My sister is a single mom and can't fully provide for her kids. She is receiving housing benefits where the government pays for most of her rent. She purchased a car with no money down. The payment with insurance is about $500 per month. When housing found out, she was told to get rid of that car or she would lose her housing benefits. She asked me to put the car in my name, which means that I would have to put the financing in my name as well so it does not show on her credit. She would still drive the car. I'm afraid to make that kind of commitment. She refuses to give the car back to the dealer because it's going to ruin her credit. My other sister gave her $4,000 to buy a used car when she returns her new car, but she does not want an old car. What should I do? My heart tells me help her, but my head tells me not to help her! I love her dearly, but she's always broke and I am afraid she'd get into an accident and I would be totally liable. -- Confused Sister

Confused Sister must come from a very close and loving family. It's obvious that these three sisters care for each other. But, sometimes you need to do what's best for a person. Even if it's different than what they ask you to do. This is one of those situations.

If your three-year-old takes a sharp knife from the dinner table, you're going to take the knife away from him even if he cries and doesn't want to give it up. You know the danger even if he doesn't.

Broke Sister is going to hurt herself (and her children) with the car loan. That's one reason why the housing authority doesn't want her to keep the car while she's receiving rental assistance. They know that she won't be able to keep up with a car payment and continue to feed her children.

So the best thing that you can do for your sister is to help her get out of the new car and replace it with something she can afford.

Broke Sister has a couple of different possibilities for the new car. If she can find someone to take over payments, she could come out with no bad marks on her credit. The key here is that the lender gets their money on time.

It's also possible that the housing authority could help. Most have laws against "predatory lending" practices. There's a possibility that the lender was taking advantage of Broke Sister. The housing authority might be able to point her to a state agency that could help her get out of the car loan.

A third option would be to contact the dealer and explain the situation. They might be able to put her into an affordable car. The original dealer should be Broke's first stop since they'll get the best price for her now used new car. She will need to finance the loss on the new car, but the money from Third Sister should help keep the payment affordable.

The final method for returning the car is a "voluntary repossession." That's where Broke Sister drives the car to the lender and turns over the keys. They will sell the car. It will bring less than Broke Sister owes on the loan. The lender will expect her to pay the difference. She might have to use the $4,000 that the Third Sister is offering to cover the loss. If she doesn't repay the loss, it will affect her credit rating.

Ok, now that Broke Sister has a few options to put her into an acceptable ride, let's convince Confused Sister why she should avoid Broke's scheme.

First, it's probably illegal. If Broke hides the car from the government, she's lying to get financial aid. That's illegal. Helping Broke to lie is participating in the frau, which is not something that you want to be involved in.

Next, you would be responsible for the financing. If your sister were one day late with a payment, it could trigger penalty rates as high as 30% on any credit card balances you have. Plus, it would affect your ability to get your own car loan or a mortgage.

You would also be responsible for the car. Broke can't insure a car that she doesn't own. So you would need to add it to your insurance policy. You'd also need to let them know that your sister is a regular driver on the car. If Broke Sister had an accident, you would be involved. It's your car and your insurance company. You can guess what will happen to your rates.

This is a case where you need to listen to your head. It would appear that your sister is not grasping financial reality. She can't afford to care for herself and her kids, so the government is helping her. It's time for Broke to realize that paying for food and shelter is more important than driving a new car. You can help lead her to do what's right for her kids.

Confused wants to help her sister. The best way to do that is to tell her the truth. Broke needs to give up the new car and start being a financially responsible parent for her children.

A friend just sent me a video clip. It showed an ice fisherman sitting alone on the lake with a pole in his hand. In the background, you could hear the wind whistling over the frozen lake. The pole dipped a few times as the man began to reel in a fish. Suddenly, a huge shark broke the surface and ate the man. Naturally I was caught unawares and surprised by the shark. It was funny.

But sometimes our finances work the same way. We think that we're fishing for something small. Even think that we've got it hooked. Only the truth is that we're about to be swallowed by something much bigger than we are.

I wonder if that's not true with some folks who took out mortgages with low teaser rates that were to be adjusted in a few years. They thought that they were just getting a good low rate on their mortgage and that they had found a way to buy a home that they couldn't really afford. Unfortunately, now that the rate is about to be adjusted, some of them will be swallowed up and lose their home and credit rating.

Some surprises can't be predicted. Our ice fisherman's encounter with the shark for instance. But some, like the mortgages with sharply escalating rates, can be predicted. And, unless you like being eaten, it's probably wise not to go fishing in that pond. It's too late for some people now. Hopefully, others can learn from their mistakes.

Can You Help Out This Reader?

