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The Human Experience of Christmas

I’m not a writer. I’m an accountant. (Except now I’m a writer and a financial coach, but that’s another story.) When I feel stuck, that I have nothing useful to say, I read Susannah Breslin. She reminds me how to be a writer.

In her latest series on journalism (and strip clubs, but that’s another story) she reminded me that what a writer does “…for a living is attempt to chronicle the human experience.” Oh, I get it. I’m supposed to be teaching my readers how to have a healthier financial life through telling stories and providing corresponding helpful financial advice.

I realized that in my last blog, I tiptoed. I was cautious. Sure I told stories. And I gave creative and useful ideas. But all over the web are advice blogs about a frugal Christmas, making your own gifts and starting a Santa Saver account.

What is unique about me, what I do that few other financial writers do, is to tell the real human experience of what our financial decisions, or indecisions, do to our self-esteem, our relationships, our happiness and our lives. What was missing in my last blog were these naked emotional truths that clients and friends have shared with me over the years. More people have talked to me about the anguish and pain and simple embarrassment that Christmas can bring than have talked to me about the joy that it brings. Here are some threads of those conversations.

Remember when college only cost $96,000?

Do you remember the days that higher education was actually affordable? Yea, neither do I.

The rising cost of higher education is redefining what it means to be a broke college student, and I can’t help but remember what college costs were like in my day.

A handful of years ago, the total cost to attend my four-year public university rang up to the tune of $96,000, and that’s a conservative estimate (one semester, books alone cost me over $600). Today, a college degree at the same university—where students faced three tuition hikes in the last two years—now costs $126,000. That’s a 31% increase in less than a decade.

While it’s always been a struggle for every generation to pay for college, this is getting ridiculous.

How will the next generation of prospective college students cope with the reality that access to higher education may not be for everyone after all? It’s for those who can pay it, or at least afford to pay back education debts for the next 20 years.

Reality of college costs

With college costs outpacing middle-class families’ monthly paycheck, parents are less likely to be able to carry the entire financial burden of college, forcing students to take out more loans to pay their own way to college. In fact, 2 out of 3 college students graduated with debt in 2008 as compared to less than half in 1993, reports FinAid.org. And college costs have only jumped higher since 2008.

Students head back to campus this fall facing greater challenges to pay for college expenses due to tuition hikes as well as scarcer financial resources. According to the latest report from CreditKarma.com, the average consumer is shouldering $29,985 in student loan debt, a 6% increase since last August. In fact, the total national amount of student loan debt outpaced credit card debt for the first time in history last year.

It’s not too far off to worry that student loans could be the next financial bubble. Moody’s Analytics reported that student loan growth, unlike other lending, accelerated during the recession. “Like the mortgage debt from 2005, student loans are driven by artificially low interest rates with a promise of a high return on investment,” comments Ken Lin, CEO of CreditKarma.com.

For students, the return on investment is becoming unpredictable. Lin adds, “While many college students are fixated on the potential for higher incomes after graduation, few acknowledge the potential pitfalls of taking on student loans, such as debts far in excess of their salary and debt obligations that don’t discharge after a bankruptcy.”

What does it all mean? With college students graduating with thousands of dollars in debt and facing limited job prospects, the balance of risk and rewards of a college diploma is shifting slightly towards more risk than reward.

Reality for college grads

They call us the “Millenials,” born in the 80’s and 90’s and known as the most technologically connected generation in history. Millenials are also the hardest hit by the recession. Among consumers aged 18 to 29, unemployment is the highest it’s been in over three decades, and amongst all age groups, Millenials had the highest drop in full-time employment since 2006, reports the Pew Research Center.

No wonder they also peg us as the “lost generation,” coming of age in the Great Recession with high hopes and high degrees, and stunted with limited professional experience, reduced earning potential, and dimmed confidence.

With the job market so bleak, many Millenials are heading back to school with1 in 4 undergrads opting for grad school. Yet graduate students are facing even tougher financial circumstances than undergrads.

The Budget Control Act of 2011 will cut off government subsidies of lower interest graduate student loans starting July 2012. The budget cut will cause students to opt for higher interest loans, which will result in an incremental $7,000 in interest on federal student loan debt for the typical borrower, estimates FinAid.org.

For many 20-somethings, graduating will be a time to start digging out of deep debt while juggling financial independence. While past generations likely put 5%-7% of their first job’s paycheck toward debt after graduation, Millenials are putting in 20% or more.

One graduate of the Class of 2010 compared paying off student loans to having a hole in his paycheck. “It’s like paying for weekly rounds of drinks every month that you don’t even remember buying,” he stated.

