Advice to get rid of that debt monkey on your back
Michelle Singletary award-winning Washington Post columnist joins NCL’s Executive Director Sally Greenberg and Lisa Hertzberg, director of the LifeSmarts program, to discuss how consumers can manage debt and finances even amidst the global COVID-19 pandemic and the predatory business practices that keep so many Americans in cycles of poverty.
But first, Lisa Hertzberg quizzes David Han, a University of Georgia freshman and LifeSmarts program alumni on personal finance.
*Due to COVID-19 safety protocols, this episode was recorded remotely. Audio quality has been impacted as a result.*
Advice to get rid of that debt monkey on your back
Lisa: Hi everyone. I’m Lisa Hertzberg the Program Director for NCL life science program, a consumer literacy educational program for teens. On today’s edition of “We can do this,” we’ll be speaking with financial expert, Michelle Singletary about teaching financial literacy to your children. But first we’re going to quiz the Life Smarts alum on personal finance, and he has a chance to win an Amazon gift card. David Han, thank you for joining us. How are you?
David: I’m great. Thank you for having me today.
Lisa: Oh, wonderful. We’re glad you’re here. Hey, would you mind tell us where you are now, where are you going to school and what are you majoring in?
David: So, right now, I’m in my dorm room at the University of Georgia and my major is economics.
Lisa: Oh, great. How is college life going this fall with COVID?
David: So it’s definitely a bit of an adjustment. It changed from what I was expecting a few months ago, but I’m still doing the best I can.
David: I’m still managing to have a fun experience, hang out with my friends and attend my classes, which are both online and in person. And I still think I’m managing to get a good college experience, even though it is a bit different from what I expected. And here at the University of Georgia, you hear a lot about COVID cases, but for the most part, everyone’s following social distancing, wearing masks. Again, a lot of classes are online, so we’re still managing to be safe here.
Lisa: Oh, good, glad to hear that. How would you say LifeSmarts has prepared you for college life?
David: So in LifeSmarts, I know there were a lot of very adultish topics, I guess, that you don’t really cover in high school or just really talk about while you’re a student and things like consumer rights or personal finance or even things like health and the environment.
David: Those really helped me learn about things that I’ll need in the real world, which I’m stepping into now as a college student.
Lisa: That is great to hear. I appreciate that. Thank you. Should we jump in? Should we do the quiz?
David: Oh gosh, I don’t know. Let’s get this thing started then.
Lisa: All right. I’m going to ask you three multiple choice questions and these are all on personal finance. Question number 1:
Which is a fixed expense?
B. Rent, or
Lisa: Rent is a correct answer. All right, one down. Let’s go to number 2:
Each payday, a portion of your check is automatically deposited into your savings account. This is an example of which golden rule of personal finance?
A. Pay yourself first
B. Compounding, or
David: Is it pay yourself first?
Lisa: It is nice job. That is a correct answer.
Lisa: All right, are you ready for the final question?
A budget can help you in what way
A. Have money for what you need
B. Keep you out of debt, or
C. Create a spending plan.
David: Is it create a spending plan?
Lisa: That is a correct answer. Actually all answers we would expect.
David: I’ll tick D, all of the above.
Lisa: A little bit of a trick. Absolutely, so great job. And I really appreciate you joining us today and as a thank you and you did such a great job getting all three questions, correct, I’m going to send you a $50 Amazon gift card.
David: Oh wow! Thank you.
Lisa: Oh, you’re welcome and congratulations. And thank you for joining us today. As you’ve probably heard many times in Life Smarts, everyone’s a winner with Life Smarts. Thank you, David.
David: No problem. Have a good one.
Sally: Hello everyone. I’m Sally Greenberg, Executive Director of the National Consumers League and welcome to our podcast. Today, our guest is Michelle Singletary. Michelle is the award-winning columnist who writes the personal finance column, “The Color of Money,” which appears in the Washington Post and a number of other syndicated newspapers. She also has written three personal finance books, including her latest, “The 21 Day Financial Fast: Your Path To Financial Peace and Freedom.” For two years, Michelle hosted her own national television program. “Singletary Says on TV1,” and she’s a frequent contributor to various NPR programs and has appeared on national talk shows and television networks, including Oprah and BCS today. The Early Show on CBS and CNN. So, joining us today will be Lisa Hertzberg the LifeSmarts Program Director. Great to have Michelle and Lisa with us. So Michelle, this is one of my hopes for this podcast was to have you on to talk about personal finance and financial literacy, particularly for teens. So I am going to kick this off by starting with a question that we normally might end with, but we’re going to start out asking you, what message about personal finance in the most concise terms do you have for your and my fellow Americans?
