How does credit play a role in the jobs money can do for me?

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[Michael:] Hey, humans. I’m Michael Liersch, and this is the About Money podcast, presented by Wells Fargo. I’m a behavioral scientist with a PhD in cognitive psychology who loves openly discussing money to help humans better understand their money behaviors. By understanding our money behaviors, we all have the opportunity to make better money decisions. This season, we’re going to talk about jobs money can do for us. Jobs, you might ask? Yes, money does many jobs for us, such as helping us with our family, lifestyle, the community, aging, travel, investing, and more. We have a great lineup of guests for you, so let’s get into it.

In this episode, we’re going to speak with Julie Caperton, the head of The Private Bank at Wells Fargo. You may be asking yourself, what does that mean?

Well, Julie and her team spend each and every day thinking about how humans can use a variety of products and solutions, especially when it comes to borrowing money, in a way that will help get them to where they want to go with their money.

I’m so excited to speak with Julie because she can help us answer the question that we’re asking in this episode: How does borrowing play a role in the jobs money can do for me? To answer this question, we’re going to address what borrowing is, common misperceptions, and Julie’s perspective on how humans should think about borrowing in a way that will help get them to their desired financial outcomes. Julie, welcome to the Wells Fargo About Money podcast.

[Julie:] Well, thank you so much for having me, Michael. I’m happy to be here.

[Michael:] So based on all your expertise, why do you think, since it’s such a useful tool, that people find it so intimidating? What are your thoughts there? And how do we make it less intimidating as humans? Maybe that’s the bottom line here.

[Julie:] Yeah, so, I mean, I think there can be a stigma associated with borrowing. Like you don’t have enough if you need to borrow. But a company would never think about it that way. A company is always striving to maximize shareholder return. And using borrowing to do that is just a natural thing to do. Why would it be different for human beings? Aren’t we all the shareholders of our own personal balance sheets? And don’t we all want to maximize our return? So —

[Michael:] I do.

[Julie:] — you know. Exactly. So I think that some people just need to get past that thinking and think of it more as a tool. And in terms of, you know, what we can do to make it less intimidating, it’s really all about educating ourselves on the different options and how to compare and contrast the different options. And really how to think about when it makes sense to borrow and when it doesn’t, right?

Like you’re not always comparing one type of borrowing against another. You’re more thinking about, what could those dollars be doing for me and for my financial goals if I were able to deploy them in a different place?

[Michael:] That’s a really good point, Julie. And I do remember even my own mother telling me this, you know, borrowing is bad, essentially. And if you don’t have to borrow, don’t do it.

It’s really good to have your philosophy, which is a bit different, which is, well, borrowing is a tool. And so maybe it can help you buy a house. Maybe it can help you buy a car. Maybe it can help you, you know, go shopping, right, via a credit card. But you really need to think about whether you’re using that tool to its best use. And ultimately whether it’s helping you then deploy maybe resources you have, whether it’s cash or other types of investment resources, in another way to get another job done.

So let’s unpack a couple of examples for people. So some people think of credit cards, which I’ve alluded to. Some people think of mortgages, so buying a home. And then some people think of, you know, things like lines of credit, right? So that might be, you know, things you might draw against a bank account or against investments. I want you to help us think about, what is borrowing to you?

[Julie:] I do think about it as a tool. And you have to think about different types of borrowing in a different way. One type of borrowing you may use as you’re accumulating wealth. That’s a way to wisely use borrowing to pay for something that you can’t pay cash for right now. What are those things? A home. Potentially a car. An education. That’s a long-term investment in the future for something that you can’t necessarily pay cash for right now. That’s a strong and valuable tool that you can utilize at different points in your life.

That’s very different than, say using a credit card to buy a pair of Manolos, right? That’s more of a liquidity device where you’re saying, it’s easier for me to buy certain things along the course of a month or a quarter by utilizing a credit card. And then I can see all of my expenditures in one place, and I can look at that and pay that off in a reasonable amount of time. That’s a liquidity device as opposed to an investment in the future, a long-term borrowing that’s allowing you to do something you wouldn’t be able to do otherwise. Two very different things.

And then a third entire example is for people who are fortunate enough to be past the accumulation of wealth stage where they’re more managing their overall balance sheet. And that’s where people start to think about, I could make this investment. I have an opportunity today to make an investment. And maybe it’s not the ideal time to liquidate another investment in order to make that investment. What are the other ways that I could go about this? And that’s where you look at, you know, if you’re thinking about a line of credit or a line against your securities, your investment portfolio, you look at that rate that you’re potentially paying in order to borrow. You look at the return you could get if you were to devote those dollars in another part of your personal balance sheet, and you make that comparison. And make a decision based on that.

