Financial expert Ruth Hayden is on the first hour of Midmorning today (9 a.m.). News Cut is live blogging and I hope you'll share your financial story in the comments section below.
Listen to the program (RealPlayer)
Her appearance comes at the right time. The Pew Research folks released a survey on Wednesday on the middle class. The report, called "Inside the Middle Class: Bad Times Hit the Good Life" said "for decades, middle-income Americans had been making absolute progress while enduring relative decline. But since 1999, they have not made economic gains."
Is that true in your life? Is you paycheck feeling pinched. If so, what's your plan?
8:14 a.m. - Happen to be watching the CBS Morning Show over the morning coffee and they had a segment with Janice Revel, senior writer of "Money" magazine on what to do with your
tax rebate stimulus check. She said: (1) Attack credit card debt, (2) Build emergency fund (3) Invest in retirement. Lofty stuff. I wonder how many people are like me. We had plans like that for the dough. Then the washing machine died Sunday in the middle of a load of darks, and we had to buy a new one, which ate up the entire check (which of course hasn't arrived yet). At least we stimulated Maytag. (by the way, all financial advice tips will be in bold green so you can find it faster later on).
9:09 - "It's just discouragement, they're just feelingpoor," Ruth says. With a 2-percent raise, you're losing money. Consumer confidence, the news out today, is diving, according to a report that just came out this morning. It's a 26-year low. We somewhat make it worse for ourselves, by "blaming" the other people in our homes (i.e. "how can you be spending more for groceries and not bringing home more food.")
9:13 a.m. - Speaking of inflation, play around with this calculator.
9:17 a.m. - They're talking about the price of a gallon of milk (up 19%). Here's an interesting idea. A woman had her son pay for a gallon of milk, just so he'd see how much it costs to keep him fed (you know how teens are, right?).
9:19 a.m. - A commentator below chastises the middle class for not sacrificing... as opposed to the "working poor." I wonder how many of the working poor consider themselves middle class?
9:21 a.m. - Ruth says a few years ago, more than 80 percent of the mortgages were adjustable rate mortgages. The mortgages are now resetting at a higher rate. These, of course, are the mortgages that others criticize when they say the problem with the housing crisis is people biting off more than they can chew. A few weeks ago, Marketplace reported, the percentage of mortgages that are adjustable rate, is inching up again. Is it that people haven't learned?
9:23 a.m. - Don't challenge your career path on a stage. Ruth tells a college student to get a second job. It's a stage, but we will get through it. The fundamentals are still in place. In other words, don't give up your dreams. Don't buy a house until you know you can afford it just because they're on sale. Consider deferring college loan debt.
9:26 a.m. - If you can do it without debt, it's a great time to buy things that are "deflating" (cars, campers etc.). Don't do things today that affect negatively later in your life. Taking money out of retirement "is a pristine example of that."
9:31 a.m. - This idea that it's just a stage... I get it, but it's not true for everybody. Let's take an example: You're an older worker in a dying industry. If you're cut, the chance of you being able to replace that job with a similar position -- I would think -- are relatively poor. Not that I object to a "the sun will come out tomorrow" approach to things, but is it really that simple? In looking at the survey above, I tend to think that's behind the discouragement. In contrast to that, however, is this article, that the older worker these days has a chance to redefine their retirement. In any event, the worker is a moving target.
9:39 a.m.- Even if times are tough, if your employer matches contributions to a retirement fund, contribute at least 4 percent.
9:40 a.m. - Caller -- single person -- with a house says he's taking in roommates. "We need to go back to being more practical in our approach," he said.
9:43 - Ruth advises getting your free credit report. Here's the URL she mentioned. annualcreditreport.com. I did this a few weeks ago, but here's the thing. What am I supposed to do with it?
9:46 a.m. - "The stock market is on sale. It's the perfect time to go into it," Ruth says. This one scares me, only because I watch too much CNBC. But if you're talking about taking advantage of a retirement plan at work, especially if an employer matches, that's another story.