Michelle: I think in this time period, the thing that I want to say in brevity is just fight the fear. It’s so easy to give into the panic with so much happening in the stock market with health, but that in calmness, you can make the right decisions about your money even if you know, when you were in a financial crisis or recession.
Michelle: So I would say fight the fear and you fight the fear with truth and information. So the more you know about your money, the more, you know, how things work. I wouldn’t say that you won’t panic, but you won’t act on that fear.
Sally: So tell us how you became so interested and such an expert in personal finance.
Michelle: I laugh because it makes it sound like I studied it but the fact of the matter is I learned from it from my grandmother, big mama. When I was four, my grandmother took myself in and four other siblings. So there was five of us total. My oldest sister was eight. I was four. I had a sister who was three and twin brothers who would just under two years old. And she brought us into their home because our parents couldn’t take care of us.
Michelle: And I watched this woman who made not much money as a nursing assistant for a hospital who had a husband who didn’t always bring his paycheck home because he was an alcoholic, manage her money in a way that even now, when I talk to experience money managers, they couldn’t hold a candle to her. She was just amazing and through all of this she did not take welfare, the cash welfare. She took healthcare benefits for us, but she would not take the cash. And so how she managed to feed us and clothe us and pay all her bills on time all the time and pay off her house before she retired, it’s just miraculous, but she just laid the groundwork for how you handle your money. And I watched and I learned from her feet and I took in everything that she did and said, and hopefully elevated it to my own life.
Michelle: And as I work with people through my column, through the Washington Post, but it really came from this little Southern woman who moved up to Maryland, raising five grandchildren to help me see that anybody can do this money thing.
Sally: What a great role model. That’s an amazing story. You know, on your Thursday chats, you often ask people to share their positive money testimonies. And I’d be curious to know what some of your favorite are and what you like most hearing from folks.
Michelle: Yes. I love that. So every Thursday from 12:00 pm to 1:00pm pretty much every week of the year, except for a couple of holidays I do this chat. It’s a text chat. Some people write in their questions and I write back my answers. And it’s one of the highlights of my week. And one year, a couple years ago, one reader said you should have “Testimony Thursdays.”
Michelle: And so what that is, is people write in their good financial news because most of the time I’m answering questions about people who’ve lost money or in debt and not don’t know how to do something. And so “Testimony, Thursdays” is a chance for people to talk about all the good things that they are doing and my favorite and this has been most recently where people talk about paying off debt and in particular paying off their mortgage. And I just get such a thrill about that. My husband and I are close maybe within the next two years, but just to hear people, the joy and you know, it’s a text chat, so you can’t see faces, you can’t see expressions, you can’t hear, but even in their words, I can feel the joy of getting that debt off their backs and I call it “the monkey off your back.”
Michelle: So get that debt monkey off your back. So we talk about that in chat and people who participate regularly know, that’s my thing, “get that monkey off your back.” And so just to hear people talk about the freedom that they feel, how there’s just weight lifted off of their soul when they don’t owe a soul. It’s just so thrilling and then I think, secondly, I so enjoy when I give hard advice, because I’m pretty tough and people will come back and say, “You know, I was not feeling that advice, but I took it anyway and it worked out.” And it’s just so funny because I just love to hear them say, “You know, I wasn’t sure I agreed with you, but I trusted you and I did X and it worked out.” And so that just gives me just such joy to hear that because it’s easy for me to give advice.
Michelle: That’s the easy part. It’s really hard for people to accept it and take action. Because oftentimes when we talk about money, we talk about in a sense of what people don’t know, but actually one of the biggest barriers to handle your money well, is actually taking action to doing something. We all know what we’re supposed to do, but to take that action to do it is really hard. We all know how we’re supposed to eat, right. We know what we’re not supposed to put in our body, but those chips and that ice cream, they’re just so enticing. But when you say, okay, you know what, I love this and in moderation, it’s okay, but I’m going to cut it out until I can lose weight. And it’s the same thing with your money. I know I’m supposed to save. I know I’m supposed to not have a bunch of debt. I know I’m supposed to read all the contracts that I’ve put in front of me, but it’s really hard to do that. But when you take action and it’s successful, that’s just joyful to me.
