FPA Journal
April 2011
Executive Summary
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Although investment challenges like those experienced in 2008 and early 2009 can result in consumers losing substantial amounts of their investment capital for a time, many consumers lost their homes in the same period because of questionable lending practices or a failure by consumers to understand and plan their borrowing decisions.
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This paper proposes the introduction of a “Debt Policy Statement,” modeled off the same principles as an Investment Policy Statement, as a framework for:
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Educating consumers about their “debt portfolio” and the need to manage it to minimize interest costs and maximize the benefits to the family
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Illustrating the risks associated with fluctuations in interest rates, real estate values, and other aspects of the debt portfolio
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Ensuring there is a proper relationship between a client’s risk tolerance and the structure of his or her debt portfolio
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Developing a framework of “debt classes” similar to “asset classes” to help consumers understand the relative costs and risks associated with different types of debt instruments
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Recognizing clients’ future financial goals to ensure short-term advice does not create future limitations that may impede their ability to attain their goals