9:50 a.m. - "Our economy is based on healthy personal economics." Don't spend your stimulus check. One of the reasons we're in trouble is we spent all this money based on debt. It's not sustainable. Hang on to the money. Pay off debt or put it in savings.
9:55 a.m. - Kerri reads Nathan's question below about wanting to consolidate student loans but not knowing who's credible. Ruth suggests going back to your financial department at school and asking.
10:06 - I fixed the link to the inflation calculator above. Apologies.
For those of you who are visiting News Cut for the first time, courtesy of Midmorning, thanks for stopping by. We look forward to having you here more often. We'd like to keep the conversation going through the day, here, so if you have some stories to share, advice etc., please feel free.
Oh, boo-hoo. The "poor" middle class can't afford to drive their SUVs to Disneyworld this summer and eat at Olive Garden every Friday night. Try struggling for real. No vacations. No health care. No money for college or retirement. I hope gas rises to $5.00/gallon or more. Then we'll see some real sacrifice from the middle class. The working poor have been doing it for years.
My husband and I just paid off our mortgage last month. We struggled the past 15 years to pay it off early, and are very lucky to have the extra cushion no mortgage allows during these tough economic times.
I am a recent college grad, and have many students loans spread across four lenders. I have a good career job with reliable income. I want to consolidate my loans, and I think soon the interests rates will bottom out. I have great credit history so I think now or soon will be the right time to do this.
Where should I go to do this? I don't know who is a credible, or who is offering the best rates. Any tips?
Your guest just mentioned "dire" situations, in terms of home ownership and retirement. Dire? What you are discussing seems stressful, but having to make daily survival choices are really dire.
I'm a student at the U [feminist studies actually, as you giggle, giggle]. I have two children. I work three different part-time jobs and go to school full-time, trying to graduate in one more year. School costs more and more, each year, gas costs more and more, and food seems to cost more every time I go to the grocery store.
I never thought I'd be a "welfare mom" but I am. I am smart, hard-working, and have a promising future. But today, I go to food shelves in North and Northeast Minneapolis. I'm on county food assistance and daycare assistance part-time. My kids and I are cramped in a small apartment. I have no privacy, no quiet time to study, but I make it happen.
I eat ramen noodles, rice, and bread and peanut butter every day and night. I feed my kids meat and veggies that I stretch across the week. I ride the bus, and just stay home if it's not work/school. Still, I can't seem to make ends meet.
I am in debt for school and have major credit card debt just paying for everyday needs. A 401k, a mortgage, financial security is out of my view... Maybe someday I can enter even enter the class status that you are targeting this conversation to. I'd love to reach that level of "dire" situation of homeownership.
Feminist Studies Student
[studying for better times]
Ruth Hayden mentioned gas prices have gone up 74%. One easy way to cut your gas costs 50 percent is by getting rid of your $40,000 SUV getting 20 MPG to something that gets 30MPG.
Buy used and you probably would also net some cash from the trade to put into your retirement account, that is unless you financed your vehicle out 5 years and did not put down a down payment. If thi sis the case, you probably should noty have purchased a $40,000 suv in the first place.
Nathan: Check out StudentLoanConsolidator.com. I haven't used their services, but the same folks publish the Financial Aid Podcast which I am a huge fan of. They really know their stuff so at the very least they'll be a really good source of info.
Even if you have a $40,000 SUV (although if it's paid for, is it really a good time to sell it to buy a new car -- not a rhetorical question), you can save money just by slowing down by 5 m.p.h.
Oh, and buy your gas in Wisconsin. You get more mpg. That's another thread, but for all the talk about the DFL raising taxes on gas...the govenror's push for a bigger blend of ethanol -- I'm willing to bet -- is costing drivers at leas as much.
but I digress...
You hope it rises to 5.00/gallon? Be reasonable, you wouldn't be hurting the SUV drivers as much as you would the struggling lower to lower-middle class individuals who can't afford to buy a new gas effecient vehicle. We need to help our own economy - which at present time is supporting the reconstruction of a country that profits from rising fuel prices - and promote effecient gas consumption by means of tax premiums on gas guzzeling SUVs, a return to previous speed limits (70 mph is so ineffecient), and various other methods.
