Our guest this week is personal finance columnist and author Michelle Singletary. Singletary writes the nationally syndicated column "The Color of Money," which appears in The Washington Post, as well as in dozens of other newspapers nationwide. She's also the author of three personal finance books. The most recent was called The 21-Day Financial Fast: Your Path to Financial Peace and Freedom. Singletary is a frequent guest on TV and radio, and she was host of her own national television program, "Singletary Says," on TV One. She is a graduate of the University of Maryland at College Park. She has received the Distinguished Alumni Award from Johns Hopkins University, where she earned a master's degree in business and management.
Financial Impact of Pandemic "Michelle Singletary Answers Viewer Questions About Pandemic Finances," PBS NewsHour, April 30, 2020.
"What Coronavirus Fears Could Mean for Personal Finance," by Audie Cornish and Michelle Singletary, NPR, March 9, 2020.
"Didn't Get Your Stimulus Payment? Here's How to Find It," by Michelle Singletary, The Washington Post, June 2, 2020.
Get My Payment, IRS.gov.
"IRS Stimulus Checks Are Going to Dead People, While Needy Go Without," by Michelle Singletary, The Washington Post, April 21, 2020.
"Stimulus Prepaid Debit Card Is Causing a Lot of Confusion," by Michelle Singletary, The Washington Post, June 1, 2020.
"No, the IRS Should Not Try to Claw Back $1.4 Billion Sent to Dead People," by Michelle Singletary, The Washington Post, June 26, 2020.
"The IRS Just Made It Easier to Take Out a Loan or Withdraw Money From Your Retirement Account," by Michelle Singletary, The Washington Post, June 23, 2020.
"Trust Me: You Need to Start Saving Now So You Can Fly Last-Minute to Be There for Someone You Love When the Time Comes," by Michelle Singletary, The Washington Post, Nov. 9, 2019.
"Rent, Mortgage, Car Loans, Utilities and Child Support. The Other Bills Can Wait," By Michelle Singletary, The Washington Post, April 4, 2020.
Racial Wealth Gap "The Racial Wealth Gap in America," by Michelle Singletary, Alanna McCargo, and Michael Neal, The Washington Post, June 18, 2020.
"Coronavirus Could Widen Black Wealth Gap," by Michelle Singletary, The Washington Post, June 13, 2020.
"The Black-White Economic Divide Is as Wide as It Was in 1968," by Heather Long and Andrew Van Dam, The Washington Post, June 4, 2020.
"75 Must-Know Statistics About Race, Income, and Wealth," by Christine Benz, Morningstar.com, June 8, 2020.
"Income and Wealth Inequality in America: 1949-2016," by Moritz Kuhn, Moritz Schularick, and Ulrike I. Steins, Federal Reserve Bank of Minneapolis, June 14, 2018.
"New Data Suggest COVID-19 is Widening Housing Disparities by Race and Income," by Solomon Greene and Alanna McCargo, Urban Institute, June 2, 2020.
Diversity in Financial Services "Wall Street Says It Cares About Diversity. But Most Big Banks Won't Share Complete Workforce Data," by Renae Merle and Jena McGregor, The Washington Post, Dec. 6, 2019.
"Diversity and Inclusion: Holding America's Large Banks Accountable," U.S. House Committee on Financial Services, February 2020.
"Six Charts That Illustrate the Financial Advice Industry's Lack of Diversity," by John Kador, WealthManagement.com, July 19, 2017.
"Three Reasons You Don't See People of Color in the Financial Services Industry—and How to Fix It," by Alessandra Malito, MarketWatch, June 23, 2020.
Paying for College "Community College Should Be a First Choice, Not a Last Resort," by Michelle Singletary, The Washington Post, July 16, 2019.
"The Worst Thing You Can Do for Your College-Bound Teen Is Saddle Them With Student Debt," by Michelle Singletary, The Washington Post, Nov. 16, 2019.
"How to Pay for College During a Pandemic," by Michelle Singletary, The Washington Post, May 16, 2020.
Budgeting "Here's One Way to Stop Living Paycheck to Paycheck," by Michelle Singletary, The Washington Post, Jan. 13, 2019.
"It's Still Crucial to Budget, Even When Your Money Meets Your Needs," by Michelle Singletary, The Washington Post, June 25, 2019.
"When Family and Friends in Your Social Network Lack Good Financial Judgment, Do You Butt In or Butt Out?" by Michelle Singletary, Deseret News, Oct. 23, 2019.
Jeff Ptak: Hi, and welcome to The Long View. I'm Jeff Ptak, global director of manager research for Morningstar Research Services.
Christine Benz: And I'm Christine Benz, director of personal finance for Morningstar, Inc.