Sally: And you’ve got a lot of pushback when you recommended that folks not go on vacation if they had credit card debt.
Michelle: Oh my goodness, you would have thought that I smacked somebody’s baby.
Michelle: So I wrote a column because in addition to the column I write for the Washington Post. I run a financial ministry at my church and it’s a year-long program. We meet every month for several hours and I get to know people. And one of the things that they often talk, I have the biggest pushback is, you know, they need to save and they need to, and one of the ways, you know, don’t go on vacation, don’t buy stuff and I get such pushback because people was like, “well, I just deserve a vacation. I work really hard. I deserve this.” And so the column was really about that phrase “I deserve.” And so I dare to say, you don’t deserve a vacation if you’re in debt. Oh my goodness. That column went viral. And people thought I was the most terrible person for telling people that they don’t deserve a vacation, which is not what I said.
Michelle: I said, you don’t deserve a vacation if you’re in debt. I didn’t say you can take a staycation. You can do things that don’t cost money. But when you have that burden of consumer debt, just pushing down on you that you need to not do some things. So, you know, and that’s one of it is, you know, taking these luxury, vacations cruises and going to the islands and things like that. And then coming back with this debt and then, and, or piling onto it. So what I was just trying to get people is to change their language. You certainly work hard and you deserve to take some time off to just relax. But you doesn’t mean that you have to spend money to do that. And this is a particularly hard message for people who don’t make a lot of money because they want to do things like everybody else.
Michelle: But one of the things I learned with my grandmother is that when you’re in a certain economic position, you can’t do things like everybody else. It is what it is. It doesn’t mean that you don’t deserve it or that you’re not owed it, but you can’t do it. And the one thing I took from my grandmother is she never, and I mean, never apologize for not being able to provide us with certain things. She never was ashamed that we could only have like two pairs of shoes or a couple, my sisters and I shared one bedroom, two beds, three sisters, and one tiny closet. And even in that tiny closet, we had more room because we didn’t have a lot of clothes. And my grandmother never apologized for that. She was like, “we’d come crying. All our friends have this and why can’t we have it?”
Michelle: She never said, “Oh, I’m so sorry.” She’s like, “that’s all I can afford and that’s all you’re going to get.” And she said it was such tenacity and such, I think bravery because I’m sure inside, she’s thinking, “Oh, I’m so sorry for these four kids, their parents abandoned them. I’ve got to take care of them. They don’t even have any clothes,” but she was like, you know what? “I work hard and this is all I can give you. We have enough food. We don’t have enough for a lot of leftovers. So you can’t gorge yourself, but you’ve got enough and enough has always have to be enough.” And that’s all I was trying to say that if you’re heavily in debt, sure it would be great if you could take a five star vacation, but you know what, you cannot do it. And you got to get out of your head that somehow you are worse for it when you can’t certain things like that,
Lisa: Michelle, I actually have Life Smarts student testimony to share with you? It was a really heartwarming story. We collected as part of our 25th anniversary season a couple of years ago. There was a coach in Kansas and she shared with us that a student learned about payday loans and interest rates, just the cycle that you get into when you’re relying on them. And he realized his mother had relied on payday loans to make ends meet. And he started talking to his mother about what he was learning in Life Smarts. She actually brought her son into helping her with the family budget. In fact, I think he sort of took over the family budget and they stopped relying on payday loans to make ends meet. That was a fantastic story and I was so happy to hear. So I have a question, Michelle, as you think about adults who sort of hit adulthood, but don’t have the tools that you might wish they did to handle their personal finance. What kinds of problems do you see? What kind of pitfalls might they have without that training and that, that information and knowledge?
Michelle: I’ll answer that question by saying lots of people was like, “Oh, I wish I had a big mama like you did, or I wish I had you.” And I get that and so what I usually tell people – first of all, you’ve got to forgive yourself for not knowing you don’t know what you don’t know. And then one of my favorite quotes from Maya Angelou is like, when you know better, do better. So that’s what I tell people. When you know better, then do better. And leading up to that, if you didn’t know, I’m not going to fuss at you, I’m not going to berate you because you didn’t know. His mom, that student’s mom didn’t know. All she knew was how to make it. And so, as people who are seeking help and trying to navigate this whole financial thing, you have to give yourself some credit and slack up on yourself.
