Bright Dickson (00:13):
Welcome to Money and Mindset With Bright and Brian, a podcast that looks at the ways good financial habits and positive psychology can help you find greater happiness and confidence. I'm Bright Dickson, Truist's resident expert in positive psychology, and I've dedicated my career to helping people find their purpose at work and in life. I'm joined by my co-host and friend, Brian Ford, the head of financial wellness at Truist. How are you doing today, Brian?
Brian Ford (00:37):
Hey, Bright. I am doing great. I'm ready for this episode, which is all about the connection between our mindset and our debt. Borrowing money can be a big deal and people have got a lot of questions like how much debt is too much or when is having debt actually good? To help us answer these questions and more, we'll be joined by David Smith, who's the head of consumer lending here at Truist. Knowing David, we can expect a lot of great insight and advice.
Bright Dickson (01:05):
Yeah, debt can be a really tricky subject for a lot of people, but borrowing the right amount in the right way can be really important to helping to grow your finances. I can't wait to hear what David has to say. Our guest, David Smith, is the head of lending here at Truist.
(01:26):
He spent his career in finance and he's an expert in lending for mortgages, lines of credit, unsecured loans, credit cards, and more. He also works with consumer finance companies to help homeowners and business owners get the right financing for their projects and operational needs. Welcome to the show, David. We are so happy to have you.
David Smith (01:45):
Hello, Bright, and hello, Brian. I am happy to be here as well. So happy you invited me. This is an incredible topic that's so meaningful for so many of our teammates, our clients and folks that we work with every single day. So really excited about this topic, but even more excited about the impact that you guys are having on all of your listeners. So thank you for doing this.
Brian Ford (02:04):
Absolutely. Welcome. I know when I'm out speaking all over the country that debt is a big topic. I mean, borrowing money and accruing debt can be an emotional thing for many people. Having some debt is good for building credit, growing your financial profile, but having too much debt can impact your state of mind by causing stress and worry that can bleed into other areas of our daily life.
(02:26):
I think Mr. Miyagi knew what was up when he talked about balance, because I think with debt it's all about finding the right balance. And the decisions we make about money, they're tied to many factors in our lives, but one of the most profound ways that it's tied to us is the way we're brought up. So my first question for you, David, is how does our upbringing influence how we feel about debt and how we decide to borrow money?
David Smith (02:49):
Yeah, it's a really great question, Brian. As I've talked with individuals over the last few decades about their financial thought process, you'd be surprised how many will harken back to the advice that they received from their parents first. So that's probably the first most profound way in which we start to understand finances.
(03:08):
We've all enjoyed the experience both as parents and as children of sometimes being told do what I say versus what I do. But when it comes to finances, most people will actually look more at what their parents actually did versus what they told them to do.
Brian Ford (03:24):
Yeah, no doubt.
David Smith (03:25):
Which is a really interesting conditioning, right?
Brian Ford (03:27):
I found myself in that just this morning. I'm teaching my son to drive and I didn't fully stop at a stop sign, but it was in my neighborhood. And my son was like, "What are you doing?" I'm like, "Look, bud, you need to stop. But me?" Anyways, but I hope with finance I'm doing a little better, David. Keep talking to us though.
David Smith (03:44):
No, that's exactly right. And this is where your socioeconomic level becomes really important. What we find is that folks that grow up in a working class environment or in a poor environment generally are trained to think in a very short term way. So we describe that sometimes in finance as living paycheck to paycheck, but what that feels like for our clients that are experiencing that is constant stress about money.
(04:10):
It's a frequent conversation. It's something that might have some fights in the family around it. So it's a very stressful kind of topic and it's omnipresent. And so that creates a different level of strain than what you might see in middle class or upper middle class households where there is maybe less of a dynamic of living paycheck to paycheck and where discussions about savings and debt will typically happen more frequently.
(04:35):
Of course, it's very different from the conversation that happens in the affluent and high wealth areas where the discussion will generally be about the responsibility of money and understanding its uses and purposes both within an individual's lives, their families and the community. So very different conversations depending on the socioeconomic level. I personally started out in the lower end of the spectrum. My mom was a school teacher, my dad was in the military, and we had a very large family, so money was tight.
(05:06):
We would definitely qualify for that living paycheck to paycheck as I grew up. And the things that were most influential for me was that my parents were always pushing us as children to do better in their lives than they did, and that looked to them like explaining the necessity of finding a good company to work for and going to college. So those were concepts that they talked about without a lot of specifics behind it, honestly.