Ptak: Our guest on the podcast today is personal-finance columnist and author Michelle Singletary. Michelle writes the nationally syndicated column "The Color of Money," which appears in The Washington Post, as well as in dozens of other newspapers nationwide. She's also the author of three personal finance books. The most recent was called The 21-Day Financial Fast: Your Path to Financial Peace and Freedom. Michelle is a frequent guest on TV and radio, and she was host of her own national television program, Singletary Says on TV One. She is a graduate of the University of Maryland at College Park. She has received the Distinguished Alumni Award from Johns Hopkins University, where she earned a master's degree in business and management.
Michelle, welcome to The Long View.
Michelle Singletary: Oh, you're so welcome.
Ptak: To start off, you spend a lot of time answering questions from consumers. Have the various attempts to provide economic relief to people who have been affected by the virus been sufficient in your view?
Singletary: I think for the vast majority of people who received the stimulus payment, it has helped them. I've heard from many people from across economic stratas. So, people who are working low-wage jobs, even professionals who have lost their jobs or their hours have been reduced. And they all said those who have received their payments said it did help with rent or mortgage or paying some bills or food. And so, it was a breath of financial air for them.
Benz: You've been writing a lot about the various glitches that people have been experiencing with respect to these stimulus checks. Can you summarize the state of the state with this today and what some of the main issues and logjams have been?
Singletary: Yes, to the IRS' credit and Treasury's credit, they did have to get a lot of money out to a lot of individuals over a very short period of time. I think the last number I saw was 159 million payments worth $200-plus billion. So, that's a lot of payments in just four or five weeks. But there were a lot of glitches along the way. They created two online tools to help people receive their payments. So, according to the CARES Act, if you filed a 2018 or 2019 federal return, and had a refund, that you were sort of clear sailing--you'd get your money in the same account that you got your refund. If you didn't file because you maybe didn't earn enough income or you were on Social Security or maybe for whatever reason, then you had to use these two different tools.
One is Get My Payment. So say you had to pay taxes for 2018 to 2019. The IRS was not going to be using that bank account. I know it sounds crazy, because everybody has written me like that makes no sense. They have the bank account information. But the IRS interpreted the law is that they had to get your permission to put money in an account, which you gave when you gave them refund information for a direct deposit. So, if you had a tax return, in which you owed, then you had to go to this tool, Get My Payment, which was a disaster when it first launched. I mean, it was glitchy, people couldn't get information in, and then you had to be exact in how you put information in. Like, if you capitalize your street and they have it in their system as a lowercase, it might not have gone through.
And then, the second tool was for non-filers, those are folks who did not file for 2018 and 2019 and didn't have to because they didn't make a lot of money. And so that is now the challenge is to get money to those folks because the IRS doesn't know that they're out there. And so they have to use this tool. Well, a lot of people who probably use it may not have Internet access right now. And then there was another group of federal beneficiaries, those who receive Social Security, or Social Security Disability as supplemental SSI, or veterans' benefits or railroad retirement benefits. Now, that was a disaster. Because IRS and Social Security--their systems don't talk to each other. So, the IRS had to go get information from the Social Security Administration, and it was just--it's still a mess. I'm still hearing from retirees who haven't gotten their stimulus payment for just a number of reasons. Maybe they filed a 2018 return or 2019 return and had to pay. So, the IRS is looking at that information as opposed to Social Security information. So, it's just a hot mess for a lot of people still.
Ptak: One thing that we've seen in this crisis and in previous ones is that people have a hard time amassing an emergency fund to help them through job loss or other financial shocks. Do you think our system should make it easier for people to amass an emergency fund in addition to the incentives we give people to save for retirement?
Singletary: It is definitely an issue. And let me tell you this, we often talk about the lack of savings. And right away people think, Oh, it's lower-middle-income folks who don't have it. But let me tell you that a lot of the people that I work with through my community involvement, make six-figure salaries. They have a 401(k) or a 403(b) and they're saving for retirement and they have no cash cushion. They are living paycheck to paycheck. And so, this pandemic hit them hard too--maybe they have reduced hours, or they are trying to help other relatives and they have nothing to pull from. And so, it's so crucial to have that emergency fund at all income levels. And it's sometimes harder to persuade people who are making good money to save because they've got this fat paycheck that is for the most part covering everything, and they don't feel like they need to put aside money in an account that's not earning anything.
Well, many of those people have lost their job during the pandemic. If you worked in the service industry or hospitality, and maybe you had a middle-level position as a manager or something, and now you're not working, that fat paycheck isn't coming in and now they're eyeing their retirement accounts to tide them over. And so, I'm hoping that they get the message that no matter what you earn, you have to try to save something. And obviously, if you don't make a lot, that's harder; but if you make good money, you need to use this pandemic of what happened as a wake-up call that you need to make sure you have a cash cushion. Even as you're saving for retirement and investing, that you still need to have liquid cash so that you don't have to tap those portfolios before you're ready in your retirement years. Because if you had to tap them now in the markets down, that's heartbreaking that you would have to tap that money.
Benz: That's what I wanted to ask about, because the CARES Act did loosen up the restrictions around tapping 401(k) or IRA assets prior to retirement for people who have experienced hardship related to COVID-19. So, do you think retirement savings should be more accessible prior to retirement, less accessible? I know there are different schools of thought on this topic.