Another recent graduate puts the dismal outlook of student loans in perspective: “Well, I can make the payments. Luckily.” More than 20% of her current paycheck goes straight to student loans; it would’ve been a bigger chunk if she hadn’t worked part-time while schooling in order to pay some expenses. “It makes me slightly depressed, because it’s a huge mountain to climb. But I keep telling myself it is doable.”

At the alarming rate of higher education cost hikes, this generation’s student debt hangover will last well into their 30s.

Is college still worth the price?

This generation of college graduates will be our next business leaders, industry game changers, and ground-breaking entrepreneurs. Is it fair that they’ll be starting their careers over $100,000 in debt?

In college, I never considered whether or not it was worth it; going to college was a no-brainer. I wonder if future generations will feel the same. Looking at the price I’d be paying today for education, honestly, it’s a harder call to make.

One optimistic graduate remarked, “I have my degree, and I have a job. One day, it will all work out.”

For the next college-educated generation to whom I will one day say, “I remember when college only cost me $96,000!” I sure hope so.

 

 

 

 Justine Rivero is the Credit Advisor and resident Credit Rockstar for CreditKarma.com, the pro-consumer credit advocate that helps more than 3 million consumers realize the everyday cost savings of having great credit health.

 

 

 

Financial Recovery: developing a healthy relationship with money

The Book by Karen McCall


So many books are full of financial advice, yet when we read them and then struggle implementing all their advice, we just feel worse. But not with Karen’s McCall’s book.  The difference is that she writes about our actual relationship with money. She talks about the emotions of money. She goes into our history with money. Here is an expert who has spent decades in the trenches with real people (I was a client of Karen’s years ago) and understands why people really do what they do with money and how they can change.

What I love the most about her book are all the stories. She shares her own very personal story of struggling with spending and debt. (She shares some of her painful money secrets that people in her life would have been shocked by at the time, if they had known.) And she shares the stories of countless clients she’s helped guide over the years. Suddenly, you feel like you are not alone if you struggle with credit card debt or sometimes you spend too much, or you simply never seem to earn enough.

Here are Karen’s own words, from chapter one:

I’m not implying that money is the most important thing in life, and certainly it’s not more important than the people we hold dear. Interestingly, though, the healthier your relationship with money, the less likely it is that money will distract you from the things you value most. But money, and our relationship with it, is an undeniable force. Ignoring it doesn’t change that. In fact, when we choose to be ostrich like in our relationship with our finances, hiding our heads in the sand, money exerts an even greater, and usually more negative, influence on us. Money colors so many areas of our lives—health, education, lifestyle, career, family, self-image, political influence, and so on. Doesn’t it make sense to have as healthy a relationship with it as possible?

Karen also writes about being caught in the “money life drain” and how she has seen so many people simply try to work harder, only to not have it help their financial problems. She is very direct about addressing feelings of shame and deprivation and how this fuels our financial behavior. And yes, she shows you how to get out of debt and stay out of debt. She also covers how to track and plan your spending- topics that may be unpopular, as I well know from my years of working with people. But she makes a very convincing case how the new financial behaviors she advocates can truly change your life. By the time the reader gets to the last chapter called “Imagining Sterling Money Behaviors”, you just want to BE that person, and you really feel like it’s possible.

To order Karen’s book go here: Financial Recovery

Credit Card Debt: Are you bailing water out with a thimble?

My long-time colleague Karen McCall published a fabulous post last week called “Saving Your Way out of Debt”, where she lists ten steps for breaking the vicious debt cycle so many people are caught in. I want to call attention to her second step: Stop the leaks by stabilizing debt.

McCall says that if you’re trying to get out of debt, you first have to stop using your Credit card. Gasp! Not use a credit card? But she insists this is true, and I know you won’t be surprised that I agree with her. She writes, “This (continuing to use your credit cards if you’re trying to get out of debt) is like sitting in a boat with a grapefruit-sized hole in the side and bailing out the gushing water with a thimble.”

Yikes. What an image.

Indeed, it’s a very apt image. If you owe thousands of dollars to Capitol One, Discover or Macys, your very first step is to stop adding more debt. Of course this part makes sense. But what people underestimate is that it is nearly impossible to keep from adding to your debt load if you continue to use your credit cards. People will rationalize that they can, and indeed, must, use their credit cards. They say they will pay far more than the minimums and get out of debt. Or they will try to pay off in full all the new charges.

How is that working for you?

It IS theoretically possible to get out of debt while still using your credit cards, but it is the slowest and most frustrating way to pay off debt. And I can say that I’ve rarely seen someone pull it off.