Michelle: Don’t beat yourself up. You took out that loan that you probably shouldn’t have taken. You got that car loan that you couldn’t afford. You may be living in a house that you can’t afford, but if you had known better – most people who know when they get the information, do the right thing. And so that’s what I tell people. And then as if you’re teaching folks, you’ve got to take on that stance. You’ve got to get rid of some of the judgment. And then if you’re looking for information and once you find something and you go, “Oh my gosh,” you slap your forehead. You can go ahead and slap your forehead, but only do it once and then move on, right? Because when you know better, you’ll do better.
Lisa: Absolutely. Are there things that you wish schools, especially middle school and high school, we’re doing a better job of educating students about so that they would have some of those tools when they hit adulthood?
Michelle: That’s a great question. I’m going to answer it in a way that it probably will surprise you. So I actually think that a lot of the programs are doing well, that they’re doing what they need to do to get the basic information to the students. But what I wish they would do more of is bring in the parental influences because that won’t stick if it’s not taught at home. And so when we have programs for students, I encourage people to have a component where the parents are there as well, or you have something separate and you talk to them and teach the parents. Because we know from studies that show that even though the kids don’t think so and the parents know, and as a parent of three, I often don’t think my kids are listening either. But the fact of the matter is that they listen to their influences and the biggest influences in children’s lives are their parents, whatever parental role model is there for them.
Michelle: And so I just encourage, when we do kids and money programs, we have the parents’ right there. We have this exercise that we do that is so funny. And “Oh my gosh,” I love it and it is so good because we do a life lesson where we have the kids come up with a job and how much do they think they’re going to get paid for this job? And then we give them a salary minus taxes, and we just say, spend the money. We don’t give them any guidance at all. We don’t tell them how to spend it, what to spend it on. We don’t even give them a budget template. We just say, create a budget. And so they know enough to kind of figure out housing and food and so forth. But the things they come up with it is hilarious!
Michelle: They’re all going to have this big cell phone bill and they’re going to have steak for dinner. And I have the parents sit along in the groups as the kids are in groups, how they’re negotiating, how they’re going to spend their money. The parents can’t say a word. They can’t help them. They can’t answer any questions. And I do that to show the parents that they are not teaching their kids about financial reality. Like the kids don’t know how much it costs to live in the house that they live it. They don’t know what the food bill is. They don’t know what utilities cost. And we do this like in two rounds. So the first round is we just see what they come up with. And it’s just funny and then we do a second round, where we talk about the reality of what things cost.
Michelle: And then they have to go back and revise their budget. And then I throw in, I have this little bowl, which says “life happens.” So there’s a “life happens” bowl. So after they do their second budget, we have them pick from the “life happens” bowl because life happens, right? So they’ve got these great budgets. It’s all balanced now. They’re all proud of themselves and they pick from the bowl and they have a car accident and they’ve got to pay the insurance copay or their roommate moves out. Because they’re smart now they all have roommates where before they were all going to live in these fallacious places by themselves. So now their roommate moves out and they’ve got to figure something out. So we toss them out. And one time we did this and by the time we got to the third group with the bowl, the “life happens” bowl, one kid said no, I don’t want life to happen, no I’m not picking from the bowl. And we were like, “you have got to pick from the bowl.” And my children participated. And this one time my son was like, “it’s just too much.”
Michelle: And then the classic comment from one of the students after we went through this exercise and the parents realized how much more they needed to teach their children. And the children realized how much it costs that all the things that they were asking their parents for, and one daughter turned to her mother, it makes me tear up now. And she said, “Mom, I’m so sorry. I’m so sorry that I would pressure you for so much stuff. I had no idea how much it costs to run our house and I’m so sorry.” And you know, she hugged her mom because she’d been this, you know, snotty little teenager, like, “why can’t we do this? And why can’t you buy me this? And you’re just so mean.” And she realized what it cost by this budget exercise. So I just think we need to just, parental units, parental influences, incorporate that in our lessons because they will then reinforce them in the home.
Lisa: Oh, that’s a wonderful story. Michelle, if you could expand a little bit on that, you know, maybe give some guidelines to parents. What is appropriate at different ages in the home? You know, when you are wanting to share more about the financial realities in the family with your children,
Michelle: That’s a great question. So, because I get this question all the time, when should I start teaching my children about money? The moment they ask for anything is the moment that it’s time to teach them. So if they’re in their car seat and they’re asking for you to go to McDonald’s, then now it’s time to teach them about moderation and budgeting. And so the moment my kids started asking me stuff, we started teaching them about money and having conversations, even if they didn’t understand all the terms we were using, we talked to them like, you know, we can’t go eat out a lot because we are saving to send you to college. And that’s what we talked to them about.