Singletary: You know, I waver on this and I really waver on anything because I'm a very black and white kind of girl. But I think for lower-income families to persuade them to invest for retirement, there has to be a mechanism where they can easily tap that money in times of trouble because they are hit first. When there's a storm, when there's a crisis, they get it first before anybody else. And I've heard from this community; I'm part of this community who say, I don't want to lock up my money in retirement in case I need it. Obviously, we want them to do both--have some savings in retirement. So, I think that we do need to have some things in place. And we do. Many companies allow people to borrow from their retirement. There's a penalty, however, if you take it out, as you well know and many of your listeners know, before you're 59.5.
And so, some of the things that came into place because of CARES Act I think was a good thing. Because the reality is, even though we preach, please don't touch this money; keep it there as best you can. But this is a once-in-a-lifetime major crisis. And I don't think we can wag, or should we wag fingers at people for having to tap that money if they haven't had savings. This is not the time to say you should have had savings. This is the time to make it easier for them to tap the money they need to keep a roof over their heads and food on their table. And so, the CARES Act allows people to pull money out either through a withdrawal or a loan and then, without that penalty, that 10% penalty for the withdrawal. And then it gives them an opportunity to pay it back over three years, whether it's a withdrawal or a loan. And I love that. And with a loan, there are no payments. I think it was six months or a year, I can't recall right now. I think it's a year. So, it gives them time before they have those payments kick in. And I think that was the right thing to do, to let people tap that. And as I've written, now, if you feel like you have to do that, please only take what you absolutely need, because you still got that tax hit facing you, even if you don't have to pay that 10% penalty.
Ptak: Say someone who's listening is in a financial crunch. They've suffered an income reduction or perhaps they've lost their job and don't have enough of a cushion to help them through. What advice do you give people in that situation right now? How can they make the least-bad choice?
Singletary: The first piece of advice may surprise people. I think that you need to take some time to breathe, get some therapy, talk to someone. Because if you've been working all your life and you're a hard worker, which many people are, losing your job or being furloughed, or having your income cut because your hours have been cut, can be devastating to your ego and to your pride. And you need to grieve that. Spend the time that you need to grieve that. And then, don't take too long because now you've got to make some hard decisions. And as I've written in my column in The Washington Post, I thought about this in the sense of an emergency room. And so, I've encouraged people to triage their bills. So, if you've ever been in an emergency room that's been really crowded, you may come in with a sprained ankle, and you might be sitting there for an hour and someone comes in and they are immediately taken to the back and you're sitting there going, wait, wait a minute, I was here first.
But you know in those situations, the hospital does something called triage. They treat the most critical patients first--that person came in maybe having a heart attack. Of course, they should go first. And you need to look at your bills the same way. If you have lost your job at whatever income level, because it's just as devastating if you're making $20,000 or if you're making $200,000, then you need to say, I can only pay the essentials, the necessities--that's roof over your head, food on the table, utilities, and if you have a car loan. So that way you can maybe look for another job or part-time job. And then everything else has to be put on hold, especially your credit card debt. If you've got credit card debt, call the lenders; ask for forbearance or payment pause. I'm not suggesting that you ignore it and not take care of it. But if you don't get help from them and they won't let you--but many have--then you can't pay that bill. And I know for many people that is just heresy, because they're like, "What? I've always been paying my bills on time." You got to step out of that. You're in the emergency room now. You are the critical patient with the heart attack, and you can only do a certain amount. Pay what's necessary.
If you've had some disruption of income, but you're still making a good check, try to keep everything going, but only the essentials. Say you had a lot of credit card debt, and you were on an aggressive debt-payment plan where you're trying to get rid of it--pull that back and just make the minimum payments, because you need to free up that cash. And then, if you're working and your income is OK now, this is the time to take maybe those savings that you're having--you're not commuting maybe, you're working from home, you're not eating out, you're not spending on a credit card--take that and build up your savings account and/or increase your retirement savings.
Benz: Well, that's what I wanted to ask about. Do you think apart from the people who are in dire straits for various reasons, do you think that for people who are still working, the current crisis might have some positive side effects in terms of forcing them into some discipline around saving, because there just aren't that many opportunities to go to restaurants and do things that they would otherwise spend money on?
Singletary: Absolutely. There are so many people in this terrible crisis who have seen a silver lining. They have seen their expenses go down, so they actually can see that they have the money to save. Just to give you an example, my niece and her husband, he has some student loan debt, and they're good savers, and they live below their means. But he's got some student loan debt. And they called me up and they said, what should we do because they're offering us this pause, but we have all this extra money because our kids are not in daycare--so they're saving on that. And I said, oh my gosh, don't take that student-loan forbearance; take all that money and pay down that student loan, because right now anything you put on that student loan is at zero-percent interest, which means all your payments go to principal. And I worked out a plan with them that over the next six months they can get rid of that student loan debt by all the savings they have every month--not eating out, childcare, all the things that I mentioned. And so, they were like, are you serious? I said, absolutely. By September, you could have all that debt gone.