Why would you do this to yourself? It is very unkind to you. Why, if you want to get out of debt, would you choose the slowest and most frustrating and cloudy way possible to become debt free?

It doesn’t matter how smart you are-- credit cards foster money fog. You charge things in one month that you pay for in another. And you have old debt and then your new charges. This all creates fog. And credit cards affect both our brains and our emotions. (Remember, people spend 20-30% more when they use a credit card because the money doesn’t feel as real since it is not immediately coming out of their checking account.) The bottom line is that as long as you use a credit card, you will not be forced to find a way to pay for your life with the money you currently have.

As McCall writes, you must first plug the leak—stop using your credit cards-- BEFORE you start reducing your debt. You simply can’t get out of debt while you continue to put purchases on your card. You are going in a circle!!! You are paying on your credit card while you are adding to it.

Learning to stabilize- not add more debt—will change your life. If you stabilize your boat and plug that grapefruit-sized hole first, you can start to make amazing and sustainable progress.

Bailing out water with a thimble is very tiring. Really.

Graduates -- Learn to Live Financially Healthy

College (and high school) graduations are right around the corner, but perhaps the most important learning of all is still come – learning how to live financially healthy.   
 

1. Give Yourself a Spending Reality Check. Notice there’s no mention of “budget”? Budget reminds me of self-denial and regret, much like the word diet. A spending plan allows you to create your own personalized plan. This is perhaps the most important step for students who have relied on their parents and/or student loans to get them through school. We're a nation of spenders and we spend unconsciously. Begin by tracking your spending. Use a small notebook or blank checkbook register and write down everything you buy with cash, check, ATM card, debit card, and credit card for at least 14 days (30 days is better). Most people discover at least one thing they’re spending more on than they realized. Simply writing it down will likely prompt you to spend 10% - 20% less.
   

The “Vow”- and 7 questions to help you avoid using credit cards

Image via Wikipedia

At times I feel like I’ve taken a vow of sorts. And this vow guides me, irritates me and gives me amazing freedom, often all at the same time. This vow, this guiding principle if you will, allows me to live my life without a lot of financial guilt or confusion. It gives me the peace of mind to know I am slowly but surely building my future while living a balanced life in the present moment.

Can you guess what my ‘guiding principle’ is? It is quite simple… I do not debt.

I often find myself out of step with those around me because of this ‘guiding principle’ however; I don’t put things on credit cards, even for a month and I don’t pull from a line of credit. I have not always succeeded, though over the years it has gotten easier-- and it has literally shaped my way of thinking.

But like many simple things, it is not always easy. I’m reminded of a friend who was trying to quit drinking and said, “It’s simple to do, and it is so damn hard!”

I decided to stop using credit cards back when I was in debt. I was still paying on the debt that I had already accumulated. Eventually the day came when I was debt free. Relief!! But then I decided to continue not using debt, and this was an even bigger deal.

Many people will tell you how and why you should use credit cards. These articles are often written by the “financially virtuous” (those that expound putting things on credit cards and then paying your bill in full…which, by the way, less than 25% of the population manages to do.) And of course so many commercials from Capital One, Chase, and American Express to MasterCard all tell us that we should buy whatever our heart longs for. We deserve it, after all, and they can help us.

I personally found it very difficult to plan my spending when some things I bought wouldn’t be paid for until the following month. Yes, I could figure out how to do this mechanically, from a budgeting perspective, but it didn’t work well for my brain and it certainly didn’t help me emotionally. I was simply more prone to overspending. (See my post here on how credit cards are bad for your brain)

The bottom line was that by deciding not to use credit cards, I had to figure out how to get my needs and wants met by myself. Wow.

Living like this requires me to ask questions I hadn’t considered much before. Questions like:

* Is there a less expensive alternative that would meet my needs?
* Can I find this same thing for less money somewhere else?
* Do I really want this or is this about something else?
* If this is really about something else, then is there another way I could satisfy the underlying need?
* Does this align with my larger goals?
* If I really want this and I can’t afford this, is there some way I can make more money?
* If I really want this and I can’t afford this, is there something else I’m willing to give up?

For example, I did my annual income and spending plan for 2011- something I teach my clients how to do. And… I couldn’t get it to balance. Yes, I wanted to spend more money than I was bringing in. Sigh. Don’t we all?! I had to take out a large trip. Oh no!!!

Putting vacations and travel expenses on credit cards is one of the most common things I see driving people’s debt. Well, I want to travel too. But I couldn’t afford it. I need to put windows on my house this year. And I want to do some landscaping. And I’m very focused on getting my retirement on track after my divorce. Drat. It would be easier to not have set these goals. Then I could travel. Of course then my house would be cold and I’d lie awake at night worrying about the future. But hey, in the mean time, I could travel—‘cause Lord knows I deserve it, right?!

