Financial Wisdom – The Lowedown

Proverbs 19

¹It is better to be poor and honest than to be a fool and dishonest.

²Zeal without knowledge is not good; a person who moves too quickly may go the wrong way.

³People ruin their lives by their own foolishness and then are angry at the LORD.

⁴Wealth makes many “friends”; poverty drives them away.

⁵A false witness will not go unpunished, nor will a liar escape.

⁶Many beg favors from a prince; everyone is the friend of a person who gives gifts! (Proverbs 19:1-6, NLT)

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Some time ago, I heard a person call into the Dave Ramsey show asking for advice on when and how to tell their kids that they were rich.

Apparently, the caller had pooled some money with some co-workers for their states’ PowerBall lottery and, as luck would have it, they won. BIG. His share of the winnings was significant and made his family extremely wealthy. Yet, even though they now had a windfall of money, they hadn’t told anyone. Not their kids. Not their friends. And not their parents or other relatives.

The caller was asking for advice on when and how to tell their kids who were now getting older and moving into adulthood. He wondered when his kids might be mature enough to hear this information without blabbing it to the world.

One might ask why someone who is wealthy would not want others to know about it. Why not advertise it to the world? After all, isn’t it a sign of success and achievement? Wouldn’t it garner the respect and admiration of others? Isn’t half the fun of winning the lottery letting people know that you “beat” the system?

The reality is that extreme wealth has a parasitic effect, and Solomon, who, according to the Scriptures, was the wisest man to ever live, speaks about that in this section of his Proverbs.

Verse four, in particular, says that:

wealth makes many “friends”; poverty drives them away.

You’ll notice that in the NLT, the word “friends” is in quotes. It’s not in quotes in the original language or in most other translations. The quotes have been placed there by the translator to convey the meaning of the verse, which is that wealth brings many so-called “friends” but they’re not really your friends. They’re only your friends because you have money. If, and when the money disappears (poverty) so does their friendship. Obviously, that’s not REAL friendship.

Verse 6 expounds on this idea. It’s amazing how many friends and distant relatives you’ll learn you have as soon as the word gets around that you now have money. People you haven’t seen in years, and even people you’ve never met will suddenly show up on your doorstep, acting friendly toward you and pretending to care about you, while in reality they just want to help you spend your money.

The Bible is clear that wealth is not evil (though greed is) and it’s not sinful or immoral to be wealthy.

At the same time, the Bible warns about the dangers of extreme wealth. Besides the fact that wealth can, and often does turn into greed, wealth can also bring unwanted people into your life. People who are not particularly interested in you as a person will seek to wriggle their way into your life in order to ingratiate themselves to your good nature, hoping that you will reward them with a handout.

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Reflection

When have you experienced so-called “friends” only being nice to you because they wanted something from you?

Have you ever had a rich relative or friend? What was your attitude toward them? Did you find yourself acting differently in hopes of being “taken care of”?

What do you think are some ways you can safeguard yourself from falling into the trap of greed and wanting money? How can you avoid treating others differently because of their money or lack of money?

How can you cultivate contentment in your life?

Photo by dylan nolte on Unsplash

Proverbs 6

¹My child, if you co-sign a loan for a friend or guarantee the debt of someone you hardly know—²if you have trapped yourself by your agreement and are caught by what you said—³quick, get out of it if you possibly can! You have placed yourself at your friend’s mercy. Now swallow your pride; go and beg to have your name erased. ⁴Don’t put it off. Do it now! Don’t rest until you do. ⁵Save yourself like a deer escaping from a hunter, like a bird fleeing from a net. (Proverbs 6:1-5, NLT)

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The Bible is a guidebook for living and the book of Proverbs, in particular, is written in order to provide instruction for living righteously and with “good conduct.” The author promises that those who read these Proverbs will grow in “wisdom and discipline.”

One area that is addressed throughout Proverbs is the area of finances and money management.

In this passage, Solomon advises the reader against the practice of co-signing a loan for another.

Solomon doesn’t mince words as he describes this scenario as a “trap” because you have placed yourself at your friend’s (or relative’s) mercy.