And then, there are other people that I've worked with who were out and spending and planning for vacation, right? Lots of people have canceled vacations. They've taken that vacation money--and I have talked to so many people who have gotten out of credit card debt or greatly reduced some of their debt by all the money that they're saving because of the stay-at-home orders.
Benz: I want to talk about financial helps, because I assume that some of our listeners are people who are in good financial shape, but they have loved ones in their lives who are struggling. So, how can they balance helping alongside making sure that they're not jeopardizing their own financial well-being? And this is really an evergreen issue. I'm sure you encounter a lot of older adult parents who are retired who grapple with how much to help adult children. How do you approach that topic of financial help?
Singletary: So, when it comes to financial health, and I'm sure your listeners maybe have heard this analogy, but if you have just act like you haven't heard it before. So, when I was a new parent, for the first time I flew on an airplane with my infant child, I remember the flight attendant saying: When the oxygen mask drops down, if you're with a child--or somebody acting like a child--to put your mask on first and then attend to your child. And my motherly instinct right away was like you are out of your mind. I am going to take care of my child first. And as they kept going with the instruction, she said: Because if you're gasping for air, you're both going to pass out because you then won't be able to help your child or yourself. And that's the same thing with your financial health. You have to first make sure that you've got your emergency fund, that you have your financial house in order, and that you're saving for retirement--you've done all the things, you're paying down your debt. And then, if you have extra--and many people do--you give from that extra. You give from your abundance, because you can't forgo paying your mortgage payment or your rent payment or something to help someone else. Make sure you're financially healthy because then maybe they come live with you. And so, that's what I tell people. Give out of your abundance, give out of your extra. And you ought to actually have a plan for that all the time.
My husband and I have always had a "give out of our extra" fund. We actually have a bank account where we put money in to help relatives. Certainly, no one could predict it--well, I guess some people did predict the pandemic--but there are times when you know that people that you love, and friends and family, are going to be in financial trouble. And if you are that person who has a giving heart, then just plan for it. And so, once you've taken care of your financial health, you're making sure that you've got your oxygen mask on, then come up with a plan to help other folks. Because you don't want to give so much that it hurts you. But you also don't want to enable bad behavior. But right now, people are in such dire need, I think you need to not worry about whether somebody was financially irresponsible. You need to just reach out and help.
And if you're concerned they might not use the money properly, what we do is when we help people, we pay the vendors or the creditors directly. So someone you know has lost their job, and they can't make their rent, just pay the rental office yourself if you're worried about someone who may not have been financially responsible. But I really do believe that this day and this crisis, that if you can, you should, because I truly believe to whom much is given much is required.
Benz: I want to talk about wealth and income inequality, because COVID-19 has had a disproportionate impact on people of color, not just in terms of the virus, but also in terms of the economic impact. So, you recently wrote an article in which you argued that coronavirus could widen the already-wide wealth gap for people of color, especially with regard to housing wealth. So, let's talk about that. And I'd like to get your thoughts on whether the 2007 through 2009 Great Financial Crisis is instructive in terms of what we should expect to see this financial crisis.
Singletary: Right. So, I wrote about a report out of the Urban Institute Housing Policy Center. And so, they were looking at past crisis, past storms, and how they impacted homeownership for African Americans. And they looked at the Great Recession and Hurricane Katrina--Katrina was in 2005 and obviously the Great Recession 2007 to 2009. And so, they looked at it and sure enough, it impacted it in the sense that homeownership went down because homeownership obviously is connected to jobs, and we know that in all of these storms--the Great Recession, Hurricane Katrina, and now even COVID-19--that the frontline workers, those low-income workers, many disproportionately made up of African Americans and minorities, they lost their jobs first. And so, they're going to be unemployed longer, and they're going to have a harder time on the back end of this becoming employed again. And so, all of that impacts your ability to get a home loan.
And then, there are other factors--there's still employment discrimination; there's still a huge pay gap. African Americans with the same resume, same job history are less likely to get a call back for a job than white Americans. We see study after study that shows that. And so, they can't recover as fast. And without a job, without employment, without equal pay, it impacts their ability to buy a home. And we know that home equity for most Americans, even though Morningstar is all about investing, but we know that most Americans, their net worth is tied up in the equity in their home.
When I looked at this report, one of the things that was just disheartening is that in 2020 the homeownership rate for African Americans is about the same as it was when housing discrimination was legal. And that's pretty tragic. Because it's through home equity that families are able to leave money to their heirs, maybe borrow from it to help somebody with a down payment, even though I don't recommend that. I'm not a big fan of pulling equity out of your home other than for mandatory home improvements. But yet it is there for you in times of trouble that you can tap. It's one of those things that we say don't go tap your retirement fund; don't tap your home equity. But then there are cases where you do have to do that. Maybe you're not tapping it for yourself, but you're trying to help extended family members, but at least it's there. Well, we do know that because of, again, discriminatory practices, African American homes in similar communities with the same type of amenities don't appreciate the same as that home in a predominantly white neighborhood. We feel that COVID-19, because it hit so quickly and it hit so hard, and we may be dealing with this for another 18 months to two years, it will surely impact the ability of African Americans to buy a home.
