This newspaper article (full text below) was written by my late grandfather, Arthur Herman Oeth, and published in the Dubuque, Iowa newspaper in the late 1950s when he was the manager of the city’s credit bureau.

I’m sharing it here as a posthumous guest post for a couple of reasons. First, I believe his advice on debt still holds water today. Second, and more importantly, I think this article points to the value of passing on work ethic, financial acumen, and a desire for achievement, which can be a legacy far more valuable and durable than financial assets alone.

I didn’t inherit any tangible assets from my grandfather, who rose from modest beginnings to a comfortable upper-middle class lifestyle, but the intangible assets were golden. The stories of hard work, a diligent focus on thrift, a drive for financial success, and his entrepreneurial spirit, which included launching a successful second career as a home builder, were certainly passed on to me.

“…families that model saving and encourage their children to save are helping their children to develop character traits that will serve them well for the rest of their financial lives. They learn about self-control, delayed gratification, appreciation, and the real value of a dollar.”

— Coventry Edwards-Pitt, “Raised Healthy, Wealthy & Wise”

I’m not sure I would be in my current role—a professional financial advisor committed to working to help people achieve their own financial success—if I hadn’t learned from my family that hard work and an intentional focus on making wise financial decisions were crucial to achieving goals. Many families don’t talk about money, but the financial side of life’s decisions and economic trade-offs were openly discussed and reinforced throughout my life.

What family stories have shaped your financial mindset? What mindset do you wish to instill and pass on in your family?

“…grandparents are an excellent resource. They have financial wisdom through experience, even if they lack technical expertise. They are good teachers, having practiced on their children. I’ve often observed a kind of magic when grandparents teach young children financial concepts.”

— Kathryn McCarthy, "Wealth in Families" by Charles Collier

Family Financial Fundamentals

Charles Collier’s book provides some great starting points for you and your family to begin or further your family’s path to understanding and executing sound financial choices and decisions throughout life. A few questions from Collier’s book for self-reflection (and to spur family conversation):

What do you and your family really value?
How can you help to guide your children’s life journey?
What kind of vision does your family aspire to achieve?
Who or what was the greatest influence on you in developing your principles?
How did your family achieve their present financial status?
Describe your parents’ and grandparents’ financial histories
Which financial decisions made by your parents continue to affect you the most?

“Creating and telling family stories give meaning to the experience of the family. We live our lives within the context of stories and understand reality through our self-narratives and family myths.”

— Charles Collier, "Wealth in Families"

“Wise Use of Credit,” A. H. Oeth

Many contradictory statements are made by leading economist as to whether the public as a whole does or does not owe too much money. To debate this question is all very well, for it is essential to know how much debt the economy can stand to keep the nation solvent.

It is of far more interest however, to the average individual in debt to know whether he is solvent or not, instead of considering the public at large. Debt is easy to take for granted these days, and it should not be taken as such. From time to time, we as individuals should compare our personal debt load (exclusive of mortgage payments) with that carried by other people and determine whether we are in line or out on a limb.

Certain yardsticks have been developed by professional credit men that are frequently used to determine an individual’s debt load. These can be used wisely to estimate your own capacity, or soundness of the amount you are now carrying.

One yardstick is to consider that the total amount you owe should not go beyond 20% of your annual income. If for instance, you make $400 per month, or $4,800 annually, your debt limit by this yardstick is $1,000.

Another way to calculate your debt limit is that the total you owe should not exceed what 10 per cent of your monthly income would pay off in 24 months. For example, if you earn $400 per month, 10 per cent of it would be $40. With this monthly sum, you could pay off $960 in 24 months.

A still third way to figure your debt load is to use a fancy term called “discretionary income.” To put it simply, part of your income goes to supply three basic needs—food, shelter, and clothing—and the rest is discretionary income. Your debt load should not exceed one-third of your discretionary income.

Let us point out, however, that these formulas are only yardsticks to go by, and naturally must vary somewhat with different lines of merchandise. A car loan, for example is different from most deals in that it is backed up by the real value of the car. On a deal of this nature, there is less risk involved for both the borrower and the lender, than on merchandise where there is not a ready second-hand market.

Here is a tip or two on selecting credit terms. Don’t take on debt that will run longer than the period for which you can safely forecast your income and outgo. This seems obvious, but many people get into trouble by committing themselves for a longer period. Also, don’t let debt run so long that the enjoyment of “have-it-now” will wear off before the debt is paid.

Try not to use your maximum credit capacity, except in a crises. Keep everyday credit totals well within safe limits, leaving an emergency margin to call on, just in case.

Credit is a priceless asset if used wisely. Some folks will argue that it is overdone and it would be better to pay cash for everything. Certainly—no question about it. But it is also true that credit has become almost the lifeblood of every day’s operations, both in business and at home. And there is no denying that credit, wisely used, is a priceless asset and worth using.

An old proverb about money, also applies to credit. You can just rewrite the maxim to say “Credit is a good servant, but bad master.”