Bright Dickson (05:30):
Yeah, our belief patterns around money, and particularly those like unaware or unintentionally patterns, they're called money scripts. And they have a really significant impact on the ways that we save and spend money, and they're a part of our overall relationship with money. Like you said, David, they're usually formed in childhood by the way.
(05:48):
We see our parents, our family, our friends talk about money or not talk about money or how they act around money, and these scripts follow us into adulthood and influence our spending and saving habits throughout our lives. David, can you talk a little bit about how someone's money scripts can impact their borrowing habits and maybe share a little bit about that personally for you and how that impacted your mindset about money?
David Smith (06:11):
Yeah, I think it's really important that we don't just talk about our parents, but also family and friends. And this is where the socioeconomic layer kicks in because we surround ourselves typically by folks that have a general standard of living that's consistent with ours. And there's a variety of reasons of why that happens, but I think the most important thing in terms of outcome is we will frequently turn to those people in our circle.
(06:37):
So how many times do we take financial advice from a friend or a family member for the first time? I know I did when I said to my parents, "Hey, should I get a credit card or not," as I was starting to college, and my parents' experience with credit cards was very much a revolving debt, tended to go up to the limit of what they could borrow. And so fairly negative view on its utility and purpose, and they didn't want me to fall into that same trap, and so they asked me to not get a credit card.
(07:05):
And as a finance professional now, I would tell myself, absolutely, you need to get a credit card. It helps you establish your credit score, which we'll talk about. It's a little misunderstood sometimes, but to spend within my budget and use the card as a utility of payment versus thinking of it as a debt instrument. And so that's a very different type of thought process and one that I see others fall into that trap a little bit and not understand how it would work.
(07:33):
I think the other way that I see those money scripts getting activated is about general broad stroke comments. So for example, debt is bad or debt is good, and the reality is that it depends. And that's always a tough conversation and why in financial services we really encourage all of our clients to have a financial plan with a financial advisor. It's that nuance in the details.
(07:58):
It's the alignment with your personal values and your long-term and short-term goals that have to be incorporated when you start thinking about utilization of debt, what types of debt you should get and when you should get that debt. Some of this debt is very transactional and very impactful on our lives. So simply put, if you're working in most of the United States, you can't walk to work.
(08:21):
You need a car. And so taking out a loan to buy a car is very important. Now, how much you should take out, what type of car you should buy, and those things are informed by your budget. And so that's where some good advice from folks that are experienced in this is really helpful. As you get into the later stages of life, your income level is increasing typically, and you're typically looking at debt very differently.
(08:44):
Now you're thinking of it as a way of being tax advantaged, as a way of making appropriate investments, applying leverage to your investments and things of that nature. So just very much the money script will change based off of your level of income, your maturity and knowledge around it, and always best informed when you speak with someone that is really taking your interest to heart and coming up with a plan that's curated just for you.
Brian Ford (09:08):
Yeah, I appreciate that explanation, David. I agree. Good debt, bad debt, black, white, maybe a little bit simplistic. There's a spectrum there for sure. And I love your thoughts on a financial planner. I love finance. I've got a master's in the subject, but I have a financial planner and he helps keep things straight for me. Like you said, he customizes these good principles that we should be learning to my life and to my family's values and so forth.
(09:34):
I think it's important to remember that in the right context, having some debt can be good. There are certainly ways that debt can help people grow their wealth. So let's talk about this for a minute. How can we remove the stigma about borrowing and shift the mindset that having debt is always a negative?
David Smith (09:50):
Yeah, it's so great, Brian. I'll also say this about financial advising. Those of us with a partner or spouse, we may not have the same goals, we may not have the same understanding or beliefs about money, and a financial advisor really helps you create those common goals and what you're going to do together.
Brian Ford (10:06):
Yes.
David Smith (10:07):
So important.
Brian Ford (10:08):
So true. How long have you been married? That's got to be coming from experience. That's not just you chatting, because I agree with you. I've been married... Well, I'm coming up on 25 years, and we just don't always see eye to eye and that's okay. But sitting down with that third party with that nice sounding board is good for both of us. And sometimes it's, hey, Brian, you need to chill out. And that's a good thing for me to hear every once in a while. So anyways, I would think that's coming from a place of experience.
David Smith (10:36):
It sure is. And my wife and I have been together 20 years, married for 17, and she tends to focus more on the short term and I tend to focus more on the long term. So between us, if we coordinate, we probably get a good financial plan. But if we do it separately, we might index too much one way or the other.
Brian Ford (10:53):
Tell us a little bit about this as far as how do we remove the stigma about borrowing?
David Smith (10:58):
Yeah, so I think the first most important thing is to understand what an acceptable level of debt is, right? I think that's always situational to your income, where you are in your life, and what your immediate and long-term goals are. I sometimes get into a conversation with folks where they may ask me a question such as, should I pay off my mortgage or not?
