Child-Care Worker Faces No Small Debt Problem

Julianne Savlov spends her days tending to more than 100 children. As site director for an Agoura YMCA day-care program, she has a hand in everything from cleaning up spilled milk to supervising the center’s budgeting.

When it comes to tending to her own welfare, though, Savlov is a whole lot less confident. She is admittedly bewildered by even the fundamentals of personal finance--such as the difference between gross and net pay and the importance of saving copies of one’s federal and state tax returns.

Now barely two years out of college, Savlov, 24, finds herself struggling paycheck to paycheck as she attempts to make headway against more than $23,000 in school and consumer debts on a salary of just $18,000 a year. At the moment, she has but $6 in her checking account.

“I feel like I’ve been in debt for so long,” said Savlov, a 1996 graduate of the University of Arizona who started life on her own owing $17,000 on a student loan. Her debt troubles were soon compounded when she had to charge several thousand dollars on a bank credit card to pay for repairs to her car, a 1986 Volvo. In addition, she owes $600 to Chevron and $500 to Wickes Furniture, for a bed and dresser purchased last July for $800.

“If it weren’t for the debt, I would be able to save some money,” Savlov said wistfully.

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Actually, said Peg Downey, a fee-only certified financial planner based in Silver Spring, Md., it’s surprising that Savlov’s financial situation isn’t worse. “You have a very low income in a very high-expense region,” Downey told her.

Savlov nets $1,194 every month. Of that, $525 goes for rent for the Woodland Hills apartment she shares with a roommate, $115 for her student loan, $80 for car insurance and about $60 for utilities and her phone bill. She allocates $300 a month--more than the minimum--for her consumer debt, and she pays $19 a month for a gym membership.

This leaves less than $100 for everything else, including food. Savlov supplements her income by baby-sitting at $7 an hour when she can, but she still finds it hard to get by. Even forgoing all but the most inexpensive entertainment and making many meals of pasta or cereal isn’t helping much.

Savlov is in a precarious position: She wants to pay down her debt as soon as she can, but, Downey points out, any emergency such as a health problem or car trouble could wipe out whatever gains she manages to make on that score.

“Your issue is that you’re spending more than you’re making,” Downey told her. The planner sees only two possible solutions for Savlov: Spend less or earn more. Or--preferably--both.

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Unfortunately for Savlov, she has chosen a career that is among the lowest-paying of those available to college graduates. A recent survey of the day-care industry in five U.S. cities by the advocacy group Center for the Child Care Workforce found that the typical worker’s annual salary is $12,800, and that even experienced teachers, the industry’s best-paid workers, average just under $19,000.

But that doesn’t deter Savlov. “I know I could make more money as a banker,” she said, “but I want to love my job.

“I love working with kids and watching them learn new things, from hitting a ball to learning to read. They learn something new every day, and you are part of it,” Savlov explained. “I come home every day tired, but I don’t want to be anywhere else.”

Savlov could conceivably do better financially as a nanny. Although many nannies barely earn minimum wage and most are expected to put in a 50-hour workweek, highly educated nannies are a different case, said Steve Lampert, owner of Buckingham Nannies, an agency based in Sherman Oaks. According to Lampert, Savlov could easily gross $25,000 annually--plus get free room and board--if she’d be willing to take a live-in child-care position.

A woman like Savlov “would be a real hot commodity,” Lampert said. “There’s a real shortage of college-educated nannies. Nannies like this don’t stay on the market a week.”

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Downey said such a position would give Savlov an opportunity to overcome her debt problem and start saving, but Savlov doesn’t wish to consider it, saying she cannot imagine a more rewarding job than her present one. In addition, Savlov maintained, she would have nothing to gain professionally from being a nanny since she intends to work with teenagers in the next few years.

If Savlov cannot significantly increase her earnings, then she will have to cut her expenses. The planner first turned her attention to Savlov’s rent, the largest monthly expenditure.

