How do you explain stuff to people who *just don't get it*?

Both of these things are credit crunchy.

My company’s taken an across-the-board pay cut. I am a staff rep to senior management about this. One of my coworkers, a very sweet lady, has asked me to represent her and find out “where that money’s going.” I tried explaining to her that it doesn’t “go” anywhere, it just reduces our overheads to prevent us going into the red. She doesn’t understand.

I have showed her a cashflow projection diagram, illustrating at what point, absent immediate savings, the company’s cash position would be unsustainable at current salary levels, but again she has said “yes I understand all that, but where is it going?”

I guess I need something like the mortgage/bank speech from It’s a Wonderful Life. Any suggestions?

The other issue is my house. It’s verging on negative equity. My ex-wife and I still own half each, but I occupy it.

I have explained to her that, should I be unable to make mortgage payments, I will lose the house (I would be happy to trade places but I don’t think she could afford it). And in that eventuality, were the house worth less than the outstanding mortgage, she would then be liable for 50% of the debt, with absolutely nothing to show for it.

I have therefore suggested that she take legal advice, with a view to letting me buy her out at current market rates - in effect, signing the house over to me - so I would take the financial hit should anything untoward happen.

We maintain an excellent friendship, but she simply doesn’t understand the concept of equity - while we were married I tried explaining it to her dozens of times, to no avail. And now, I can see in her eyes she thinks I’m trying to cheat her out of something; indeed maybe I would be, should the housing market recover, but that’s not going to be for a long long time, and I suspect I am more likely to lose my job than sell the house for a profit. I’m actually trying to save her trouble.

Any ideas on better ways to put these subjects?

For the first lady, maybe try asking her where she thinks the money comes from in the first place. She’ll probably answer that it comes from whatevery your firm calls its customers. Then simply tell her that a lot of the customers have stopped giving it to the company. So it’s not a question of it going somewhere different, it’s about it not coming in the first place.

Assuming, that is, that such an argument applies to your company.

Ask her if she is still spending as much on groceries as she used to, or putting as much in the bank. Now suppose her grocer or banker came to her and asked “what are you doing with all that extra money?” What would she tell them?

As to the first, maybe you need to start with how your company brings in money, and why that’s variable, and how it’s affected by the credit crunch. IOW it’s not that the money comes in and *instead *of going into paychecks it’s now going into widgets, it’s that less money is coming in so less money is *available *for paychecks (or anything else).

As to the second, I have no help but some thoughts… Sometimes it’s simply not possible for people in a relationship like you and your ex wife’s to have informative conversations, especially about finance. Finance is simply difficult to understand if you’re not used to it. And learning something you don’t actually want to learn is much harder when it’s coming from someone you have a complicated emotional connection to. Also, is it the whole concept of equity she doesn’t understand, or just the part about how it’s possible to owe more on your mortgage than the house is now worth? i.e., “underwater”?

No, when we were still together and had positive equity she didn’t understand it either. As in, she couldn’t work out how much we had. I would say “just take the amount we owe on the mortgage from how much the house is worth, and that’s how much equity we have”. “But what about our deposit?” “That’s part of the house’s worth now.” Nope. Didn’t get it.

She’s very bright, but she just sort of closes her brain down when it comes to even simple math. I need a robust analogy.

For the equity maybe explain that the full value of the house has not been paid for. You only own what you paid for.
When you buy a house for $200,000, you don’t buy it on the day you move in. You buy it over a period of 20-30 years. You don’t own it until it’s paid for in full.
And if you sell it, you only get back what you paid in, not what it will sell for.

If your ex is more of a visual-type person (like my wife is), maybe a simple bar graph showing your home’s value compared to the amount of your outstanding mortgage might help get the point across?

Sometimes, when people just don’t seem to be getting it, it’s not that they don’t understand the answer you’re giving to the question they asked, but rather that they haven’t articulated what they’re actually wanting to know very well. I kind of suspect this is the case with the lady at work. I think she probably understands that when income goes down, spending has to also go down, but also realizes that a) that money saved off her salary isn’t going to sit in the company coffers forever and b) it’s not uncommon for large companies to earmark certain funds for certain things. What she’s probably wanting to know is whether that money that is no longer going into her check is going into a general fund to pay bills and salaries, or if it’s going to fund the big boss’s bonus or whatever. (Which, in all honesty, I’d want to know too. I just like to think I’d be able to express more clearly what I wanted to know.)

Your ex-wife…I dunno, man. Explain it to her in terms of the Beanie Baby craze. Say you wanted to buy Garcia the Bear for $1000 at the height of the craze, except you didn’t have $1000 lying around. You only have $200. So you borrow the rest of the money from someone, and they maintain the right to make you sell the bear if you stop paying back the loan. So you’re paying, say $50 a month, and you have a stuffed bear worth $1000. But then people stop paying those kind of prices for Beanie Babies, and a year after your purchase Garcia is only worth $100, while you still owe $200 on your loan.

If for whatever reason you stop making payments, the person who lent you the money will make you sell the bear for his current market value. After you give the lender that $100, there’s still a $100 balance left on the loan, and that balance isn’t going to just be forgotten. So now you have no bear, and a $100 debt. That’s if only one person takes out the loan for Garcia.

If two people take out that $800 loan together, they’re both equally on the hook for that last $100. Legally, they each owe the lender $50.

Have you tried the angle of “It’s not going anywhere; it’s not coming in in the first place”?

IOW the income of the company has reduced by 10% (or whatever), therefore it has less money with which to pay her and you.

For the first lady, I’d take a visual approach. “Here’s a full pitcher of water. This is the money that the company used to have coming in. It filled up these glasses to the top. That’s what we were being paid. Now the pitcher is only 3/4 full. Either we have to get rid of 1/4 of our staff to get the glasses full, or each employee only gets 3/4 of what they were making before. There’s just not water for more.”

