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October 12, 2007

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Sounds like living (more) frugally would be a good start; if he cannot do that, "forced savings" might be better than the alternative.

Does this Australian system address low incomes, or does the borrower with a high loan balance and a minimum wage income live on fumes?

Sounds like he has a discipline problem combined with an "I am not looking at the big picture" problem.

I'm not sure about the Australian system but I believe the English system is modelled on it, and over here its income contingent so you don't start paying back the money until you earn at least £15K (approx $30K) which is more than the minimum wage.

Back to the problem at hand. If the friend realises that its dumb, there's nothing much you can do. If you think they don't realise quite how much money it wastes you could try and go through it with them, but don't forget that it always seems easier to solve other people's problems for them.

I run into this line of reasoning often in the US. People are convinced that letting the government hold there money for a year is a plan that forces them to save.

I think their internal reasoning is that because of the way the spend their money throughout the year and the debt they are often in, they can't picture doing things without this 'savior' of a return.

Not wanting to give up the tax refund is a symptom in my opinion. That doesn't change the fact that if you graciously share truth with a friend and they are unwilling to act, there isn't much we can do.

If you know how much he is paying monthly, point that out and tell him that rather than running up more credit card debt, he could be using that money to pay for things.

However, it sounds like he might have a spending problem and having more money each month may only compound the issue. Add to that the fact that he will be without his big tax refund each year and he might end up worse off. He probably needs to get the spending under control first, which is tough to do unless HE realizes that most of the "stuff" he is probably buying is unnecessary.

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