The Savings Game (Pt. 1) - Easy Credit
	The Savings Game (Pt 1) Easy Credit You're in a race against time. Ms. AUDREY SCHAEFER: One of the things that I feared most was becoming an old lady and eating cat food. HOLMES: It's your choice: Save now or work forever. Mr. JASON BRITTON: You reconcile what I want now vs. what I need later. HOLMES: Without a plan, you may be taking the biggest gamble of your life. Ms. NANCY THRALL: It's when it doesn't work, then is when you start asking questions. Mr. JERRY JACOBS: I didn't think I'd be working. I thought we'd be sailing. Mr. DENNIS JARMAN: It happened to me and I'm just a regular, everyday Joe. HOLMES: In the next hour, you'll hear from your neighbors as well as the nation's leading financial experts, learn how to invest in your future and win THE SAVINGS GAME. Announcer: And now a Choose to Save special, with Horace Holmes. HOLMES: Whether you like it or not, you are playing the savings game. But, unfortunately, we Americans are losing. Our personal savings rate is the lowest it's been since the Great Depression and more than half of us have no idea how much money we'll need in retirement. Today you can expect to live until the age of 85. That's 20 golden years that you need to be saving for right now. So how are you doing? Tonight we'll hear from some of your neighbors, people just like you trying to make ends meet. You can learn from their successes and their mistakes as well. We begin with Jennifer Cristofori and Jason Britton, two young people who were seduced by easy credit. Ms. JENNIFER CRISTOFORI: I was 17 when I started college. I turned 18 and probably a month later I got my first credit card. And all I needed was my student ID. You didn't even need to have a job, you know. I could pay for my books without any trouble and I could pay my library fines and I could pay my tuition and I didn't have to try to borrow money from family or--you know, it seemed like a good way at first to--to pay the bills. But it kind of spiraled out of control after that. Mr. BRITTON: When I was a freshman and I received my first card, I was using it responsibly. I used it to purchase things like tuition and books and things like that. And it turned into almost any purchase. You go to CVS, swipe the card, pack of gum. Didn't make a difference. Go to the movies. Charge it by movie--yeah, it cost $1.50 extra but you know the tickets are there. You don't have to wait in line. And there were--were all sorts of occasions and reasons that I created to use my card because it made me feel important, it made me feel free and it made me feel powerful. Because I had established credit, I was using the card responsibly, so I got a solicitation from every bank that you've ever heard of and some that you haven't. I went from two credit cards my freshman year to approximately 11 cards by the end of my sophomore year. Ms. CRISTOFORI: I was shocked. I was getting one like every three--two or three months and the balances were in the thousands and I was just shocked at how quickly that they got charged up, how quickly it added up and how it just kept exploding. You know, when I added it up and said, '$26,000? How's that possible?' That was more than I was making in a year at that point in time. Unidentified Cashier: And here's your change. Ms. CRISTOFORI: Thank you. Unidentified Cashier: Thank you very much. Ms. CRISTOFORI: I really thought that once I got out of school and started working that it would be so easy to pay them off. They tell you you're going to make so much money coming out, with your accounting degree, which is what I'm getting, so--and I just thought that--that it would be no problem. Mr. BRITTON: I knew that all I had to do was make it through, just graduate. I was going to get a great job. I was going to have tremendous opportunity and then the--you know, the $5,000, $10,000, $15,000, $20,000 I had on credit cards didn't make any difference because I was going to make so much money my first year out, I wouldn't know what to do with it. Even as I approached the end of my sophomore year and the beginning of my junior year and I was carrying 11 cards and $10,000 in debt, I still didn't think I had a problem. I still thought, 'I'm making the monthlies. I'm not getting late notices. I'm not missing payments. I'm not over the limit. I don't have a problem. Everything's fine.' Ms. CRISTOFORI: By the time I was 23 I had accumulated 13 credit cards and $26,000 worth of debt. I'd pay half the credit card bills the first half of the month, say, $30 on each. Then I would go, take a cash advance for that same $30 I just paid and then I would use that to pay the other half of the credit cards for the bottom of the month. Mr. BRITTON: If I pay all these minimum monthly payments, one, I haven't even dented the principal. I still owe them, you know, $5,000 or $1,700 or whatever it was. I still owe them that money. I'm just paying for the right to continue to owe them this money. Ms. CRISTOFORI: When I realized in--I was in trouble, I first went to the Credit Consumer Counseling Service. I had seen them in a magazine ad. I brought all my credit card statements to them and asked them for help and they examined them and concluded that I didn't make enough money to make the payments on all