For your wife, I’d take a sweater she put on a credit card. Cut a sleeve off. Tell her the credit card company still expects to be paid in full, even the the sweater isn’t as valuable. You’re only making 3/4 of a glass of water a day, and banks want the whole glass. (She probably won’t understand that unless she’s seen the previous demonstration) Explain that you’re offering to take the sweater and the bill for it off her hands, so she doesn’t have to pay for it.


Without any ill intent toward your ex, you may just have to let her learn her lesson the hard way on this. It may be worth having her put in writing that she accepts the risk so that she can’t say later you lied about what would happen because you got upside down on your mortgage.

The deposit doesn’t matter. The payments don’t matter. Or rather, they matter, but they don’t matter to equity, at least not directly. The only things that matter to equity are the current sale value of the house and the balance of the mortgage. You can think of the deposit and the payments as bringing the balance of the mortgage down. You can draw that. Draw the amount you agreed to buy the house for as a bar and then chop off the deposit and the payments. That leaves the balance. You have some control on the balance, in that you can make payments to lower it. The value of the house is free-floating. You have no control of that.

I’d draw her two scenarios. One in which the current house value is about what it was when you bought it, and one with the current value. If she’s still not getting it, let her keep the drawing and refer her to someone else.

It sounds like you’ve taken your best shot, really. If she doesn’t want to buy you out, it will be a mess, I’m sure, but you’ve warned her.

I was wondering this, too. Maybe she understands that income is lower, but that payroll should be sacred and never cut, regardless. Perhaps her question is, “Why aren’t we cutting other areas or cutting them more so that we can keep our pay the way it is? Are other expenses being cut, too? Are there some we can cut entirely? How are our expenses prioritized?”

Reprise to my earlier post: FWIW, I avoided the whole issue by simply giving my wife our house when I moved out. So the only mortgage I have to worry about getting upside down on is my own. :slight_smile:

Doesn’t Oscar from The Offce have to use a similar technique to explain to Michael what a “surplus” is and why they need to spend it?

“Explain it to me like I’m eight years old”
“Well, we didn’t spend as much money as we had budgeted so now we have a surplus left over.”
“Ok…explain it to me like I’m four.”

Is your company actually cutting salaries? That seems strange to me. Most of the time companies would rather lay people off than cut salaries since people tend to get resentful and look for new work.

Your wife sounds like the opposite of my GF. She’s very smart when it comes to anything have to do with finance or real estate (she works in the bond market). Everything else she’s more or less retarded about.

Maybe your language is part of it:

That wasn’t a deposit, that was a down payment. And it is not part of the house’s worth now, it is part of the reduction of what you owe on the house. The house’s worth is determined only by what you can sell it for. The down payment is just the first payment on the loan, and it all goes to principal. *

Also, is does your lender actually have recourse beyond forclosure should you default? Depends on the mortgage, but often they won’t, which is why they reqire either 20% down, or mortgage insurance. And this is the reason why many people are choosing to default when they might not actually have to . As I understand it, this can vary by state, but you might look into the terms of your loan.
*Though many people would consider the fees and other closing costs to be part of the down payment, they are a seperate issue. Only part of that check you wrote at closing went to the down payment.

Tell the first lady that her pay cut is going to pay the rent on the building. It used to be paid out of sales, but sales are down, so now it will be paid out of her pay cut.

As for reverse equity, if she doesn’t understand “the house is worth less than we could get if we sold it”, I am not sure how else you can explain it.

My experience is that people who don’t get it, won’t get it even if it blows up in their face.

If she won’t accept it as a brute fact, I expect that she will continuously ask “but how could we lose money if we made our payments?” Some people sort of half-believe that, if they reject the explanation of how a Bad Thing can happen, then the Bad Thing becomes impossible and won’t come true.

I got it with my kids sometimes. “But why do I have to go to bed?”

“Because you need your sleep.”

“But why?”

You could try telling your ex that monsters will eat her if she doesn’t get out of the house. That worked with my kids at bedtime.


I’m a big fan of visual aids. For your ex, plug the value of your home over time and the balance on your mortgage into Excel and create a chart like this one and show her that when you get to the point where the two lines intersect, that’s where you’re going to get into financial trouble. Don’t use terms like negative equity, they just get confusing. Explain that once those lines cross, if you have to sell the house, you’ll get X amount, and owe the bank Y, where Y is a larger amount than X.

You can do something similar for your coworker with a stacked bar graph, which I’d work up now but I just don’t have time. But seriously visual aids. Printed. Let them take them with them and look at them and puzzle it out on their own time.

The bit about the ex-wife is dodgy, and to be frank, if I were in her position, I might just play dumb to avoid the awkwardness of saying no to what you’re trying to convince her to do. That might be a roadblock to her, “understanding,” of the issue.

First, you haven’t clearly established if you live in a no-recourse mortgage state or not. If that’s the case, then it really doesn’t make sense for her to agree to sign over the remainder of the house to you. Even if you don’t, and even if you guys have managed to maintain your friendship following your breakup, it doesn’t mean that everyone can necessarily see straight when it comes to the finances around a big object like a house. She may feel strongly that the house will again regain value, or she may even disagree with your position that the house is underwater right now. How are you so confident that your assessment of the situation is spot on?

For your ex, put it in if-then terms: “If we can’t keep up payments, we’ll have to try to sell the house. We won’t be able to sell it for enough money to pay off the mortgage, so we’ll have to make up the difference out of our pockets. And, if we don’t sell it quickly, the bank has the right to take it back from us, and no other bank will give us a mortgage for many years.”