Michelle: So they would get little lectures too, where they would ask too much. And so my youngest was, she was at her booster seat and her brother was in the backseat. It was too funny. And we had a van. So she was in the middle section. He was in the back. And so they were asking to go, you know, to fast food. We were on our way home from something from school. And I said, no, we’re going to home. We can’t keep spending all this money out. We need to eat at home because I need to save to send you to college and pay off the mortgage before I retire.
Michelle: This is exactly the conversation I’m having. She’s probably like three or four and he’s five or six. And so he’s still asking and so my daughter, my youngest turns around and she was like, “please stop asking her because she’s going to just lecture us all the way home. She’s going to tell us about this mortgage thing. I don’t even know what it is. I don’t want to hear about it anymore.” And so she started fussing with her brother to chill it out because she didn’t want to hear this financial lesson anymore.
Michelle: I’m telling you; this is a true story. And so what we also do to teach our children at different ages is we have rules. So one of the rules and a way to teach them how to shop smart is that when we would shop, like say at the grocery store, you know, we’re going school shopping and whatever, there was a rule. You can’t put anything in my cart unless you know the price and you also know the price of similar items too. So, you know, sometimes when you’re shopping with kids, they just put things in the cart. Can I have the cereal and sometimes I forget that they put something in the cart. And so one time my daughter put something in the cart. I said, how much that costs. She didn’t know. “If you don’t know it comes out and then you can’t buy anything.”
Michelle: And so they then got into the habit of not only knowing what something is when they pick it up but looking at the price of other similar items. And then they would have to persuade me if they wanted the brand name, why they should get the brand name, which costs more. And so shopping was easy because I didn’t have my kids like yelling, “Can I have something” because they knew all these rules and they would have to comparison shop. And so we talked to them about what things cost. Now, you don’t want to involve your children to the point where you scare them because lots of people live paycheck to paycheck and money is tight and you’re a little worried about it, but it’s okay to share with them how things cost and how it relates to your family budget.
Michelle: So when we said “no” to things, we didn’t just say “no” and that was it. And say, “No,” we can’t afford it. We said, “No,” we can’t afford this because of this, because we are saving to send you to college so that you don’t have to take on any debt. “No.” so that we can pay off our home before we retire so that you don’t have to worry about taking care of us in our old age. So you say “No” with a lesson, you say “Yes,” with a lesson, you talk to your children all the time about ordinary stuff. You don’t have to make it like a classroom situation where you pull out a budget template just as you go about your everyday life. You talk to them about things that are happening with an age appropriate conversation. So like right now we’re in the middle of a pandemic, we’ve got a recession economic crisis.
Michelle: So you talk to them about why all those lessons we talked about saving were important because people are losing their jobs and now have to rely on their savings. So you bring your kids into the financial conversation and decisions as a way to just help them understand that this money thing is real. So another example, I have savings goals. My husband and I have savings goals. So we save and we keep a certain amount of money in our emergency fund and life happens fund. So there’s a threshold. Once it gets below that threshold, we stop spending until we can build it back up. We never sat down and told that to our kids like that. But we would talk about all the savings account is getting kind of low. You know, we’ve got to pull back on our spending.
Michelle: So now all three of my kids have a savings account and all of them have a self-imposed savings threshold by which if it goes under, they stop their own spending and had no lecture about it. They just listen to us and they did the same thing. And it’s really cute because when I get close to it, they’re just like, “Oh, I can’t buy that.” And they actually could but I’m not stopping them. So, it’s just casual conversations. Don’t make it some big thing where they like, Oh, and they will pick it up.