of these and they, in turn, advised me to go to a lawyer to seek out bankruptcy. It's a sad thing. And I didn't really--I really didn't want to file for bankruptcy. I struggled with it for a couple of months or more after I met with the lawyer because I always felt that I should take care of my responsibility. I didn't want to just say, 'Here's my $26,000, you take care of it,' and just go off scot-free. You know, I've been working for five years to try to repair that, so I'm still repairing that and there's five more years still on my credit before it will go away. Mr. BRITTON: I never approached my family about my credit card debt because I was tremendously ashamed. I knew that what I had done was wrong. I knew that I had done something that they would not have agreed with and I didn't realize that for four years of fun, I might have put myself in a position where I had to give up retirement or I had to work an extra five or six years at the end of my life as opposed to being responsible now. Ms. CRISTOFORI: I got engaged a couple of months ago to Kelly and we're going to be married this December. He's great. He is a chef, catering manager, and he's helping me through this and helping me to get myself back on my feet. Mr. BRITTON: I currently use no credit cards whatsoever. I cut them all up and I froze all of them and I'm making the payments. I don't use a single credit card. I have a Visa debit card that's linked directly to my checking account and that's it. I will not spend another dollar of money that I do not have. Ms. CRISTOFORI: It's kind of scary. You know, we try to--we're looking at our guest list. We're like, 'OK, well, can we just cut our guest list down and try to save money?' It's like so many different ways we're trying to reduce what we spend now so that we're not going into our marriage with so much debt already. Mr. BRITTON: I'm not saving for retirement because right now the dollars just aren't there. The monthly income and the monthly expenses are just about the same thing right now. There are places that I could scrimp and that I could save, but to live a particular way in 50 years is not worth to me now, you know, having to live now like a pariah, walking to work, not eating meals out, not being social with my friends, not basically what I would consider living my life; thinking that, 'Well, maybe when I'm 50 or 60, I'll have money and I'll be able to do things.' Well, I won't want to do things then. I'll be 50 or 60. Ms. CRISTOFORI: Seeing my mom struggling with retirement has made me really realize that I need to think about it early. I don't want to wait until I'm 40 or 50 to start saving. I need to start saving now. And I even feel the amount I'm putting now isn't enough and I try to increase it at least every year. Mr. BRITTON: Well, I--I think it's like anything else in life. You reconcile what I want now vs. what I need later. I--I would love to--to stand up and say, you know, I--I'm cured, that I--I have this problem and it's over now, but it's not. HOLMES: Now let's welcome our guest. Tom Gardner knows a lot about the seduction of easy credit. He knows a thing or two about saving also. Tom is a hometown success story. He and his brother created the popular Web site on finance called The Motley Fool. They have also written four best-selling books on finance and investing and their motto is to 'Educate, enrich and amuse,' and they do it all from their offices in Alexandria, Virginia. Tom, thank you so much for being with us. Let's start with amuse and explain the hat. Mr. TOM GARDNER (The Motley Fool): Well, I think for a lot of people, the subject of money and finance is a very boring one, very distant from their daily lives. It feels like an academic issue that they didn't enjoy in school. They had that long economics textbook and it was a deadly experience for them in class. What we see when we see our money is our future opportunity and it's important for people to be in control of that opportunity. So we wanted to mix in a little bit of sugar with the medicine, a little bit--a little bit of foolishness, keep them involved, make them realize, if you start today, even with a small amount of savings, you're going to have a lot of fun in life being in control of your--of your financial situation. HOLMES: Couple of folks who haven't had fun and may be out of control in their financial situation, Jennifer and Jason. Jennifer, $26,000 in credit card debt; Jason, somewhere over $10,000--$10,000-$13,000 in credit card debt. Are they the exception or the rule? Mr. GARDNER: They're somewhere in between. I mean, they are not actually the rule because that's a lot of debt that they've run up. That--that's pretty unique to have double-digit credit cards. And to have $10,000 or more in credit card debt at that age is unusual. That said, the average college student today has about $3,000 in credit card debt and more than one card. So this is something that is very, very common for young people, particularly 'cause they don't have an income in college, but they also really get those--those solicitations in the mail their first week their freshman year and they--they--it's part of personal freedom and it feels like economic opportunity to get that credit card, but it really creates