Benz: Michelle, I was struck by that same statistic that you referenced that African American homeownership is now about 41%, close to where it was when race-based housing discrimination was legal. So, for some context, the rate of homeownership among whites in the U.S. is over 70%. How does this get better? What are the prescriptions that you favor? Are they policy prescriptions? How do we address this?
Singletary: Well, we address it on different avenues. There has to be a convergence of a lot of things. So, right now, or at least as of 2018, the homeownership rate for African Americans is about 41% and as you mentioned, over 70% for white Americans, I think about 72%. And so, two avenues--one, definitely policy. Perhaps, home down-payment programs to make homeownership more accessible to people who are making; looking at lending and making sure that there's no discrimination in lending. We still don't have as much data as we need to look at to see if there are any differences in the interest rates that are being offered to African Americans. We saw, for example, during the Great Recession, that there was a lot of predatory lending going on. African Americans with the same credit profile, income, everything being as equal as it can be, getting loans at a much higher rate and at those funky mortgages where you could pause a payment and no documentation, and all kinds of craziness compared to white Americans. And so, we need to be sure that homes that are similarly situated in Black neighborhoods are not appraised at a lower value than homes in white neighborhoods. So that's the policy side, encouraging--and I should add this in, just affordable--housing for one thing; it's not just having the policies in place but making sure people can get homes at an affordable rate.
And then, on the personal side, obviously, more financial literacy, trying to help people understand when is the right time to buy a home. Like right now, one of my top questions people are asking me is should I buy a home, the interest rates are low, the prices are down. And my standard answer is, you should buy a home when it's the right time for you to buy a home. Don't look at the interest rate, don't look at what the market is doing, because none of that's going to matter if you're not prepared for that mortgage. And when I say prepared, now, I'm rough, right? I'm rough. People don't want to ask me should they buy a home, because I'm going to just hurt your little heart. So, if you've got a lot of student loan debt, you've got credit card debt, even a car loan, I just think you should get rid of all of that before you buy a home.
Now, I know people who are listening thinking, well, then none of us will own a home. But I don't want people dragging six-figure student loan debt into a home. I don't want them dragging credit card debt into a home. I want them to have an emergency fund before they buy a home. Because anybody who owns a home knows it's a money pit and you need resources to be able to maintain that home and stay in it when there is a crisis. I don't want you to go into a home when you have so much debt that if a crisis hits and you lose your job, you're going to be in trouble right away. I need you to have a cushion, and that may mean putting off homeownership for a while. I'm a big believer in homeownership, but at the right time. I think that's so important to look at--when is the right time for you to own a home. And oftentimes when we look at homeownership, we compare it to rents and the mortgage. But there is so much more to owning a home. And it's not an even comparison. Because if my toilet breaks, I got to pay somebody to come in. If my heater breaks, I've got to replace that. If you're in an apartment, your landlord is responsible for that. And then in times of crisis, if you can't afford that rent, it's not ideal. And I'm not suggesting you do this if you don't have to, but you can pick up and move. You will still owe that, but you don't owe it right away. You can take care of it, it will be a debt, but you can at least find other housing. You're kind of stuck with a mortgage and it makes it much more difficult to pick up and move to even go where the jobs are if you've got to try to sell a house in a market that's down. And so, I think those are the things that we have to look at when we look at homeownership. But we do know that homeownership is one of the keys to closing that wealth gap among African Americans. It's not the only key; it's not the top key; it's one of the keys.
The other ones we talked about earlier in the interview--employment, making sure there's as much as we can getting rid of employment discrimination and closing the pay gap. All of those things together will help close the wealth gap between African Americans and white Americans. And someone might be saying, why should I care about that? Because let’s be real, people will ask that. Because when we are all able to live well and have a living wage and be able to pass on money to our heirs, we all are better for it. When you have a society where the wealth gap is so huge, we have a situation like we have now--where when those folks fall, it brings all of us down, and we don't want that. There is enough for everybody.
Ptak: You mentioned student debt. For a lot of young people just starting out, taking out loans to fund higher education seems completely logical--the connection between education and income is clear. But how can young people of color thread that needle, investing in education without over-borrowing and saddling themselves with more debt that they can reasonably handle?