Michelle: And you still can fuss a little bit. I’ll tell you one more story because of course, you know, now I love stories, right? So my oldest was going to a fair at her school where all the children made different items and then they all would buy from each other. So it’s a little, you know, like open air market from things that they made. And so my daughter was getting together her little money, her cash for the fair. And so I said, okay, well, let’s talk about strategy because if they offer for $2.00, I think that you should offer $1.00 and then settle on $1.50. This is how you bargain. And you know I’m talking and she wanted a dream catcher. Some, one of her classmates had made a dream catcher and she had her eye on it. Because they did it the day before and they knew what was going to be on sale. And so we was like, okay, so I know you want that dream catcher. So this is how you’re going to negotiate. And she’s just like, “are you serious? Like this is my sixth grade classmate, I’m not going to negotiate.” I was like, no, no, no, you have to decide how you do things. And so she was so frustrated with her mother. And so she looked at me and she says, “I’m only eight years old, I know more about money than anybody, my age. I just don’t understand where you have to have all these money conversations.”
Michelle: And so I got down to her level and I said, look, it is my full-time job to make sure you’re a good steward over your money. Without missing a beat, she says back to me, “well, can you make it your part time job?” I know, right?
Sally: I feel her pain. I feel her pain right after that. My father used to say, what do you think “money grows on trees?” whenever we wanted this, we wanted that. But you know what you’re saying, raises some interesting issues. We struggle with whether financial literacy is a social justice issue and the fact is that there are a bunch of industries lying in wait for people to make stupid and foolish financial decisions like the payday loans, like some of the used car dealerships, various scams that take advantage of people’s not understanding how a scam works. How do you navigate that and what do you say to people who’ve gotten caught up in some of those systems really through no fault of their own or because they made foolish decisions?
Michelle: I love that question. You’ve definitely hit the nail on the head. So because there’s a lot of talk about personal financial responsibility and predatory practices.
Michelle: And oftentimes when I write about predatory practices I, every single time get a letter from someone who says, well, people should just X or they should know better, or they were being greedy or they didn’t do their due diligence and so forth. But it’s actually both we have to teach and talk about and be careful that we don’t blame the victims. But then we also have to talk to people about personal responsibility. So when you talk about predatory products like payday loans, or just the housing crisis, there were a lot of people who were talked into predatory loan products. And so yes. Should people know better? Yes, but they often don’t, but that does not give companies the right to prey on people’s misinformation or dare I say, ignorance or not knowing.
Michelle: Because ignorance, when you use that word, it has such negative connotation, but it just means you don’t know. And so we have to fight against predatory products. We have to fight these payday loans, which are awful for people. And we have to fight it, knowing that they often pray on the disadvantaged, the poor and minorities, and why do they do that? Because they know that they have been shut out of the systems and they feel so beaten down that they’re so tired that they don’t do sometimes the things that they should, because they’re just grateful somebody is giving them money. And that we have to talk about that into the context of why that happens. When you have had generations who couldn’t get regular loan products and they just resigned themselves to the fact that, of course, I’m going to get a 20% or 30% loan and not know that they could qualify for a 4% loan.
Michelle: And so I try to fight on both grounds like these. I hate payday loans and I understand what the industry says about them, that we’re putting something out there that people need, but just because people want them doesn’t mean that something that they should take. And if you don’t have the money in your current pay day, how in the heck are you going to have it when that payday loan comes due? And it’s a horrible, horrible product. And it preys on the desperation of people. And that means to me the definition of predatory. And on the other side, the job that I try to also do is to equip people with the knowledge and weapons to fight that payday loan. So yes, it might mean that your cell phone bill or light is going to be turned out, but it’s sometimes a little bit better than taking that loan.
Michelle: It’s going to take you down a road that you are not going to be able to get off of. And so we try to teach people how to be better consumers and read things and not accept things because people are offering it to you. And the more, you know, the more you can shop smarter, the more, you know, you can confront racist predatory practices and it’s happened to me and I’m extremely smart about these things. My husband and I no longer get car loans because after one or two car loans, we just saved money for cars and we keep our cars for 10 or 15 years, we have the cash to pay for it. But when we did, early in our marriage get a car loan, you know, we have great credit and we pay our bills.
Michelle: And so I knew what an auto loan would cost. And I went to my credit union and got preapproved and got the best rate possible because I also had to take it out of my paycheck. So, I mean, super, super low rate. I already had everything set up when we went to get the car. But just out of curiosity, because I write a personal finance column, I worked for the Post. I just wanted to see what the dealership was going to offer just out of curiosity. So the guy took our information, went back and came back with a loan rate that was like, I don’t know, six times what I qualify for. It was completely predatory and because of the fact that we were at African-American buyers. And I asked the sales person, I said, that just seems awfully high.