Savlov shares a two-bedroom apartment with a co-worker. Downey agreed that it would be hard to find a significantly less expensive apartment in a safe neighborhood, so she suggested the two women consider a third roommate, which would cut Savlov’s expenses by at least $150 a month.

“I don’t know,” said Savlov, who likes the privacy of having her own bedroom. “My parents suggested that too.”

Savlov could cut her costs even more if she would temporarily move in with a family member, Downey said. But this suggestion is even less palatable to Savlov, who lived with an aunt for several months after she graduated from college. Savlov sees such a solution, however temporary and logical, as backsliding.

“If I move in with relatives again, I’m giving up,” she said.

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Savlov proved a little more willing to take Downey’s suggestion that she turn to relatives for help with her debts. If relatives would be willing to make her free or low-interest loans to pay off such high-interest bills as her bank credit card (18.4%), Chevron charge card (21.5%) and furniture bill (21.5%), Savlov could get some breathing room.

Savlov and Downey also agree that the Wickes bill is particularly urgent. The store made Savlov an interest-free loan for one year when she made her purchases last July. If she pays the entire sum back within that year, she won’t have to pay any interest. If she finds herself with a balance of any size come July, though, she will be hit with interest charges (at a 1.79% monthly rate) accrued over 12 months on the entire $800 purchase amount.

As an aside, Downey noted that there are much less expensive ways to furnish one’s first apartment than buying new things on credit. If family hand-me-downs aren’t available, young college graduates can try bargain-hunting at garage sales and secondhand stores. However undesirable buying used goods might seem to some people, it still beats taking on debt. “It’s a great way to go when you’re starting out,” Downey said.

After speaking with her brother, Savlov believes she’s arrived at a partial solution: He will advance her the money interest-free to pay off her Chevron and furniture bills. Savlov will repay him at $50 a month, which will give her $150 a month of wiggle room.

Savlov’s brother also offered to help with any other debts, but Savlov would like to continue to try to handle her student loan and bank card bills herself. She thinks a small salary increase she’s expecting within the next few months will make finances a bit easier and allow her to begin squirreling away money for emergencies.

Savlov hopes that her additional income, combined with her brother’s help, will allow her to start an investment program. To that end, she recently signed up for the day-care center’s retirement plan and will begin putting aside 5% of her pretax income with her next paycheck.

Be that as it may, Downey suspects Savlov will find it rough going financially until she gains a true appreciation of her financial situation and realizes that every financial choice she makes will have repercussions.

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If there’s a silver lining in this clouded financial assessment, however, it’s this: Savlov is young. If she can conquer her debt soon and learn to live within her means, the pain she’s experiencing now will keep her from making similar mistakes in the future.

“It’s important that you draw up a budget and live on it,” Downey told her. “It’s certainly going to help your cash flow to repay your brother instead of the credit card companies, but the fact remains there probably isn’t enough money coming into your household to maintain your current expenses.”

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Helaine Olen is a frequent contributor to The Times. She can be reached on the Internet at holen@aol.com. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Questions or comments can be left at (213) 237-7288. We cannot respond to all inquiries.

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This Week’s Make-Over

* Investor: Julianne Savlov

* Age: 24

* Occupation: Site director for child-care center

* Gross annual income: $18,000

* Financial goals: Reduce debt, start saving.

Current Situation

* Savings: None

* Debts: $17,000 on a student loan, $5,000 on a bank credit card, $600 on a gasoline card, $500 to a furniture store

Recommendations

* Take steps to reduce expenses, such as taking in an additional roommate or moving in with a family member to save on rent.

* Consider obtaining an interest-free or low-interest loan from a relative to pay off some or all high-interest consumer loans immediately.

* Commit to living within her means.

* Begin saving for emergencies and for retirement as soon as feasible.

Meet the Planner

Peg Downey is a fee-only certified financial planner and a registered investment advisor who specializes in advising women, unmarried couples and the terminally ill. She is a founding partner of Money Plans, a Silver Spring, Md.-based financial planning firm, and a past chairwoman of the National Assn. of Personal Financial Advisors.