On the subject matter at hand, I graduated from Augsburg College two years ago and have controlled my spending by not having one credit card or even a debit card. I have a checking & savings account, but I got to the bank to withdraw money when I need it. Doing so can bee a hassle at times, but it keeps me from making the impulse purchases that I think causes many people of my generation so much trouble. I think convenience is one of our biggest problems as a society and we need to rely more on taking the time to think and be practical. It would be nice if we weren't forced to rely on credit so much (I can't even purchase most things on line without a credit card).
It's lazy to point fingers at SUVs. I'm sure there aren't actually that many people that are driving $40k SUVs (and pickup trucks) that really can't afford them or the gas.
And everyone's going to bitch about gas, regardless. It's like the weather. And it impacts the cost of everything, even if you don't drive a car.
We just finished the college search process and I was appalled at all the bad financial advice coming from books and the financial aid counselors at the colleges. My husband has a great job, earning over 100K, we don't drive SUVs, we have no credit card debt, we own our two cars, and we don't even have cable or dish or satellite. The private college tuition is now at over 50K and they expected us to contribute over 33K. We don't have that kind of money sitting around! So their advice was to take out loans. They encouraged my daughter to take out over 15K in loans per year. The books told us to stop saving for retirement or take out a second mortgage to pay for college. Forget it - she's going to the U because it's a great value. Go Gophers.
I bought a TH for 197,000 last year on a 30 year fixed loan and then a couple of months later got laid off all of a sudden... my husband's income wasnt enough to cover all the expenses including all the increases in food, energy, etc... We cut spending dramatically and yet we still had to use up all the savings to keep up. Now we have no savings and the exact same TH we bought less than a year ago are selling for 145,000-150,000 and I have no idea what to do. I just started a job again since I lost one last year in october. We are middle class we drive small cars like a civic and even so my new job will be further away, since it is the only thing that I can find, and so gas will go up. Oh and the job will pay much less. Yeah I am in a bad situation and I dont know what to do...
I hope gas goes to 5.00 also. We have had many times to take another path, but we just can't say no. So now we pay the price. We refinanced or home only to plow the money back into a 15 year loan from a 30. We also paid off all our credit cards and have been driving a 2000 32 mpg car. And everybody that supports the war, they need your butt's down at the recruiting office.
What am I supposed to do with it?
Verify that all the information is correct, submit corrections to the various agencies if it's incorrect, and then keep rolling. If something on your credit report is wrong, it's probably influencing your credit score.
I keep hearing that, since you can pull one credit report for free from each of the three agencies every year, you should stagger when you pull them, so you can monitor on a rolling basis.
I understand buying low on the stock market, but isn't it likely that the market will settle at a level lower than it's at now?
I'm in my early 40's and my credit has tanked due to medical expenses for my family. I don't know anyone in the bank so "finding someone who knows me." My wife is well employed; I am only working part time, for a variety of reasons (job availability, minor mental health issue (depression)...
We are only a single paycheck away from homelessness, as we've eaten up our equity to cover expenses that our incomes didn't cover since 2001. We have one car (a minivan) and virtually no savings to speak of, so we've cancelled all travel to see family. (All of whom are located outside of Minnesota.)
Living within our means when medical expenses, child care (before and after school) are a problem--even with health insurance...we don't have cable TV, I dump household trash at my employer's dumpster, I haven't paid for a haircut in 12 years (wife cuts my hair), my wife, when she's not working, sews dresses for the girls, and knits all of their winter mittens and hats.
btw I have a post graduate degree--WE have NO credit card debt or other unsecured consumer debt.
What can be done to build a security net for my family and dig out of the hole we're in.