In the end, will I travel this year? Perhaps. I’m wrestling with those questions up above. I wanted to go to Machu Picchu with my dad’s wife. My ideas so far are to enjoy going away with her to a nearer destination, i.e. less money. One of the underlying needs is to simply spend more time with her, as she’s the coolest woman ever. But I really do want to go to Machu Picchu! Okay, is there something I can give up? I’m eying my front landscaping project and debating if I can scale it down. (Sorry neighbors.) And I am thinking about how to bring in more money. (Years ago when I needed more money, I waitressed a couple evenings a week and more recently, in my past, I’ve picked up extra teaching hours or other things related to my work.)

The point, as I’m sure you can see, is that this “vow” makes me more deliberate, thoughtful and creative. It’s a different way to live my life. I live a life of conscious choice. I have less stress. And yes, there is a trade off. I see people doing some things that I would like to do more of, such as travel. But in the end, I can sleep at night. I know I will not have to work forever, as I am securing my retirement. And when I do spend money, I enjoy spending it, because I know this is something I really want and I can afford it.

That is a very sweet feeling.

Growing Pains: Money Lessons We Should Have Learned

If only our earliest encounters with money, like getting a quarter for cleaning our room or a whole dollar from the Tooth Fairy, taught us what we would need to know about personal finance. Instead, we learned the hard way by growing up.

A lightbulb flickered in my head in fifth grade when I realized my $10 weekly lunch allowance didn’t need to be spent on cafeteria pizza. By saving $2 a week for two months, I could buy my first Backstreet Boys CD. It was a moment I’d never forget, for it finally dawned on me exactly what money was worth—anything I wanted.

Over the years, I traded school lunch for CDs, birthday money for movie tickets, and even college textbook money for new boots. The exchange value of money, as I like to call it, grew larger and grander as I moved into my early 20’s. I likely “exchanged” thousands of dollars before I graduated college, yet still hadn’t learned how to manage my finances. By the time I got my first job, I spent more on food and happy hour than on rent and found myself in serious credit card debt. Obviously, I still didn’t have a clue about money management.

As children we learn to spend and as adults we learn to save. Along the way, did we ever learn how to manage our day-to-day personal finances? Unfortunately, for most of us the answer is no.

Luckily, I’m older, wiser, and in less debt, and in the spirit of good karma, I’m sharing the five money lessons I wish I knew—and we all should’ve learned—growing up:

Financial Chore #3: Consolidate Your Debt

This post is the third in my series on knocking out chores to get your financial house in order.

What’s the best way to consolidate my debt?

Should I try debt consolidation?

Where can I get a debt consolidation loan?

It's not unusual for someone in debt to be making five to eight payments each month just to credit card companies. In that sense, debt is a lot like clutter. Even when you manage to make all the payments each month, it takes up an enormous amount of mental and physical energy just to keep up. 

DebtConsolidationCare.com, which offers free advice to consumers with debt consolidation questions along with a free debt consolidation calculator, lists eight benefits of debt consolidation, including a single monthly payment, reduction of interest, and stopping collection calls. All of those benefits lead up to the ultimate goal, however, which is to get out of debt. If you keep that goal in mind, it will be easier to make a choice about which option to pursue.

Yes, There Is Life After Debt

I’ve recently talked with a couple of women who are in the throes of a credit crisis. One is facing bankruptcy and the prospect of starting over at a time when she thought she would be retiring, while the other is trying to rebuild her credit rating after divorce. Both expressed enormous pain over their current situations, and fear about the future.

I didn’t have all the answers for them. I couldn’t consult a crystal ball to tell them where they would be in five or ten years. I simply offered my best advice about managing their debt and fixing their credit. But I also tried to encourage them. Neither debt, nor bad credit, has to last forever. 

Dump Your Debt and Reward Yourself

According to a recent article in USA Today, 63% of Americans worry about debt 1 – 3 hours a day; 22% of Americans worry about debt 4 or more hours per day and only 15% of Americans don’t worry at all. If you’re spending any time worrying about debt, it’s time to dumb your debt and reward yourself.

My husband and I just returned from two weeks in Hawaii and we flew free. We’ve been rewarding ourselves with annual trips to Hawaii courtesy of Alaska Airlines for many years. You’re probably thinking “What has this got to do with dumping your debt?” Before you reward yourself with a credit card that offers “rewards” of any kind it’s important to create a debt reduction plan and pay off your existing credit card debt. There’s nothing free or rewarding about paying interest to your credit card company every month.