[Michael:] I love this framework. And, Julie, I would say, especially the beginning part of it, in this accumulation phase of being able to use borrowing as a tool to get things done that you wouldn’t really be able to get done. You wouldn’t be able to buy a car, wouldn’t be able to buy a home or be able to get an education if they weren’t able to find that funding somewhere. And so that is a really amazing tool. And you said this in the very beginning, it’s nothing to be ashamed of or embarrassed about. It really helps to kind of smooth, not only your consumption, but also enable you to get essential things done like get an education to then produce that ability to create wealth in the future. So I love that idea.

And then I love the distinction between that and consuming things. So using, you said using a credit card to buy shoes, for those who don’t know what Mano—, I’m not even going to pronounce it right. How do you pronounce it again?

[Julie:] Manolos, yes.

[Michael:] So that is a completely different idea from then to your point this idea of not wanting to liquidate certain assets or investments that you may have and using those as collateral to then borrow in a way that gives you maybe the cash or liquidity that you need to maybe pay for that wedding or to remodel that house without having to sell, you know, things that you know are most likely going to really be advantageous to hold onto from a growth standpoint in the future.

When do you think borrowing does kind of move into the category of being unproductive?

[Julie:] So I absolutely do think that borrowing can be unproductive. I think that there are two really important aspects. One is having a true understanding of what you are paying for the borrowing. You know, interest rates can be confusing. You can have a base rate with a spread. You can have an all-in rate. You can have different levels of and methodologies for compounding. There’s different durations of loans.

And you really need to ask all of the questions and potentially ask a trusted advisor, a parent, a spouse, a friend, a banker to ensure that you really understand what you’ll be paying for that borrowing over the lifetime of the borrowing. If there’s a pre-payment penalty, if there’s a fee up front, you need to factor in all of those things and ask all of those questions so that you can make a really well-informed decision. Is what I am paying for this borrowing worth it to get what I am borrowing for in a different timeline or in a different manner than I would if I was just paying cash for it? That’s such a critical component.

[Michael:] Or not do it at all, right?

[Julie:] Or not do it at all. Exactly, exactly. I worry that too many people don’t ask all the right questions. And just keep asking until you make sure you have a really deep and full understanding of all of the costs associated with whatever borrowing it is that you’re making.

And then the second piece of it really is having a very clear understanding of your repayment strategy. If you’re borrowing money, you absolutely have to understand when and how you’re going to pay that money back. And you need to be thinking about any potential mismatch from a timing perspective.

You know, when I’ve seen people or companies, for that matter, get sideways in terms of borrowing, it’s almost always, again, a liquidity mismatch. It’s I’ve borrowed for a long time against something that has a shorter horizon of making me be able to pay back.

You know, like, when you’re thinking about student loan debt, when you see people having trouble, they’re borrowing in order to achieve a goal of getting a degree, which is going to result in them having higher earning potential. That’s fantastic. But if you’ve not really thought through how long the degree is going to take, therefore, how many years of borrowings there will be and the fees and the rates and the ultimate earning potential that you have on the back end. If you’ve not really laid that out in, you know, either a spreadsheet so that you mentally can hold yourself, again, accountable for the fact that you have a really, really solid understanding of all of that, that’s where I think people need to be mindful.

[Michael:] That’s very sage advice. And I do think of a lot of examples like that, you know, from education all the way to buying just things. I see what you’re saying, which is, is the payment schedule really sustainable based on what I know is going to be coming in the door from a cash-flow standpoint? So from a money standpoint in the future in relation, to your point, to all my other obligations, which may or may not be predictable.

So we have a lot of listeners, Julie, who are going to be borrowing for their very first time, either soon or they’ve done it. What do you think the number one most important question it is for a first-time borrower to ask the person or organization they’re borrowing from?

[Julie:] So, in my mind it’s absolutely the all-in costs: the interest that you’ll be paying, any fees up front, ongoing fees, potential pre-payment penalties, depending on the product. Having a full understanding of what you’re paying on top of the principal that you’ll be paying back. That’s the most important and most critical piece of it. And if you don’t understand, it’s OK to keep asking questions. It’s the responsibility of the provider to provide transparency in a way that you understand. You can put words on a page. But at the end of the day, there’s no substitute for asking questions and making sure you understand the words on the page.