Michelle: And then he had the audacity to say to me, “there must be something with your credit.” And my husband, being the wonderful guy that he was, trying to protect this man from being beaten down. He put his arm across me and he said, “honey, please don’t hurt the man,” because I just like, “are you insane, man?” I got a perfect credit score, literally. And so he said, “don’t hurt the man, my honey don’t hurt the man.” But he knew he did not know that I knew what I was worth. And I said, I’m not taking this awful loan and you’re trying to take advantage of me. And here’s the loan that I got offered from my credit union, which is way lower than what you were going to try.” And he hemmed and hawed. And I said, thank you very much, I will not be taking your predatory loan.
Michelle: Now, had I not done that, had I been someone who’s just grateful to get a car because I need to get to my job to feed my family and maybe I’ve got all kinds of things going on in my life and I just didn’t take the time to know what my credit score was, know what the prevailing rate was, know that this was completely, that the dealerships are allowed to do that by the way. It’s something they do. They stage shop loans. When they come back to the buyer, the loan that he got back could have been exactly what the credit union offered. They add points onto it to make their profit. And if you don’t know better, you think that’s the best rate that they can give us. And so as again, you know, predatory practice, but once you know that, and you know what your value is as a consumer, you can fight against it. So we need to do both. We need to fight against the predatory practices, but also teach people to be better consumers and to be better equipped when they go into these situations.
Sally: Let me jump in and ask you if you had to do three things with your finances today, especially in light of COVID and not knowing what’s coming around the corner, what would you say to people, what are your top three?
Michelle: Top three. If you can, if you’re still working and you have the ability build your emergency fund, we now know how crucial having a savings can save you from crisis. Even if it’s just $25, save what you can hopefully in better times and good times, you get to the point where you’ve got three to six months and even over to a year. That’s the one thing that the importance that it is not just something that people teach you and you go, yes, yes, yes. We’re suppose to [00:36:50 inaudible]. No, this can save you in a crisis. And then secondly, get rid of that debt as fast and as quick as you can. Get rid of that debt, it is a burden. It is a rock. And right now, if you didn’t have that debt, you might be able to better handle things that are going on, or you wouldn’t be so worried.
Michelle: You know, you might still have a chance to finance your household. If you were not also carrying the auto debt, the loan debt, the credit card debt, even your mortgage. If you were mortgage free and you lost your job, you can weather the storm a little bit better. So get rid of that debt as soon as you possibly can. And then don’t take on a bunch of debt. One woman was told me that “I didn’t think it was possible not to have a car loan. Like you always have a car loan.” No, you don’t always have to have a car loan. Really? You only need one. If you’re starting out and you don’t have any money, okay, I get it. You have to get a car loan. But then after that, you never need another car loan.
Michelle: Because you just keep paying that same payment to yourself. You keep that car for as long as you can, 6, 7, 10 years. Then you had the money to buy another car when it comes time for that. So emergency funds get rid of that debt. And thirdly, which is what we talked about at the beginning of this podcast is that you’ve got to fight the fear with information. The more you know about how to handle a crisis, the more you know about not panicking when it comes to your retirement fund right now. I mean, back when this COVID began to really hit the U.S. and the market’s just tanked. People were like, I’m out. I can’t do this. What we know over time, that if you invest over time and you’ve got time that the markets will even out and you have good return to beat inflation.
Michelle: But if you don’t know that and you just operate on that panic and fear, you’ll jump out. You’ll actually make those losses real. So you’ve got to inform yourself, listen to podcasts like this, read the Washington Post Business section. Go to summer reports. Go to conferences, go to classes and take your kids. Just the more you seep yourself in this information about money as boring as it can be. Sometimes the better you will equip yourself in good times and bad times.
Sally: Last question, then we’ll wrap up. Should there be a national mandate to teach financial literacy to every young person coming through middle school, high school, elementary school? And if so, how do we do it?
Michelle: I think there should be a national mandate. I know I talked about the fact that financial literacy starts at home and ends at home, but the fact of the matter is, a lot of parents, a lot of parental influences don’t have the confidence to teach it.