(11:18):
And that's always very situational and it has a lot to do with your risk appetite, what brings you security on an emotional level, along with what your income and what you can afford. A good friend of mine asked me this question and she said, "Should I pay off my mortgage?" And her mortgage rate was actually really attractive. It was around 3%.
(11:38):
And I said, "Well, you could keep that mortgage, pay that 3% interest rate and invest the money that you would use to pay up that mortgage and earn seven or eight or more percent depending on what you invested in and really save that delta." And so she understood the concept of it, but on an emotional level, she just wanted to own her own home.
(11:59):
And so what I ultimately came to after understanding that is I told her, "You know what? It's actually good for you," because the house itself does appreciate in value over time, and so it's not idle money. But it's that Maslow's hierarchy of needs, right? We're right back to shelter and that feeling of security being so important. So that's a really good example of when debt might be emotionally driven versus rational.
(12:22):
When you think about moving beyond utility, so we're past buying a house with a mortgage or buying a car with an auto loan or taking out a credit card to establish credit and have a payment utility, you start getting into other examples of debt. And these, particularly as you gain affluence, become utilities for you as well, but just in different ways. So for example, I'm going to pick something really extreme here, not what most people have to deal with in their lives.
(12:48):
But there was a recent article on Sam Altman, who's the CEO of OpenAI, who's been a long-term venture capital investor, and he's invested in hundreds of companies that he's an owner in. And he actually did a very large multi-hundred million dollar credit line with JP Morgan really to enable him to have the liquidity that he wanted from all of those investments that were effectively trapped.
(13:12):
So when you invest in a startup, that money needs to stay there for many years until they've achieved their financial goals. So that's an extreme example, but it's showing how at the ultra affluent level folks can use debt as a utility to bridge time, which is the thing that is most precious to all of us, and really derive more value from a leverage perspective than what he'd be able to otherwise.
(13:34):
And if you think about this on a normal person level and what most of us go through in our lives, you can think about different decades. In your period of time when you're going to college and you're getting those first jobs and that first rung in the corporate ladder, you're starting your first business, the types of leverage that you're taking are typically higher than what you would do later in your life. And so those might be opportunities to fund your college.
(13:58):
It might be an opportunity to pay for your housing while you're going to college. It might be an opportunity to take out debt to start that first business. And so those are all good things to do if you understand what the payoff looks like, your ability to repay that debt into the future. And that's, again, something that has a lot of utility for the average person and really puts you on a path for later income growth, which will help you move into that affluent space.
Bright Dickson (14:23):
David, I think part of what you're saying is that your relationship to that is so personal for everyone and personal to not only you as a person, but where you are in life and what your goals are. And I think that's just critically important for everybody to understand that there's no one size fits all. In the next segment, we're going to discuss positive ways that you can borrow money. Stay with us.
(14:54):
So now that we know that we may need to take a step back and reframe the way that we think about debt, let's talk about what we need to consider when it comes to looking ahead and accruing debt. As we've discussed, debt isn't always bad if you borrow money in the right way. David, what do we need to consider when it comes to having the right balance between our income and our debt?
David Smith (15:16):
Yeah, thanks, Bright. I think first and foremost is what's your comfort level? And we talked a little bit about that in the prior segment. There are situational factors, how fast you're taking on debt and things of that nature, that really are best dealt with your financial advisor because then you have a more specific conversation. But in general, what we look for is you really shouldn't be spending more on your rent or on your mortgage than 35% of your gross income.
(15:43):
And the reason why we've taken that as a rule of thumb in the mortgage lending business is because that sets people up well to deal with all of the pitfalls of life, changes in job, changes in family situations, over what is a very long-term debt obligation. So typically, people are taking out a 30-year mortgage. That's a really long time to plan for to know what your income is going to be and so forth.
(16:07):
So we set that level reasonably low so that your ability to meet that demand over the coming decades is really possible. At the same time, we look at what's called your back-end, debt-to-income ratio. And this is really taking all of the debt that you have, so your monthly payments on your car, your house, your credit cards, or any other debt that you have, and we add that up and say it should really be no more than 45% of your total gross income.
(16:34):
And so that's trying to set up a good balance between how much of your debt you're taking for your household and then how much of your debt you're taking for other obligations that you have. Where this can get really straining for people is when they try to take on too much debt too soon.
(16:49):
So for example, if you're just getting out of college and you have $50,000 worth of student loans, it really can be helpful if you have a good housing situation to avoid going into buying a house right away and really paying off some of that student loan debt or structuring that student loan debt in a way where your monthly debt service payment is quite low.