[Michael:] How about someone who’s been borrowing for a long time? Do you have any advice for them? Any sort of watch items? Or any opportunities that you would highlight for the, let’s say, experienced borrower?

[Julie:] Yeah. So there I would say never lose sight of the importance of liquidity. You know, timing is everything. And you never want to be in a position where you are forced to sell something to pay back a borrowing. Whether it be a home, whether it be an investment, securities style investment, you never want to be in a position where that’s your only repayment strategy or your only repayment option. Because then the element of timing has been taken out of your hands.

So you always want to be looking at your overall personal balance sheet and saying, if I make this borrowing, here is my plan for paying that back. And here are the other liquidity sources, cash sources, other options that I also have that I can avail myself of if Plan A doesn’t pan out, or if there’s a hiccup in the market, or if I lose my job, or if I have unforeseen circumstances that could result in Plan A having to deviate slightly.

That’s what I would say, is to really be thinking about all of those different factors and with a timing lens, in a lens of not always being able to anticipate when you might have financial needs or liquidity needs elsewhere on your personal balance sheet.

[Michael:] So, for all those experienced borrowers listening, I hope you hear Julie’s words and really maybe go back to the basics, which is, Julie, what you’re highlighting at some level, and say, do I have the right liquidity? Do I have the right contingency plans in place to then, let’s say take me through a period of time where there might be stress and in an unpredictable way? And I think a job loss, Julie, is a great example. A market downturn is a great example. Some things that people, you know, through being overconfident may lose sight of as true examples of things that can actually happen to real people. So thank you so much for highlighting that.

If someone really needs help in terms of taking them through, let’s say a borrowing decision-making process, especially as you alluded to upfront, you know, is this the right thing for me to do regardless of whatever that borrowing is? Do you have a resource that you would advise them to go to first? Like where should they turn?

[Julie:] So, I would say, if you have an advisor, a financial advisor of any sort, that’s always a great place to go. And even if that advisor that you work with is more of an investment specialist, most advisors have available to them specialists who think about borrowing: bankers, lending specialists who think about borrowing.

But even aside from that, you know, anyone in your life who you respect how they manage their personal finances, how they manage their personal balance sheet, that maybe has more experience in borrowing is always a great resource just to touch base with and make sure you feel like you’re thinking about things in the right way.

[Michael:] And the reason why I wanted to highlight that, Julie, is I think a lot of people, they do search the internet. And I get — you know this about me — I get a little concerned with that because you don’t know exactly whether it’s great advice or not. So what I hear you suggesting is, instead of maybe taking that approach, I mean, that could be an approach people use, but make sure you check in with a professional and/or someone who has experience in that exact borrowing process and get their perspective and advice so that you can navigate that in your own personally meaningful way.

So my last question for you, Julie, is, you clearly are passionate about this topic. You’re not only knowledgeable, but I can tell you in this conversation and in all my interactions with you, you obviously love this topic.

And so I wanted to ask you why? Why borrowing? Why does that make you really excited to work with human beings around this topic? What is it about it?

[Julie:] What inspires me about my job overall is helping our clients achieve their goals. Their goals of, you know, financial independence, comfort, philanthropy, expansion of their educational or cultural horizons, whatever those goals might be. And I just want to make sure that every client knows about and has access to all the tools in the toolbox that can help them achieve those goals.

You know, we’ve been talking about it, you know, the entire conversation. Borrowing’s not for everyone, and it’s not for every circumstance. But knowing what the options are, knowing what the pros and cons are and being able to weigh that, that is for everyone. That is for everyone to understand.

[Michael:] And so I would say I am similarly passionate, as you know, around helping humans achieve their financial aspirations and goals. And one thing that we’ve highlighted together is that there’s so many different ways to get those jobs done. I love that you incorporate borrowing in that conversation in such an empowering way.

And so I really appreciate you addressing some of the stigmas and emotional feelings people have with respect to borrowing, giving us some ways in which to unpack it in our own financial lives and also start feeling more confident and comfortable with asking questions and leaning into information that we’re entitled to when making those types of decisions.

So thank you, Julie, for being here with us today. I’m so grateful that you spent your time to do this.

[Julie:] Thank you, Michael. It’s been a pleasure.

[Michael:] That’s it for this episode of the About Money podcast. Please email us with the topics that you would like us to address at aboutmoney@wellsfargo.com. And if you really liked the episode, share it with family, friends, and anyone who listens to podcasts. About Money is produced by Wells Fargo. You can learn more about ways to work with us at wellsfargo.com/aboutmoney. I’m Michael Liersch, asking you to talk about money today.

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