Auto Lease Nightmare

I was not thinking clearly when I signed a three-year auto lease back in October 2006. I knew what I could afford and somehow I was talked into payments that were beyond my budget. Now I'm stuck with a lease and payments that are killing me.

I've talked to the dealership to see what my options are and was pretty much told that there is nothing I or they can do. How can I offload this car and get something more affordable without ruining my credit? -- K .

Do you have any advice for a teenager with a steady job who would like her savings to grow. I have paid for my college education without taking out student loans. I contribute to an RRSP and I carefully keep track of all my income and expenses. I am not sure what to do with my savings. I set aside 10% of my income, but it is currently in a basic savings account because I don't know what to do with it. I was wondering what the best investment strategy would be for someone of my age. Any help you could give me would be great! -- Anita

Wow! Anita sure is off to a good start. Contrary to what a lot of people think, the young adult years are often the easiest time to save money. They often see their income grow faster than their financial responsibilities. That gives them an excellent opportunity to save.

Anita has already started down that path. So what's the best place for her to park the 10% of her salary that's she's saving? The answer to Anita's question has less to do with her age than what she plans on doing with that savings. The decision making process is the same for any age. The first thing Anita needs to do is to decide what she's saving for.

Why is that true? Her use will determine how quickly she might need it. And, that urgency will affect her investment choice.

Let's look at two simple rules of investing. First, you earn a higher return by assuming more risk. For instance, stocks are riskier than savings accounts.

The Journal of Financial Planning cites studies that show the real rate of return for the S&P 500 (stocks) from 1950 to 1999 was 10.3%. At the time this was written, a short term CD (6 months to a year) would pay about 4.0% and a five-year CD closer to 4.5%. An interest bearing checking account earns 1.0% while money market funds are about 2.8%.

So the earnings difference can be significant. To illustrate, suppose that Anita puts away $1,000 each year for the next 50 years (ages 20 to 70). If she earns 2% on the money, at the end of that time, it will be worth $89,000. But, if it earns 10%, it will grow to $1.4 million. Quite a difference!

That means we need to learn about the second rule of investing: risk can be minimized. Either by diversification or through a longer time frame.

Diversification is a fancy word that means owning more than one stock. If all of your money is in one company and the stock goes down 50%, you have a disaster. But, if you spread your money among 10 different stocks and one drops 50%, you've only lost 5% of your investment. Not nearly as bad. In fact, it's possible that one or more of the other stocks could go up and offset the loser.

The longer time frame reduces risk much the same way. The stock market does have bad years. Sometimes even two or three in a row. But, for the last 100 years, if you took any 10-year period, the return was positive. So you might have lost money in one year. But if you could afford to wait awhile to sell, you would have gotten the losses back. Combined, time and diversification allows Anita to get the higher returns without increasing her risk.

Now let's apply all of this to Anita's situation. We'll assume some life events. The first reason that she might need to access her nest egg is for an unexpected bill (think auto repair). For that she needs money that's accessible immediately. Like in a savings or checking account.

Once she's saved more than enough to cover immediate needs, she's ready for a second investment account. Suppose Anita is also planning on buying a new car or making a down payment on a home in two or three years. Savings earmarked for those purposes would earn more if they were put into CDs.

Longer term, Anita will want to save for her retirement. She already has an RRSP account. For our U.S. readers, an RRSP (Registered Retirement Savings Plan) is a Canadian account very similar to an IRA. A mutual fund investing in stocks would be an appropriate selection here.

Anita is off to a fine start. All she needs to do is to decide why she's saving, how much she needs for that purpose, and then select the type of investment that matches her goal. At the rate she's going, in a few short years, she'll be giving others advice on how to accumulate money!

Had an interesting experience last weekend. I was with a friend and he pulled out an old toolbox. In the toolbox was a pretty good-sized screwdriver. The shaft was badly rusted. The toolbox had probably been sitting on a boat for quite some time. My friend is a boater and loves to go out into the gulf.

I looked at the screwdriver for awhile. It was one of those sold by Sears with a clear plastic handle. I noticed that the shaft that was within the handle was also badly rusted. But the handle looked and felt just fine.

It occurred to me that people's finances are similar to that screwdriver. Some people have openly rusty finances. They're struggling and pretty much everyone knows it.

But others had a slick plastic shell. They look good. But, if you can see into their situation, you'd find a rusty shaft. There may be a new, expensive car in the driveway, but the last two payments were late.

If you had a file or a grinder, you could put a nice new head on the screwdriver. But, chances are that it'll just be thrown away and replaced. After all, screwdrivers aren't that expensive.

But it's pretty hard to throw away and replace your finances. Yes, you can go bankrupt, but that's not an easy road.

So my hope is that your finances aren't a rusty shaft. Or, if you have a bit of rust, it's just a little surface rust that can be sanded away before it does any serious damage.