P. way of management kind of molded my approach to managing people in business.

Q. And boil that down for me. What is the H.P. way?

A. Fundamentally, the H.P. way started with the basic assumption that each employee wants to do well, and they are capable of doing well, so as a manager you have to give them that environment to flourish. When someone does not perform, the first reaction is not to get angry at them or assume that they are incompetent, but to question whether they have they been matched to the right assignment.  From the background, from the skill set, have you created a productive environment for them?  So the first question as a manager is, have you done something wrong? 

Q. Tell me about the culture of the company you run today.

A. I use a simple principle of management based on intellectual honesty.  You try to be intellectually honest with yourself, meaning that you have to forget about all the face-saving issues and so on. I tell people that if you work for me, you have to have a thick skin because there’s no time to posture. 

I also tell people that everybody can be and will be momentarily stupid.  I think that in many large companies, a lot of politics arise because somebody makes a statement in a meeting, and then it’s weeks of wasted time and effort because they have to dig in to defend that position, and then politics come into play because they now want to lobby for their position. 

So when I interview key executives of my staff, I tell them that they need to accept that they can be, and will be, momentarily stupid. If they can accept that and be able to say, “Oh, I was momentarily stupid; let’s move on,” then you don’t waste time dealing with that.

Q. How has your leadership style evolved over time?

A.  The big thing that has changed from 25 years ago is how much I think about the power of the team.  I used to, for example, look for two things in people: one is whether I clicked with somebody, and then I would look for best-in-class competence and star performance in a certain discipline, regardless of how they work with others. Now, whenever I’m interviewing for a new executive in any discipline, I look at how they might enhance the capability of the team.  Can the dynamics work? And can this person rotate to do some other things?  So I would say as I mature, I focus more and more on the performance of the team versus the performance of the individuals. 

Q. What else are you looking for when you’re interviewing?

Article source: http://feeds.nytimes.com/click.phdo?i=196acac952f3fede5b67f29b4de3ab12

Filed Under: Business News Tagged With: , ,

Wealth Matters: Taking the Time to Pick the Right Financial Adviser

April 23, 2011 by Leave a Comment

In the past, there have been few people to consult about whom to pick. Accountants and lawyers have played this role, warily. But they would typically present two or three advisers and leave the final decision up to the investor.

Now Douglas Black, a 30-year brokerage industry veteran, has started a firm called SpringReef Partners that will screen and select financial advisers for wealthy families. While the amount of wealth needed to receive his advice is high — from $5 million to $50 million — his approach can help those intent on evaluating an adviser to fit their needs. His advice may be aimed at the wealthy, but anyone with money to invest can adopt his practices.

“Firms don’t do a very good job of matching adviser capability with client complexity,” Mr. Black said. “They haven’t taken the focus away from the advisers in determining who is going to end up with whom.”

Mr. Black, who started his career as a financial adviser and stepped down as the chief operating officer of UBS Wealth Management in 2010, is entering this business at an opportune time. Investors are particularly insecure about making the wrong choice.

Charlotte B. Beyer, founder and chief executive of the Institute for Private Investors, said her members were now screening eight to 10 advisers when they used to meet with two or three.

“That’s an enormous difference and an enormous time commitment,” Ms. Beyer said.

While wealthy investors may have made a lot of money and surely understand how complex the world is, they are just as afraid as anyone else of getting this choice wrong. So how do you pick the right adviser without being overwhelmed by the process?

TYPICAL MISTAKES Regardless of wealth, people make the same mistakes in selecting advisers.

Listening to family and friends for suggestions on money management — or, worse, picking family and friends to do it — can be a bad idea. First, there is no correlation between your sense about a person and that person’s ability to do a good job. Remember all the people who felt such affection for Bernard L. Madoff? And second, hiring a friend or relative makes firing that person tough.

Rushing the process is another mistake. Picking a financial adviser can be as serious as selecting a doctor, and it certainly should require more time than picking a paint color. But for many investors, even those who had to make tough decisions in business, it is about as interesting as watching that paint dry.

“People don’t interview enough people on the front end,” said Jim Grubman, owner of FamilyWealth Consulting, which works with advisers. “They’ll take someone else’s recommendations. What works for your friend or your colleague may not be the best fit for you.”

Relying on a name brand firm can be just as bad as going with someone you know. But selecting a boutique firm in the belief that smaller size means more attention for clients can be equally problematic.

“Our belief is there are exceptional advisers spread across all different types of platforms, but there are no great firms,” Mr. Black said.

QUESTIONS TO ASK Picking an adviser is an awful lot like choosing a spouse: you really want the relationship to last forever, to be rewarding and fulfilling, but if it happens to fall apart, you don’t want that to destroy you.

Mr. Black, whose firm is paid either a fixed fee or a percentage of assets for continuing monitoring, said he asked 18 questions of all firms and 17 of advisers. For firms, some of the major questions involve how the organization functions, its experience and risk-management practices and how it handles problems that arise.

For advisers, the criteria are a mix of set standards and questions. He will not work with any adviser who has fewer than seven years’ experience. One thing he found when he worked at UBS was that it generally took at least seven years for any financial malfeasance to surface. He said he also wanted to make sure that the adviser’s firm had broad experience with clients whose wealth levels were similar to his own client’s.

Yet, he said, the value his firm will bring to the selection process may be in the questions that do not have simple yes or no answers. The 17 criteria for advisers are listed on the firm’s Web site.

One simple statistic he looks at is how much additional money an adviser’s existing clients are asking him or her to manage. Mr. Black said most very wealthy people had several advisers from various stages in their lives. But the one who is doing the best job — as opposed to the friend from high school — is the one who gets the new money they are making.

Yet even lawyers and accountants who take the typical approach of making introductions to wealth advisers are aware that the complexity of both individual investments and the global economy requires more voices, not fewer.

Article source: http://feeds.nytimes.com/click.phdo?i=00020f332e198a980bbf4ec85af67aa8

Filed Under: Business News Tagged With: , ,