Singletary: Yeah, that's a great question. It's a question for everybody, not just African Americans. But we do know that African Americans end up having to borrow more because their family has less to be able to help them with and then when they borrow, they end up not being able to finish because they can't borrow enough. It gets to a point where it's too much and they drop out. So, then they have the debt and no degree, and that puts them further behind. And so, what I try to encourage while we're trying to have policy changes where we need to increase--the Pell Grant, which is the grant for low-income families, we need to have more scholarships and aid, state aid. We know that many states pull back from helping their college systems. So, until that happens--and it absolutely needs to happen--we cannot put all of this on families, particularly minority families who are already struggling for a number of reasons. But what I try to encourage people is that let's look at college in a different way. You can have the same college experience as we seem to normalize. So, you maybe go to community college for two years, and then transfer to the four-year university; perhaps you commute instead of live on campus. Or you maybe take a year off and work and save a little bit and then go. I mean, they're all ways that we need to look at it, because all they hear is go to college at any cost, any cost, but it's too high for them.
And the same applies for everybody. Many people send their kids to school and rack up an amazing amount of debt for themselves and their children. And I just think that is a huge mistake. These adults starting off their lives with this burden of debt, which then prevents them from saving for retirement, taking advantage of their 401(k) and delays homeownership, which we know helps build equity. So, it's like a domino effect. We need to make sure that all the dominoes are lined up and that they're not tipped over by different practices.
Benz: So, a related issue is that people of color tend to be underrepresented in the financial-services industry. The Bureau of Labor's numbers indicate that 82% of financial advisors are white. So, what are the implications for people of color seeking advice from this industry?
Singletary: Well, you know, they don't get good advice, right? It's such a tough thing, because for a lot of people, it's hard for them to pay for financial advice. It seems counterintuitive to them that I should pay someone to help me make money. But I always tell people, if you have a toothache and you need your wisdom tooth pulled out, you're going to pay a dentist to do that; you can't do it yourself. And for many people, understanding how to invest and how to make sure your portfolio is well balanced and diversified, and like right now, that your portfolio is situated. That yeah, you might have to take a loss, but long term you're going to still be OK because you have the right amount of assets at the right level. And people need help with that.
The financial industry has always sort of shunned African Americans, thinking they don't have money--and there are some that don't--but there are a lot who do, and they need help. But they didn't think to look at their pricing models. They have to figure out a way to price it so that people don't feel that they have to pay $10,000 for a financial plan, which they just can't afford. But eventually, you can make money off these clients, reasonably priced services, over time if you work with them from the time that they start their full-time job until when they have more resources to put into investments. And people like to see people who look like them. They trust them. There are certain dynamics of communities that you need to understand. There are certain things you can and cannot say that people will be skeptical about, because let's not forget that African Americans were taken advantage of for decades, and so they're very leery of financial planners; they are very leery of banks; they are very leery of government for right reasons.
So, you have to understand that. You've got to come at them in a different way. You've got to go where they are--whether there's some sort of convention hall, they go to church, they are in the community center. That's where you have to go to reach out to them. My husband and I have had a financial planner, I don't know, 15 years or more. And we had an African American financial planner, and I'm telling you, I'm not joking, I sent her an email before this all came crashing down--I was going through some paperwork and I saw her plan for us from about 15 years ago. And we followed every piece of her advice and we are in such better shape. One of the things that she got us to do is not be so conservative in our portfolio, because I was like I'm only going to be in bonds. I don't know about you all, but I'm not going to be in the stocks. And she was like, no, no, Michelle, you've got to do this. You can't be so scared. Because that's all I learned from my grandmother. My grandmother was all about savings bonds and CDs. She just had savings products; she saw nothing else. And so, she got me to realize that that was not going to give me the growth that I needed. And she encouraged us to save for our children in a 529 plan. Even though I work in personal finance, when I first started, I didn't know a lot about it. And she talked me through it, and we opened up 529 plans for all our children. And we sent and are sending all three of our children to college debt-free because of their 529 savings plans, because we saved for them over 20 years.
And I looked at all her recommendations, and I sent her an email. I was hoping that it still worked. And I said thank you because you put us on the path to wealth. And we wouldn't have probably done that had we had to sit down with a white person. We just wouldn't have trusted him. They didn't know us. And she understood who we were. For example, my husband and I tithe, which means we give 10% of our income to our church as a tithe. In many communities, religious communities, people pledge a certain part of their income to support their religious organization. And she saw that, which is a great amount of money, and we had met with another planner and he was like, what are you doing that for? You've got to do this. And she was like, oh, yeah, I get that. And it was done. There was no talk about why are you doing that. I would have found that offensive. But she understood that that was important to us as African American Christians. And so, that's why it's important that you understand and you have people who can understand some of those nuances of dealing with people from another race or whether they are women or Black or a Latino, so that you can get past the barriers that they have of mistrust.
Ptak: If we have financial-services professionals who might be listening and regard a more diverse workforce as a worthwhile goal, what tangible steps could they take to help improve things?
