Thursday | February 09, 2012
Interview with Bestselling Author Beth Kobliner
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By
Cara Newman, YOUNG MONEY Editor
17 March 2009
As the editor of Young Money magazine I get sent a lot of books promising to help people understand money and get control of their finances. Half of the time I am disappointed. But, when I read Beth Kobliner’s newest version of her bestselling book Get a Financial Life, I was thrilled. This was the book I had been waiting for; everything you need to know about saving, budgeting, credit cards, debt, insurance, owning a home, and much more is in this book. Plus, Beth completely updated the book to deal with the recession. I got the chance to talk to Beth and ask her about her background, writing her book, and about the most important things that young people need to know about money.
Tell me about yourself (background, experience). How did you become a financial expert?
I studied literature in school but got a job researching personal finance pretty soon after I graduated. That job was a crash course in everything from shopping tips to how to save for retirement. Over the years, I’ve talked to thousands of some of the world’s leading financial experts to get their take on what the everyday person should do with his or her money. One day, I noticed nobody was really focused on getting this information to young people, so I wrote Get a Financial Life.
Tell me about your book. Why is it so important for young people to read this book?
Even when the economy was doing well, young Americans were having a hard time getting ahead. They’re earning less than young people were in the 1970s, spending about 20% of their gross income to manage their debt, and their net worth has plunged 24% since 2004. And one in four has no health insurance. You have no power over whether the economy’s in a recession or not, but you can control how you spend (or save) your money.
What is the most important thing that young people need to know about money?
Interest can be your worst enemy or your best friend. That’s why it’s so lethal to pay off high-interest-rate debt on the slow schedule that credit card companies set up for you: you’ll owe money for years if not decades. But if you’re the one earning the interest, the power of compounding—which is when you get interest on your interest—will make your savings grow exponentially. And the younger you start, the more time you have for that to work in your favor.
Why is setting a budget so important?
If you spend more than you’re making, you’re literally living on borrowed cash and probably on borrowed time as well. First and foremost, breaking down your expenses by category gives you a way to see where you need to cut back. And by setting limits on what you can spend on various things, you’ll be able to track your progress and identify areas you still need to work on.
Can you share an example of how young people can start working on a budget?
Sites like mint.com and wesabe.com make it incredibly easy by giving you a top-down view of your checking and credit card accounts: every debit card purchase, every charge, every ATM withdrawal, every check, categorized according to how it fits into your life. From there, it’s up to you to look at each category and identify trends. Are you spending a lot more than you thought on food? How much could you save if you avoided the snack bar for a month?
What is the most important thing for a young person to do during a recession?
Small changes in your habits can make a big difference over time—even in this bleak economic environment. Keep an eye on where your money goes and make it a budget priority to build a cushion of savings for emergencies. Don’t spend more than you can afford. Pay your bills on time.
What is a safe way for young people to save money?
The bank is still the safest place out there. People may say you’re an idiot for only getting 1% to 2% in a savings account or CD, but the past year has shown us how vicious the stock market can get. The federal government guarantees that if you have less than $250,000 in the bank, that money will be protected in case the bank fails. (Check FDIC.gov for more details.)
You have a chapter in your new book about insurance? Can you give us an example of a type of insurance young people might not need and why?
Life insurance. You may have a relative who tells you to get a life insurance policy now because it will only get more expensive when you’re older, but if you don’t have kids or a spouse depending on your income, you don’t need it. Put that money in your retirement account instead.
In your book you mention that it is smarter to pay off your debt than save money. Do you have any rules of thumb about this? For example, what is the minimum amount of credit card debt that someone (without a lot of money) should try to pay off each month?
It really can be smarter to use any savings you have to pay off debt that charges you a high interest rate. In general, if your savings are earning less interest than what you’re paying on your debt, go ahead and cash out your savings and apply that money to what you owe. For example, if you have $400 in the bank earning 2% and you have a $400 balance on a credit card charging you 16%, your savings will only make you $8 richer this year while your card makes you $64 poorer—you come out with a $56 loss. But if you zero out that debt by using your savings, you break even.
If you don’t have any savings, there are still smart ways to attack your debt. Use any extra money in your budget to pay off your highest-rate debt first. (Usually, this will be a credit card and not your student loans.) Even if you’re only paying $5 a month more than what your lender is asking for, it makes a huge difference—about $300 in interest and five years of repayments over the life of a $1,000 balance on a typical card, for example. (Added tip: The minimum payments the card company asks for will go down over time, so lock in your current payment, add $5 and save even more.) Meanwhile, call the company and see if you can get a lower interest rate.
Do you have any basic financial guidelines you can share?
I’ve hit you with a lot of the big ones: live within your means, pay off debt as fast as you can, keep your savings in safe places. One last one:
Guard your credit score. It’s basically the GPA of your financial history and it follows you around for life. The biggest thing you can do to hurt your credit is to pay your bills late, so make sure you make all your payment deadlines. Even if you don’t want to sign up to have your bills paid automatically online every month, get your bank or utility company to send you email or text reminders.
Is there anything else that you would like to share with my readers?
You’re the generation that elected Obama. You can make anything happen if you set your minds to it. Whenever I talk to students, I’m blown away by the energy and the optimism that you and your peers have. Use it to your advantage!
Buy Beth Kobliner’s new book! The New York Times bestseller: Get a Financial Life
Visit www.kobliner.com
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