Michelle: And we know that the classroom is an effective way to get information to students. So I think every student and elementary school, middle school, high school and college. There ought to be a class for each of those milestones about personal finance. So it’s not even just wait until they’re in high school, away to their college. From the time they’re in kindergarten and elementary. At some point there ought to be for some financial and then reinforce it and so on. And listen, I get that the teachers are already so overwhelmed with teaching our kids, the basics about math and science and reading and literature, but personal finance has got to be right up in there. That math they’re going to use that with their personal finance, they’re reading, those reading lessons, those are going to come into play when you’ve got to read contracts and read all this crazy stuff that they put in front of us. You know, even literature and just how to deal with people and how to spot a fraud. A lot of that is intuitiveness that can also be taught. So absolutely there ought to be a mandate because we know that the ideal isn’t always, not everybody’s going to have Michelle Singletary as their mom. I can’t clone myself. And so, because I know I can’t clone myself, let’s make sure that we have a way for children and young adults to get the information they need to equip themselves, to fight for themselves financially.
Sally: Well, on that note, I think we’ve got a great interview here. Do you have a favorite curriculum you want to recommend to our listeners?
Michelle: I’ll work with and help with and I like Full Proven. I don’t know if you know about them. They’re online. I liked that they kind of come at it from being skeptical. That’s sort of the core of what they teach, how to teach young adults and students to be skeptical of things. Because not everything that people tell you about finances is true. And I mean that in a sense of like, you know, this idea that college students need to get credit cards to build credit. No, they don’t, it doesn’t take very long to build up credit. None of my kids had credit cards in college.
Sally: There you go. I didn’t know that you didn’t need to build credit when you in college.
Michelle: Because what I did with my oldest, because we take it each time. So, just as they’re about to graduate from college, we get them a little secure card. And then I taught her how to use a secure card. Took six months, she had over 700 credit score. And then I said, okay, now let’s get a regular universal card. And then that’ll help you establish yourself even more. And then just put the cards in her drawer and that’s all. It only took her six months to get us over $700 credit score.
Sally: What’s a universal card, like a visa or a master card?
Michelle: Secured card is you have to put money into a bank account and then you can borrow on the credit card based on that amount. So if you put $250 into a bank account, you can only charge up to $250 on a credit card. That’s a secure card. A regular bank card is that it’s not secured, it’s an unsecure card. So they will give you a credit limit of a 1,000 or 2,500 or whatever, and you can borrow against it. And it’s not secured based on anything. But the regular card helps boost your score even more than the secured card. So it’s sort of a way to build credit as you go along. So you start with, if you can’t, because my daughter couldn’t get any credit because she didn’t have any credit cards in college. So when she applied for a regular card, she was denied, which she should have been because she didn’t have no job.
Michelle: And her mama wasn’t going to sign for no card. And so we got her secure card. And then when she did the six months of what I told her to do, I told her to charge like $10, three times, pay it off before the due date and put it in a drawer. And that’s exactly what she did over 700. Then I said, now you’ll get all these offers in the mail for a regular card, what she did. So we applied for one, she got a credit limit of 2,500 as it did the same thing, charged $10, $20 for a couple of minutes. And that’s it. And now you’ve got a credit score.
Lisa: That’s amazing advice.
Michelle: And it’s done. I just checked with the other day, our credit score was like 740 or something like that. And so that was it and it took six months, that’s it.
Sally: Okay. So stay away from credit cards on college campuses. Do you think they should be – I know I keep asking you more about how the young people build credit, but do you think we should keep these credit card companies off of campus?
Michelle: I do. I really do because we tell them to, they need a credit card to build credit, but so then what is a college student going to need credit for? So they’re not going to buy a house right for several years and hopefully they’ve got some sort of beater cars, so they don’t need a car loan. And so what do they actually need credit for? What they need is an emergency fund and user debit card and teach them how to use cash and credit and checks and that kind of thing. But they don’t need, because credit entices you to spend more than you can afford, and they’re not going to charge anything that they can’t pay off the next month then what do they need a credit card for? You could do just pretty much anything you need with a debit card these days.
Lisa: Michelle, thank you so much for joining us today.
Sally: I hope you’ll come and talk to our Life Smarts kids when we’re back in Life Smarts mode. We had to go virtual in April. We may have to go virtual year. And I think just that little nugget that you’re telling us about, all these kids are college bound. And just knowing that that myth that you need to get a credit card to build credit in college is really terrible for a lot of kids who really don’t know how to use their money.
Sally: Michelle Singletary, you are the best guest ever. Thank you so much for what you do for all readers of the Washington Post and all the newspapers that are you’re syndicated in and all the podcasting you do. And we can’t thank you enough for being with us today.
Michelle: Well, thank you so much for having me and thank you for all that you do.