Singletary: Well, it is so important to have a diverse workforce and I cannot believe that we are still having this conversation in 2020, that somehow people don't realize that you need diversity. You need diversity in age. You need diversity … You need older financial planners and younger financial planners; you need women financial planners; you need Black financial planners; you need Hispanic or Latino. You need planners who are people of faith. You have to embrace this idea that even though there are differences, we're still the same. We still need to all save for retirement; we still are all going to age; we're still going to all need to pay for long-term care. And how do you do that? Well, if you don't have them, or you can't find them, then train them. What about going to the colleges, community college, four-year universities and identify math majors, science majors, people who are OK with numbers and say, hey, this is a great career path, let us help you; maybe scholarship programs, to help identify STEM African Americans, Latinos, women who may want to go into financial services. Don't just sit back and say, oh, we can't find anybody, because you haven't put in any money or time to train people to bring them up to serve a population that absolutely needs your help.
Benz: A key focus of your books as well as your columns is this idea of living within your means. You were in the financial-independence movement before FIRE was even a thing.
Singletary: That's right.
Benz: Let's talk about why you think frugality and financial independence have really taken off in recent years? What were the catalysts to make this trendier than it was maybe when you first started talking about it?
Singletary: I think there are a lot of younger adults in their 20s and 30s and even maybe stretching to 40, who are saying, you know what, I really don't want to work in this job, this clog job till I'm 65, 70. I want to explore; I want to travel; I want to spend time with my children; I want to not work from 9 to 5 for my entire life and at the end of it be tossed out in a layoff. You don't even get a gold watch anymore. You don't even get a pension anymore. And I totally agree with that. Lots of people characterize the FIRE movement with--they don't want to work, and they want to just sort of lay back. Absolutely. Because we know that the companies don't necessarily … They're not loyal to us. And so, we don't necessarily have to be loyal to them in a sense of devoting our entire life to them at the detriment of our health and our happiness. And I think that's what they're saying.
And they are not saying they don't want to work. They just want the freedom to work the way they want to. And I love the FIRE movement. I love that and I wish more people would embrace it. Gallup did a survey. They said most people don't even know what FIRE is. But frugality--people sort of think of frugality is self-denial. That's how they define it. Like you're like not giving yourself something. But I don't look at frugality like that at all. I look at frugality as freedom so that if I can afford to live below our means--and we are talking about people who can actually afford to do that. There's some people who are … They're just trying to put food on the table. So, we're not talking about those folks, although we do need to figure out a way to have a living wage. And part of that is also having affordable healthcare. But let's set that aside and talk about middle income, upper-middle-income people who have the ability to live below their means or live on less.
I'm a huge believer in that, so that you can have some freedom. By living on less, that's how we found the money to put in our 529 plans for our children. And now, we have changed their life, their financial legacy, because now they won't graduate with any debt and they can go and do the things that they were gifted to do. Two of my kids--one of my kids is in STEM; he's a math major. But my daughters, one is a social worker, and one wants to be a special ed teacher. So, we know that those professions don't make a ton of money, but now they can embrace these careers and do what they were gifted to do. My daughter, I call her like a child whisperer; she gets children, she loves being around them. She's really good at it. And my social worker daughter, she's really empathetic. That's exactly what she should be. But we discourage kids from going into some of these fields by saying, you're not going to make a lot of money. And I think that's a disservice.
I believe in the STEM trajectory. My son is in it. But not everybody is supposed to be in there. That's just not for them. And so, by living below our means we have given our children the freedom to be who they want to be and pursue the career that is best for them. And yeah, my daughters might not make as much as my son at one point, but they won't be dragging debt. We have taught them how to live below their means. And they will be able to have a career and have a good life and buy a home and do all the things that we aspire to do in the middle class without having a lot of debt and a lot of financial pressure, because we’ve taught them the benefit of being frugal. And I just think we should not look at it like, that means I can't eat out, or I can't have a vacation. It might mean that, but only for a season so that you can get yourself in a position that you have enough money to do what you want to do so that you don't have to work yourself into the grave. I mean, if you want to work into your 80s, great, good for you. But maybe you don't want to do that. Or maybe you want to free yourself up to work with children. Or maybe you know what, you just want to drive a bus, you like driving a bus. There's nothing wrong with those service positions. And they can be possible if people live below their means and maybe you have multigenerational housing or some other things that you put in place to make that life workable for you and affordable.
Ptak: A corollary to frugality is being mindful about spending. So, my question is, how can people be more mindful about their spending to ensure they are spending in a way that aligns with their values and what they're trying to achieve? It's obviously a very big topic. But do you have any concrete practices that people might incorporate into their lives in the way they spend?
Singletary: I do actually. So, before you start figuring out the budget--because people always ask me, OK, so what budget template do you use, what budget app? Or do you recommend this, or do you recommend that? And I say, you know what, all you need is a back of an envelope. People are not rich because they don't have some sort of budgeting app. They're not rich because they don't have a plan. You don't have a plan for your life. You have to have a financial plan. And by that, I don't mean the traditional sense of where your investments are going to go; insurance. I mean, what do you want to do with the money that you make? No matter what you make, it's a limited amount. You have a limited amount of time. What do you want to do with that?
