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In this podcast, we are exploring Share With Care. This is all about the risks of co-ownership, co-borrowing, and co-signing. This subject fits right in with our Unit 3 theme of Preserving and Protecting Wealth because, when any of those co-owning or co-borrowing relationships or arrangements go sideways, there can be a big risk to your wealth and financial security. This is an area many people are not familiar with, so to become confident in teaching it you might have to read through the lesson plan a couple of times and listen to this podcast over again. A lot about co-ownership, co-borrowing etc., is counterintuitive, I think.
People sometimes don’t give co-ownership or co-debt arrangements much thought. They just jump right in! But these situations call for caution! Co- arrangements are extremely common and co-debt and co-ownership is on the rise. For example, given the high cost of housing in some areas, many friends, roommates or unmarried couples, pool their money to buy a home. People often co-purchase toys like a boat or plane – or even things like season tickets which as we all know can be very valuable. You may not recognize that when sharing a rental apartment with someone — signing a rental agreement as co-tenants — you are a co-debtor, because each of you is personally responsible for the entire rent payment. It doesn’t matter what your arrangement is with your roommate. We’ll talk more about that later. Anyway co-ownership and co-indebtedness are situations your students are likely to find themselves in one day and a financially literate person should know and understand the associated risks. Let’s learn about them!
This lesson begins on page 294 of the Instructor’s Guide, so lets turn to it now.
The supplemental resource for this lesson is nolo.com – this is one of those online legal help websites. It is a commercial site, but for understanding simple legal principals it actually has a lot of good information and resources — written for the lay person in language you non-lawyers can understand. One thing I have reiterated in this course is that a financially literate person should know or at least develop a sense of knowing when you don’t know — when something is not in your area of expertise and poses a big enough financial risk that your involvement should be checked out by an expert like an attorney or accountant. Consulting a site like this helps you learn a bit about a legal topic so you can determine whether you should take that next step and actually consult an expert. No one wants to be pennywise and pound-foolish! A good guide is that the higher the value of the asset involved, or the greater the financial risk – consider seeking counsel of an expert. If you aren’t even sure what the risks are — all the more reason to consult an expert.
Moving to Presentation of Content on page 296. Co-ownership can really only happen in 2 ways – as joint tenant or tenant in common, so thats not hard to understand. Students don’t have to become experts on this, but we want them to recognize that there are diferent ways to own something and that when they decide to co-own something with another person, to put thought into the way they want to co-own it because these 2 forms of ownership can have vastly diferent consequences when one of the owners dies or if an owner wants to sell or transfer their interest. They should own it in a way that won’t bring any surprises down the road.
Looking at How Co-Ownership Happens there are a few ways suggested on page 297. Joint tenancy is pretty much, by default, the way married people take title to things, unless they agree to and properly document otherwise. Non-married owners can also own things as joint tenants. Some pitfalls of joint tenancy are pointed out on pages 297 and 298. These are survivorship and the inability to convey or encumber (that means put a deed of trust or use a collateral) without the say-so of the other joint tenants. The thing about joint tenancy is it’s a tight circle. No one gets in or out without approval of all.
The other pitfall is access — each joint tenant has access to the whole – their interest are not fractionalized. You can’t for example have a 15% joint tenancy interest in anything.
That leads us to bank accounts on page 297. People often open a joint account with someone. Maybe they own a property together and they have a fund for paying expenses like taxes, or maybe they are saving for a vacation together — or a wedding. Suddenly, there’s a falling out and one of the account owners drains the account and takes of with the money. Or one of the account holders defaults on a debt or gets sued and and the creditor gets a judgement and attaches (seizes) the bank account. This stuff happens all the time! Extreme caution is advised when sharing a bank account because everyone on the account has an equal and undivided interest in the funds in it. There are some ways to protect your interest — at least from an embezzling co-owner of the account. So if you’re going to do this, talk to the bank ofcer about options before opening the account.
Another common threat to a person’s wealth and financial security is the a Joint Tenancy Gifting Gaf which you can read about on page 298.
The big focus of this lesson is on Joint Credit. That is co-borrowing and co- signing. These start on RN IV page 298. Co-borrowing can present a big risk to your wealth and financial security because you are casting your financial lot in with someone else. When you apply jointly for credit, all borrowers are, in the eyes of the creditor, equally responsible for repayment of the entire debt. For example, 2 friends out of college rent an apartment together and run down to Fry’s or some place and buy a big screen. They get ofered a sweet deal to finance it and they both sign the credit application. They are both on hook for the entire amount. This becomes a problem when one can’t pay their share – the other borrower must pick up the other’s payment responsibilities. If not, they can lose the item through repossession by the creditor, and their credit history and score are afected.
Let’s compare co-borrowing to co-signing. Co-signing is also a very common event. Probably, many of you listening to this podcast had a parent co-sign for you when you were out of college and needed credit. Maybe you have co-signed a loan or even a cell phone contract, for someone — usually it’s a son or daughter just starting out. The diference between being a co-borrower and a co-signer is that a co-signer doesn’t have an ownership interest in the thing that was financed. That often means they trust the person they cosigned to make the payments on time and as required. They often take their eyes of the ball and do not keep up with the status of the loan — knowing whether payments are being made according to the contract. They can be extremely and unpleasantly surprised when they get a collection call or letter because the borrower has fallen behind on payments. The moral, or should I say morals, of the co- borrowing and co-signing story are to understand you are accepting the risk of repayment of the entire debt, and to be vigilant. Be selective about who you join with in debt and always know the status of the loan. If you are a co- borrower or someone co-signed for you, be aware that your actions impact your co-borrower or the person who was nice enough to co-sign for you. If you are having trouble or expect to have trouble meeting your financial obligations, let them know right away — they have a big stake in the situation!
Moving to page 299, The Big Picture reiterates the key points of this lesson. As I said, students don’t have to become experts, but we do want them to understand the basics and to appreciate that if and when they get into a co-ownership, co- signing or co-borrowing arrangement these relationships are not without risk to their wealth and financial security.
On page 301 is Let’s Practice – Will and Ted’s Not So Excellent Co-Ownership Adventure, which you can do as a whole class, discussing answers.
The “B” activities are usually completed at home, but this is an in class activity called Couple’s Financial Compatibility Survey. Many couples marry without having had any discussion of money! I think it’s probably because, when you are young and getting married, you probably don’t have much money to discuss. I know we didn’t. But that doesn’t mean you can ignore financial issues. In fact, it is a lack of financial compatibility more than a lack of money that leads to divorce. In this exercise students are getting engaged(!) and exploring their financial compatibility. They have to come up with solutions for the areas in which they are least compatible.
Our Debate Persuade Inform activity has students informing others about the risks of joint credit or joint ownership through a presentation using emaze or actually prezi can be used too.
Our next lesson’s Ponder and Predict asks students to ponder how personal behaviors and lifestyle choices can lead to financial loss or ruin.
Our Blog Q asks students to contemplate sharing ownership. Have they had a good or bad experience sharing? What makes a sharing experience good or bad?
That’s it for this lesson. See you next time when we explore How to Lose It All. Thanks for joining me!