What does he mean and why does he say that? What’s the big deal?

Many people are unaware of the implications of co-signing a loan.

Co-signing a loan is not simply a matter of going into business with another person or becoming an equal investor in some financial venture.

When you cosign a loan with another person, you are essentially offering a guarantee to the bank that YOU will step in and honor the terms of the loan if the primary borrower cannot.

Co-signing a loan often occurs when the primary borrower (the signer) is deemed by the lender to be a credit risk, and therefore cannot qualify for a loan on their own for whatever they are purchasing.

There are any number of reasons why a person would not be able to qualify on their own for a loan.

One reason is that they don’t make enough money with their job to meet minimum standards the bank has set for income to debt ratios. In other words, based on basic loan standards, the monthly payment amount required for whatever loan the person might be seeking is too high relative to the amount of their monthly income. The bank has all kinds of statistics and predictors to evaluate various loan scenarios and they know that the higher percentage your payment is relative to your income, the more likely you are to default on a loan.

Another reason why a person might not be able to qualify for a loan on their own is because they have a poor credit history. A person’s credit score is a reflection of their ability to honor their financial commitments. Low credit scores often mean the person has missed payments in the past and/or they have too much personal debt. The lower your credit score, the more you are perceived by the lender to be a risky borrower – someone who has missed payments, made late payments or has completely defaulted on a loan.

So when a person finds themselves unable to borrow money, they may turn to a friend or relative to help them secure the loan by acting as a co-signer for the loan.

Solomon says that you shouldn’t put yourself in the position of being a cosigner. It’s incredibly foolish for a number of reasons.

When you co-sign a loan for another person, you are legally guaranteeing to the lender that if the primary borrower defaults, you will be responsible for the loan.

Why would anyone do that?

Think about it. If the bank won’t lend to the person on their own, why would they lend to them with you as a cosigner? The reason is because you have good credit and you are essentially vouching for the person in such a way that you’re putting yourself on the hook for that financial obligation should they default. If they are already deemed by the bank to be a person who cannot be relied upon to pay back a loan, they will STILL be unreliable even after you cosign. You will then be the guarantor for that loan.

In other words, cosigning a loan is incredibly foolish because there is a good chance it will become your legal obligation.

Horror stories abound when things go sideways after cosigning a loan. You may have creditors coming after you. Your wages could get garnished as creditors seek to recover unpaid payments, penalties and interest. Your credit score might get damaged as someone else’s debts and poor financial track record gets tied to you.

A poor credit score might impact your own ability to get a car loan or even buy a house, as lenders now view you as a borrowing risk, all because someone else decided that being financially responsible wasn’t important to them.

I know what you’re thinking…

“Shouldn’t we help people? Wouldn’t it be mean not to help a person who is in a bind? Shouldn’t we be Good Samaritans?”

Yes, it is a good thing to help people but not every course of action is helpful or wise. Helping another person does not mean you should do something foolish like guarantee their loan. Perhaps the best way to help a person is to force them to live in the reality of their financial situation.

Cosigning a loan for someone else has zero upside for the cosigner but the downsides are innumerable. This is why Solomon says it’s a trap. With absolutely no financial benefit to you, cosigning a loan has the potential to bring about tremendous personal financial ruin.

For a more complete list of possible downsides to cosigning a loan, see this article.

Reflection

What are some reasons a person might ask you to cosign a loan?

On a scale of 1-10, how hard would it be for you to say no to a close friend or relative who asked you to help them by cosigning a loan?

If you gave a low value to the last question, meaning that it would be very difficult for you to say no to some people if they asked you for financial help by cosigning a loan, what options might be available to you to help ensure that you did not fall into this “trap”?

If a person were to come to you wanting you to cosign a loan (a friend or relative) what do you think are some options for helping them that would NOT require you to risk your own financial position by cosigning a loan?

Or put it another way….if you are the person in financial stress and you are wanting a loan that you cannot get, what options might be available to you BESIDES asking someone to cosign a loan for you?

Photo by RDNE Stock project: https://www.pexels.com/photo/close-up-photo-of-an-agreement-on-a-paper-7841821/