so many heartaches for people who haven't been taught how to use it as a tool, how to be careful with it. HOLMES: $3,000 in debt with no income is not a good combination. Mr. GARDNER: That's right. Particularly at the high interest rates that credit cards charge people today. I mean, we're in a low-interest-rate environment. We're still--even with interest rates kind of creeping up, we're still at near 30-year lows here, so there's no way a credit card should be--company should be charging somebody 15 percent interest or 20 percent interest, but that's the norm, even for adults, for the parents of these college students. And what people need to realize is they can negotiate those interest rates. And Jennifer and Jason, with any credit card debt that they have remaining, they should be calling up the card company and saying, 'You know what? Fifteen percent is too high. Drop it to 10 percent or I'm going to move my business to another credit card.' It's a single phone call that could save them years paying down that debt. HOLMES: And it's just that simple. And that goes for anybody? Mr. GARDNER: That goes for anyone. And that's--that's something the banks don't want you to hear. They don't want you to be out there realizing that, 'Hey, we're overcharging you,' which is what the banks are doing. And, again, you nibble it down from 15 percent down to 10 percent, you may be saving two years in paying down that debt. It can be a very significant way to get out of--out of trouble. HOLMES: One of your missions is to educate young people about finances and get them to save and invest as much money as they possibly can. Mr. GARDNER: That's right. I think young people today don't realize that if they could put away just $300 a year--just $1 a day--start that way, put that money in the market--and they did that consistently for 50 years--I know that's a long period of time but we're talking about $1 million. That--that's--that's the path to a millionaire--to the life of a millionaire. HOLMES: Let's talk about Jason and his strategy. He's not even thinking about investing at this point or even saving for retirement because he's putting all of his efforts and all of his money in paying down that credit card debt. Is that the right strategy? Mr. GARDNER: It is the right strategy because the--the interest payments that he's making on that credit is probably something on the order of 18 to 20 percent, given that he's run up so much debt. Now the two things he should do--the first is he should call his credit card companies up and let them know those interest rates are too high. He should be down around 12 percent. But then the second thing is he's getting tax-free growth from paying down the credit cards. That's the best way to go. That's--that's the scourge of consumer finances in America is the credit card. You can't start investing until you've gotten rid of that. But when he--when he's gotten rid of it, he needs to realize again that he doesn't have to live a very poor existence. You know, the same--the same pair of boxers for three months. He can actually live a normal life and if he could put away $10 a month or $20 a month, he's really getting on the road to--to middle-age financial security. HOLMES: The worst-case scenario is what Jennifer has unfortunately had to deal with, but a reality for people who get in over their heads, and that's dealing with bankruptcy. How difficult is that and how long does that stay with you? Mr. GARDNER: In--in some ways it's a nightmare because it's on your credit. I mean, it hampers your opportunities for certainly a 10-year period. Now it's not the end of the world and a lot of people are stepping up and declaring bankruptcy to kind of clean the slate and start over again. I think that's going to get more difficult in the US. I think there's legislation out there that's saying, 'Let's make it a little--a little more difficult for individuals to clean the slate like that.' In--in the case of Jennifer, though, where she is now, she's--she's on track. She's beginning to save. She's looking at the discipline. She's studying her foundling experiences and how that's affected her decisions about money, and that's great. HOLMES: So because they're young, there's still a lot of hope for them? Mr. GARDNER: The average person is living to about the age of 80 today and that means that these people have five and a half decades ahead of them to save and see that savings grow at 10 percent a year, which could be dramatic for them in their 40th and 50th year on this planet, so they should start now, start small, learn as much as they can about the subject, realize that they're going to have some big financial transactions down the road. HOLMES: Be wise or--or perhaps be foolish. Mr. GARDNER: Always be foolish. HOLMES: Tom Gardner, thank you so much for being with us. Mr. GARDNER: Thank you, Horace. HOLMES: We'll be back in just a minute. Mr. IVAN SOLANO: Up to this day right now, we--business has just been growing. I haven't seen any decrease or decline. It's just been growing. HOLMES: So you would say the chicken has made you rich? Mr. SOLANO: Yeah. (Graphic on screen) School Days Two thirds of high school and college students say they do not know as much about money management as they should.