And so, early in my life and early in my marriage with my husband, we sat down, and we looked at, OK, where do we want to be in 20, 30, 40 years with the money that we are bringing in? What do we want to do with it? So, one of the first things we decided is that we wanted to give back. That's why we tithe. That's our priority. Giving is not at the bottom of our budget. It is at the top. We give first before we even pay for our mortgage because that was a priority for us. So, we put that on paper. Then we knew we wanted to have kids. We said, OK, we want to send them to college debt-free. OK, let's set up the 529 plan. And then, we wanted to be able to have money that we can help relatives. Because we're minorities many of our relatives are still struggling, still trying to make it. And so, we wanted to be able to help them up. So, we put the money aside to help. For example, we helped my brother with the down payment on his home. We helped send his child to school--to college while we were saving for our own children. This was all part of our plan like a mission and vision statement.
So, before you do anything, meet with a planner, figure out, sit down. Even if you are 20, 30, 40--sit down. You make this amount; you want to do what with it? Maybe you want to travel; maybe travel is your thing. All right, let's build that into the plan. But if you want to travel, that means you can't buy lunch every day; you can't buy a car every four years. If travel is your thing, go ahead and do it. That's why you will probably never hear me tell people don't buy expensive lattes--that's a big thing in personal finance. Cut out the coffee budget. I'm not going to tell you to do that because I'm not a coffee drinker, but my daughter and my husband are. And she just loves a good cup of java. So, you know what, if that's your thing, make that part of your plan. Because if having a cup of coffee is going to prevent you when you go to work, from slapping your coworker because you work in a crazy place, I'm going to need you to get that java. Put that into your plan. But if you're going to get that expensive cup of coffee, then bring in lunch. If you're going to get that expensive coffee, then maybe you keep your car for 10 or 15 years. There are trade-offs. So, figure out what makes you happy and spend your money in that. I don't get my hair done a lot. But some women are like, I got to go to the beauty shop every week. Put that in the plan. But then, cut something else out. You can't do everything.
So, if your plan says this is what's important to me--because we talk about values in terms of the long-term things like retirement and sending our kids to college, but there are everyday things that we value too. A trip to the beauty shop--maybe you've got little kids and that's your time to just let go, ah, peace under the hairdryer. Put that into the plan. Don't cut that out. I don't want you to cut that out. If you like going to Starbucks, go to Starbucks and get your coffee, but you've got to cut something else out. That's part of the plan. So, what I tell people do is, get out an index card or tear off a sheet of paper. You don't have to go buy something special. Write it on your computer; put it on your iPhone--the top things you want to do with your money financially. And that will help you stick to your plan and pull it out when you're tempted to do something that's not part of the plan.
And that's how my husband and I have been able to save … We would pull out, "We want to send our kids to college." OK, so we can't take this really expensive vacation that we want to do, because sending them to college is more important than sitting on a beach in sand. We'll get to do that later. What do we want to do? We want to pay off our mortgage before we retire, so that we can't do this; this is part of the plan. And whenever we're tempted to steer from that, we look at that plan, we look at those bullet points. OK, this is not part of the plan.
Benz: My last question for you, Michelle, is about retirement savings. People of color on average are in much worse shape with respect to retirement savings. They are more reliant on Social Security as the sole asset in retirement. Benefits are lower from Social Security. They are more likely to be poor in retirement. So, are there any policy prescriptions that you favor that you think could help improve this, whether mandatory contributions if you have a job or making it easier to contribute if your workplace doesn't have a 401(k), which is pretty common? Can you talk about that?
Singletary: So, I'm going to talk about two ways. So, one, we can't put it all on the individual. Why [do] African Americans have less? So, let's put all of those numbers in context. So, we are less likely to get paid what we deserve based on our experience; we are more likely to be discriminated against in employment; less equity. We come in from behind on a lot of things, and this whole Black Lives Matter movement isn't just about police issues. It's about the whole economic discrimination that has gone on. And you cannot ignore that. We can't put it all on the individual--if they just put more in their 401(k). But they don't have that "just to put in their 401(k)." So, that's one thing.
But then on the other side is that we have to make a good case to show them the numbers that the sooner you start, the more you'll have and the less you'll have to put in and that if your work doesn't have a 401(k), perhaps you do an IRA. But then, we know that automatic payments help people save. So, policies that would help people, for example, take their 401(k)s with them or some sort of way that people can have the same benefit of a 401(k) not necessarily locked to a particular job. So, automatic savings ways and maybe tax breaks; some incentives for people to save, which will help all of us in the long run really, if more people, because it would be less strain on the Social Security system. So, it's both personal responsibility but also policy changes that will help those numbers so that we are not so far behind.
Ptak: Michelle, this has been a really enjoyable and insightful conversation. Thank you so much for your time and your perspectives today. We've really enjoyed it.
Singletary: Oh, thank you.
Benz: Thank you, Michelle.
Ptak: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.
Benz: You can follow us on Twitter @Christine_Benz.
Ptak: And at @Syouth1, which is, S-Y-O-U-T-H and the number 1.
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