My heart goes out to the Feminist Studies Student. My husband and I were in grad school in Ohio 3-4 years ago -- I *joke* (sad joke) now that we were the canary in the coalmine. We weren't prepared for how childcare would break us, how rent would break us, how student loans would break us -- we lost our home during a career move that was -- like our education -- supposed to lift us out of poverty and into a life of hopefully a wee bit more privilege. It didn't happen b/c we were at the forefront of the housing market bubble in Ohio and the house didn't sell (a house that we remodeled extensively - our first home we doubled in value and paid for our undergrad loans, but this second home killed us). We lived in an apartment too so we didn't have two mortgage payments (although our student loans are more than a mortgage for a nice house), tried to keep things going, but it didn't work. The week we went up on the market, so did 8 other homes on our block. It was so humiliating and confusing. We are well educated (and have the student loan burdens to prove it). We too have rented, lived in small apartments to try to live below our means but refused to live in areas that would've meant a worse education for our kids. That has cost us money and unfortunately this *stage* has plagued us for the years when we are supposed to be our best working years - building our wealth - instead we have robbed our retirement accounts to make ends meet. We drive pre-2000 vehicles with 150K miles, we budget, we don't shop at the mall - we go to Goodwill. We pay cash and avoid credit cards like the plague, but we are at the age and stage caught in this economy that didn't have the time to build a cushion. Our next step will be second jobs ... but that doesn't always work when childcare costs more than the wage you earn.
Here's my advice - if your company will pay for your education, get a job and have them pay for your education - avoid student loans at all costs, pay cash - not credit for things, don't hoard - buy only what you need when you need it - save for medical and retirement if you can. We are at a point where we are facing our retirement could be a nightmare, but we are saving now for our kids' educations so we don't put them in dire straits just b/c our situation didn't pan out.
I appreciated the financial advisor's comments this hour, particularly the admonition not to take money out of one's 401K (Mom, I'm talking to you!) - but my situation is a bit different than those described by callers and I thought I would share. I graduated from college in 2004 and immediately ran into trouble looking for work. After almost a year I was able to find that part time work that the financial advisor advocated (living at home, never getting involved in credit cards and trying to save up money), but now three years later I am no further along than I was then, am still deferring my loans, and now with the news in the economy I feel like my prospects of finally getting sustainable income are bleaker than ever. What advice is there for someone like me? I don't want to get rich, I just want to be able to start (finally!) taking care of myself.
My wife saw my earlier post and called me at work.
She adds, "Your diabetes and our families numerous surgeries and injuries have made us virtually uninsurable, so even if you found a better or full-time job—it had better be in the area—because we don’t dare let my job go without assurances of full coverage elsewhere.”
Also she pointed out that I didn’t finish my thought about “knowing/finding someone at our local bank.” We know the tellers well enough, since I do not have direct deposit with my primary part-time employer. But they are not in the position to extend credit and senior bank managers wouldn’t know me or my wife from any other member of the public, so the low credit score will tell them “all they need to know.”
Frankly we DO NOT want more credit—we want to be able to pay our debts timely and get out of the hole we’re now in.
Barrowing more money to pay off debt is as stupid as it sounds.
Mary, I don't have much of an answer for you, not am I a financial advisor. I can only give you some solace in this form:
Many people have been in your situation and it does turn out well. When I was out of school like you, I had $4,000 in students loans (not a big deal now, but it was a big deal then) and I worked 6 days a week, driving 40 miles to work, and pulling in $110 a week (that was the gross pay).
I told myself at the time that what I learned in being frugal by necessity then would help me later in life. Because the secret is that people will ALWAYS spend in proportion to their income and will always feel that they're hand to mouth. and, in many cases they are, but in many cases they're not.
You WILL, the odds say, get that sustainable income. What is your degree and what's your dream?
Having gotten into credit card debt of $11,000 three years ago, I've been slowly but surely nibbling it down thanks to taking up offers for 0% cards after paying 3% for a balance transfer. It's down to $7,000 now, which is at least not as bad. But I'm driving a 12-year old car and my wife is driving a 10-year old minivan, so we're still living on the edge, so to speak. The reason why we're still in credit card debt has less to do with our lifestyle than it does with the fact that my wife's income as a self-employed artist is 25% what it was five years ago. Needless to say, our bills haven't dropped that much.
I love Ruth Hayden's advice whenever she is on MPR! Glad she's coming back in June.
