Safety nets come in many shapes and sizes. There are the safety net programs that government provides, from Social Security to food stamps to Medicare, the size and cost of which are the subject of much debate on Capitol Hill these days. But those aren’t the only safety nets people fall back on.
We've been asking you, our listeners, to tell us what your safety nets looks like. What has caught you when you've stumbled? What has helped you feel secure enough to take a leap? We've been getting a flood of responses that we'll be sharing in the coming weeks, in a series we’re calling “Safety Net Confessionals.” Here’s the first, from Frank Paiano of San Diego.
Frank Paiano is a stock broker and professor of financial planning with a huge smile inside a bushy white goatee. When asked to describe his safety net, he puts it bluntly.
“I am my own safety net,” he says. “I am also the safety net of our family and friends.”
Over the years, that distinction has earned Frank Paiano a nickname: Frank the Bank. Or, since he does live right near the Mexican border, “Banco Franco,” he jokes.
Plenty of people have stories of the "rich uncle" who helped them once, but Paiano takes that old saw to a whole new level. He has become a semi-official "lender of last resort" for more than a dozen of his loved ones-- friends, cousins. Occasionally, friends of cousins.
When they get in a pinch, Paiano often gets a phone call.
“My wife will tell me ‘Oh, so and so wants to talk to you,’ with a knowing look in her eye,” he says. And the deal goes down.
Paiano says he'll charge an average interest rate between 4 and 8 percent. He's a stock broker, and a professor of financial planning, so as you might guess, he keeps careful track of each loan.
“I have a spread sheet and I know how to use it,” he says, pulling one up on his computer. There, below the tallies for household cash flow and net worth, are several columns labeled “Bank of Frank Loans.”
Of course, to be a lending institution -- even a one-man lending institution -- you need money to lend. Paiano did not start out with much.
His dad was a mechanic. “He would work very very hard. He would work two jobs. It took a toll on the whole family,” Paiano says.
Maybe that’s why Paiano has always been a saver. As a kid, “we would be given a nickel for ice cream at night, and instead of buying ice cream I would save it,” he remembers. “I just thought it was important to have a cushion to fall back on.”
By the time Paiano was a teenager, all that ice cream money had become a big enough cushion that he wanted to share the wealth. He started with a loan to a friend who wanted to buy a stereo and grew from there.
Someone needed money for a deposit on an apartment. Someone needed money for equipment to start a business. Someone's car broke. Someone got sued.
Today, in Paiano’s financial planning classes, he explicitly advises his students against lending money to family and friends. “It can be poisonous,” he says. And yet, in Paiano’s case so far, he says each loan has been paid back in full but one.
Over the years, he calculates he has lent tens of thousands of dollars to friends and family. Many of them were self-employed, or had lousy credit, so banks weren’t an option.
“People needed help,” he says. “And they didn't know who to turn to.”
One of those people is Rolf Maennicke. “I've been helped many times by the Bank of Frank,” he says.
Maennicke is a self-employed carpenter, and a cousin of Paiano's wife. “Forty-third cousins, something like that,” says Paiano, joking.
“Yes,” laughs Maennicke. “Estranged twice.”
Maennicke turned to Paiano for financial help after a divorce. And after he owed way more to the IRS than he expected. And most recently, after he moved to Oregon right before the recession.
“Things didn't work the way I’d thought, and I could not earn the money I was used to earning,” Maennicke says. “I called up the Bank of Frank to get a short term loan to be able to move back home and start over.”
What would have happened to Maennicke without the Bank of Frank? When asked, Maennicke ponders it for a moment before answering.
“I would have put a lot more money on credit cards than I should have,” he says.
Then he pauses.
“Soup kitchens?” he muses, only half joking.
Then he pauses again.
“You know, I don't really know what would have happened.”
The possibilities hang in the air, when Maennicke looks across the table at Paiano and says, “I've always just thought of it as a big hearted gesture.”
The day after meeting these cousins, there’s a question I keep wondering if people will ask when they hear their story. So I email Paiano to ask him.
Why does he keep bailing people out? Why couldn't his friends and family have been more financially savvy, and become their own safety nets, like he did?
Paiano emails me back, with this reponse. “Personally, I do not fault people for making choices that are not in their best interest,” he writes.
He reminds me of the tour he’d given me of his home the day before, filled with things his cousin, Rolf Maennicke, had built over the years. A treehouse that looked like a ship. An elegant set of bookshelves. A pair of dark wooden French doors.
“We are not all the same,” Paiano wrote. “You saw how beautiful the work that Rolf did was. I could never build something like that, no matter how many years I practiced.”