(17:10):
This is a little bit of a different twist than maybe what our parents went through where the cost of education now has risen so rapidly, so quickly. It's just an extra step of caution that I would give to people as you're starting out in life. As you get to a point where you want to buy a house, I always tell people the first thing to look at is your spending habits. And the reason why is if you're renting for half of the cost that your new mortgage would be, that money's going somewhere.
(17:36):
And so really examining that and saying, am I saving that today or is it something that I'm spending? And if you're saving it, that's great, green, go ahead and you should really pursue that path. If you're spending it, it's a bit of a caution flag to say, okay, once I take out that mortgage and I've got that higher payment amount, am I going to be able to adjust my lifestyle to stop spending that?
(17:59):
And so it's just those extra steps of prudence to make sure that you're setting yourself up for success as you contemplate taking on additional debt, particularly in those early stages where you may not have the level of savings buffer that you have later in life.
Brian Ford (18:12):
Yeah, that's a good rule of thumb and good advice. Thank you, David. All of us, the three of us here, we all work at Truist and we've got financial wellness top of mind when it comes to our customers. We're all focused every day on helping people stay informed so they can make the best financial decisions possible. So David, I'd love some insight into your world. Can you give us a few examples of the way Truist helps individuals make the right financial choices?
David Smith (18:37):
I think just right up front, it's right in our purpose, mission, and values. Our goal is to build better lives and communities. And so the best way we can do that is we're very thoughtful about what products we offer and making sure that that advice is available digitally, in a branch, or in a call center. That advice is really free. We have folks that are well-trained to understand the products, what their utility is, what the parameters are around it.
(19:05):
And I know it can be a little bit scary sometimes to just have a conversation about something that's quite personal, which is your personal finances, and say, "Here's what I'm thinking about doing. Do you think it's a good idea? Why or why not? What else should I be doing to prepare?" That type of conversation with a teammate at Truist is going to show up a little bit differently because we value care so much.
(19:27):
And I use the story quite frequently as I'm talking to teammates about our products, our pricing and things of that nature. Would you recommend that to your spouse? Would you recommend that to your mother? Those are the kind of lenses that we bring through the people we care about most in our life, are we creating our solution set to be fit for purpose for those individuals?
(19:49):
And so I'm really proud of the work that all of our teammates do because that's where our heart is. And as you mentioned, Brian, we come in every day with a lot of passion and really on fire to help people achieve their goals. So we want to tell people if that debt is good, if it helps you meet your goals. We all start out from a place of taking on debt for the most part. We also will tell you if we don't think you should take out that debt.
(20:11):
If it's going to cause you to be stressed out, if it's going to cause you potential downturns later in life in terms of your financial health, those would all be reasons why we would advise you not to do something. And our goal is not to sell you products. Our goal is to make sure that over the lifetime that we're going to serve you as a client, that we've put you in the best possible financial situation all along the way.
(20:34):
And that could be advice around our savings, how you can use CDs, how you can use investments, and also debt and how do you use that as an instrument for the large purchases that you need to make in your life and how those can be complementary, when you should save, when you should go into debt, how you can do both at the same time. Really we stop and ask, what are you trying to accomplish, and then we help you find the right path to get there.
Bright Dickson (20:58):
Yeah, thanks for saying that, David. And as someone who literally gets sick to her stomach when she thinks about these things, my experience has been exactly what you're describing, that when care is the heart of it, I'm much less likely to do something stupid and I'm much more likely to feel comfortable, even sometimes excited and confident doing that. And that's priceless. I mean, it's a huge deal. David, can you talk a little bit about different borrowing solutions that our listeners can use to advance their goals?
David Smith (21:34):
Absolutely. And everybody's at a different point in their lives, and so they all have different needs and they all have different pressures that are on them. I think in general, if you look at how people move through their life, they generally start out from a place of leveraging debt for a utility or purpose like we talked about. You're buying a house, you're buying a car, that sort of thing. As life goes on, we all get hit with headwinds.
(21:59):
And so there may be times where if we're more overextended in debt, we may have run up our credit cards more for an emergency than we would've planned for, we may have our family growing and need to move into that next house, we may have improvements that we need to do to our existing house to make it fit for our lives. So we have different debt instruments that are set up that way.
(22:18):
So beyond a mortgage, which most people are familiar with to buy a house, there's just a lot of cost to home ownership. So you could have a new roof that needs to be done in 10, 15 years. There could be new air conditioners or appliances. And we're very fortunate here at Truist because we really have all the tools across the experience of home ownership to help.