I would really like you to tackle financial challenges at even the much more critical level where many of us already are. I think the financial planning principles are the same - have more money coming in than going out - but believe it or not, many of us are much worse off than the average caller seems to be.
I am in my late forties and have raised a child as a single mom. I was laid off from a job of seven years just as I was starting graduate school to get a teaching license and Masters in Education. I have the license and am almost finished with the Masters degree. Besides my studies (the goal of which has been a decent job), I have been working part time and job hunting. I do not own a home (or mortgage), and had no debt before my layoff and school loans.
I have excellent credit, and now over five thousand in credit card debt (less than half my credit line), and huge student loans.
Here's my question: I have to unexpectedly move within the month. I cannot afford to do so except to dip into my IRA, which I have just done. There simply is no other option. Listening to Ruth Hayden I feel like I'm making a complete mistake. However I view THIS as an emergency measure, as she said for a temporary crisis situation. I certainly do not like doing it, and deliberated long and hard over this.
For me the buffer is so much smaller than what it sounds like most of her advice is addressing. My strategy is that I have to get more work. That comes before any of the other things like mortgages and saving. Unemployment is a big part of the current recession and I would like to hear conversations and advice that include this problem in the mix as well.
I appreciate Kate's post above. I agree, there are SO many people now employed part-time as contractors (we need a whole show on that), with unpredictable income, benefits of zero or little value, and big educational loans, who used to think of themselves as middle-class and upwardly mobile. I do appreciate Bob's solace. But could you do a show (Ruth) addressing the realities of all of us who tried to do things right and are now on the edge, in a changed world?
Hearkening back to the original topic, and having read all of the preceding comments, are these things that never happened five years ago?
No one struggled through paying off stuedent loans five years ago? I know that I did ten years ago. Did no one have too much credit card debt five years ago? I had it fifteen years ago. Has anyone had a 15% interest rate on a car loan? I did. Had a fixed rate mortgage over 8%, a rate that would be on the high end today? Yep, had that too.
None of this sounds new to me.
I was just talking about this with a much younger cubicle neighbor. I recall I used to shut off my water heater on Sunday night and live off the accumulated heat through the weekly (very, very short) showers... to save a buck. I moved my mattress from the living room into the bedroom to close off rooms from needing to be heated.
I'm the son of a depression-era couple, of course, so a lot of this was ingrained. I think that's why I drive 55 when everyone is speeding past at 65... why I don't stay on the gas all the way to the stop sign, and then gun it off the green light.
There is value to hard times. We learn coping and survival skills that benefit us when times get better. I think that's part of what Ruth's message was when she talks about stages.
It does require a certain "hopefulness" when there doesn't appear to be an apparent reason.
I totally agree that we have a lot to learn (or remember) about how to conserve and avoid debt whenever possible. I used to always ask my Grandma about what they did in the Depression, and I have adopted a lot of strategies from living in other countries (like your reference to heating only one room).
But it's also true that some fundamentals have changed: it's no longer possible to put oneself through school by working nights and graduate debt-free. The days of the UAW-driven benefits are gone for a lot of people, and we haven't replaced them with a good health-care system yet. In those ways, all my daily efforts at frugality aren't cutting it. I don't mean to be negative, but I do think a show about how to budget these big things, at the lower end of the income scale, would help a lot of people.
The 'hopefulness' is always appreciated.
But...wait...I thought America was a classless society.
It sure is easy to think that the tough times won't affect you. I meet with people everyday who lost a job, got sick or had some other crisis--- with all of the other rising expenses (gas, groceries etc...) they just can't continue on the same path. Tough choices to be made.
"Here's my advice - if your company will pay for your education, get a job and have them pay for your education - avoid student loans at all costs, pay cash - not credit for things, don't hoard - buy only what you need when you need it - save for medical and retirement if you can. We are at a point where we are facing our retirement could be a nightmare, but we are saving now for our kids' educations so we don't put them in dire straits just b/c our situation didn't pan out."
so very wise you are mom of two. I have decided to focus on my own childs education.
I am planning on getting a nice tent and living on a beach for retirement.