(22:37):
So we have a company called Service Finance that does home improvement lending for house, HVAC, rooms, remodels, things of that nature. As you start looking at what your needs are, having that conversation with us helps us put you in the right product for what you're trying to accomplish. Another great option is we have multiple ways to consolidate debt.
(22:57):
If you do get into that position where you're overextended, we can leverage the equity in your home through a home equity line of credit, and we can consolidate debt off of credit cards .We also have debt consolidation with an unsecured loan if you believe that you can repay that debt in a very short time period, that's another great option. There's other solutions that we have in place, whether it's auto refinancing. Anybody that's bought a car here in the last, oh, I don't know, 12 or 18 months, is probably not loving their interest rate.
(23:25):
And so as rates come down, as inflation improves, we will see people wanting to refinance that auto debt, refinance that home debt, and we have all of those solutions as well. I think in general, when you work with a bank, it's just so important to be upfront and honest about what you need, what you're looking to pay and so forth, because we're really in the mindset of helping protect your financial health.
(23:47):
When you go out to use debt at a car dealership or if you're going out to buy something with your credit card from a merchant, they're not really concerned about your long-term financial health. They're trying to sell a product or service to you.
(24:02):
And so it's always best to have that conversation ahead of time and feel very confident so you don't have that sick feeling in your stomach when you're making a big financial decision because you've already thought about it, you've gotten the advice from your banker, and you know what you can already afford to do. And so that really helps de-risk those really tough decisions that we all face.
Bright Dickson (24:19):
David, thank you for saying all of that, and I think it's so critically important to use all the resources we have to make sure that not only are we making good financial decisions, but we're feeling confident and comfortable as we make them and taking the actions that we need to take in order to make them real, to really act on those things in the world. Thank you for your insight around that and into why we borrow and how we can do it in a healthy way.
(24:47):
I also really appreciate how you helped us draw that connection between our view of borrowing money and our habits, and I'm going to really be thinking about that 35% and 45% because I think those are just easy, accessible and also smart numbers for us to keep in mind at all times whenever we're taking on debt or even when we're looking at our budgeting for the year or the month or anytime like that. I think that's so critical.
David Smith (25:16):
Thanks so much for having me on, Bright. I really appreciate the opportunity, and Brian, all of your great questions. I'll just share this with you guys. I wake up every day so inspired by what our teammates do. And I collect stories of how we've helped our clients, and I'll just share one. We had a veteran that had always wanted to own a home, and he was 78 years old, so he had lived a long, full life. And he asked one of our loan officers, "Hey, is my dream possible?" And we did. We were able to help him get into a VA loan using his service.
(25:48):
And just as somebody that loves the dream of home ownership and what an impact that can have on a family, that touched my heart to know that even late in life, we were able to help somebody achieve their dreams. These types of opportunities get me excited every day, and I just appreciate the good work that you guys are doing with this podcast to share that message of personal finance and security for individuals. So thank you.
Brian Ford (26:09):
Thank you, David. That means a lot to both of us. We love doing this podcast. I mean, this is kind of a side gig for me and Bright. This is not our day jobs, but this is really born out of our purpose to inspire and build better lives in communities. We care about what we say on this podcast. We want to help folks. David, this has been a great conversation. I appreciate your candor, and it's been a good conversation, a little bit about how Truist...
(26:35):
We are different. There's no doubt about that. I'm not going to shy away from the fact that I work here for a reason. I had several offers to purchase my company. And look, moving across the country to Georgia was not my family's first choice. It just wasn't. In fact, I had two teenage daughters that were in middle school and I was not... Oh my gosh, there were some tears.
(26:54):
I was not the favorite dad for a little while, but we did it because I love our purpose. I do this podcast because I love our purpose, and it's been great to chat with you. It makes me even more proud to be on a team to help people make the most of their financial journey. So thank you for your time today, David.
David Smith (27:10):
Thanks, Brian.
Brian Ford (27:17):
That's it for this month's episode of Money and Mindset With Bright and Brian. Thank you for listening. Thanks so much to our guest, David Smith, and thank you as well, Bright.
Bright Dickson (27:26):
Thank you, Brian, and thanks again to David for stopping by to share his financial expertise. If you want to learn more about financial wellness, please subscribe and show your support by leaving a rating or review or by sharing the podcast with someone else.
(27:38):
We have our entire podcast lineup and many other resources and tools just waiting for you at truist.com/money-mindset or just Google Search Truist Money Mindset. We'll be back soon with another great topic on ways that you can boost your financial confidence. Until next time.
Brian Ford (28:07):
This episode of Money and Mindset With Bright and Brian is brought to you by Truist.
