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Financial Trouble Warning Signs; College Costs; Early Money Lessons; Autism
Aired March 29, 2008 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, CNN NEWS ANCHOR: Hello, I'm Gerri Willis and this is OPEN HOUSE that saves you money. On tap today, as always, issue number one, America's economy, warning signs your family could be headed for financial trouble. Plus, from the cost of college to teaching your young ones about money, we've got the advice you want and the answers you need.
And why parents of autistic children need to pay special attention to managing their money. But first tough times call for desperate measures. Thelma Gutierrez report on an increase in middle class Americans who having to ask for help in places generally reserved for those less fortunate.
THELMA GUTIERREZ, CNN NEWS CORRESPONDENT (voice over): A tree lined street in the foothills of Altadena, California. One of the last places you might expect to find a middle class family struggling to feed themselves.
UNIDENTIFIED MALE: Just a little walk.
GUTIERREZ: But it's where we found a homeowner Patricia Guerrero, a former loan processor recently laid off from her $70,000 a year job.
PATRICIA GUERRERO, FOOD BANK RECIPIENT: It just happened so fast. It happened in a matter of, what, two months.
GUTIERREZ: Less than 90 days is all it took for Guerrero and her husband to lose their middle class lives.
GUERRERO: We both had good jobs. Both very stable, 401k's, looking forward to the future.
GUTIERREZ: then her husband left and she's barely hanging on to her home. Her mortgage payments continue to go up.
GUERRERO: My mortgage right now is $2,500. That's only interest.
GUTIERREZ (on camera): Only interest.
(voice over): She began drawing unemployment.
UNIDENTIFIED FEMALE: This is delicious. GUTIERREZ: She rented out her mother's and her mother Isabel moved in to help her with the mortgage. She says she's lived off her tax refund for a month. That's gone too.
GUERRERO: The rental and the unemployment are the only things that cover my mortgage. Other than that there is no money left.
GUTIERREZ (on camera): Zero?
GUTIERREZ: No money for food?
GUERRERO: No money for food.
GUERRERO: No. Nothing.
GUTIERREZ (voice over): Patricia applied for food stamps, but she says because she owns her own home she was denied and says she found herself in a middle class no man's land.
GUERRERO: I never use the system. I've been working since I was 15-1/2 years old. I needed it now and it turned me down.
GUTIERREZ: She says she had no choice, but to turn to her local food bank. She says it's one of the hardest things she has had to do.
GUERRERO: I just remember, you take off the tiffany bracelet and you don't take off -- you know, you don't take in your coach purse because, it's not worth anything anyway, you got a dime in your pocket.
When I walked in there, I was very surprised on how they were and how wonderful this woman was that helped me and everything and then she offered to pay my utility bill that month and I was like, wow. And it brought tears to my eyes and I sat there and I cried and I was like, this is really where I'm at? I go no way. You know, this is true, this is really. This is the stuff you see on TV, you know? And I -- it was hard. It was very hard. But, I -- don't get me wrong, I was grateful. I was very grateful.
GUTIERREZ: Patricia Guerrero is eager to go back to work to hang on to her home until the market turns, but for this single mom, every day it becomes harder to hang on.
GUERRERO: It's just depressing for me, I just don't want to get out of bed, but I have to. That's my hardest thing is I have to.
GUTIERREZ (on camera): Patricia Guerrero and some of the other families that we've talked to say it's very scary because there is no safety net for middle class families because they have assets and also because sometimes they work jobs they don't qualify for government assistance programs, like food stamps.
Thelma Gutierrez, CNN, Riverside, California.
WILLIS: Sad story. There are warning signs, tough, before your family heads down this road. Joining us now, Lynnette Khalfani-Cox, she is the author of "Your First Home."
You know, you look at that and you can relate to that woman and you think this could be me. If people are thinking what are the warning signs out there that I'm in trouble, what should they be paying attention to?
LYNNETTE KHALFANI-COX, AUTHOR, "YOUR FIRST HOME": I think there are a set of warning signs, both practical and financial and even physical. Some of the practical and financial are things like if you get declined for credit card offers that you've applied for, any loans, that's a sign. If you find that you are maxed out on some of your credit cards, obviously that's a sign.
WILLIS: That's high interest debt. That's not a good thing.
KHALFANI-COX: And that tends to get you in trouble. Even in your personal relationships, if you're arguing with your spouse a lot about money. That woman described an unfortunate situation where her husband left, you know, maybe for some financial and personal issues, there as well. But even your own gut instincts, if you're stressed out about money, if you can't sleep, if you have bad feelings, those are all signs.
WILLIS: Let's get some advice here about now that you know the warning signs, everybody talks about having three to six months worth of emergency savings available. OK, where do I put it to keep it safe?
KHALFANI-COX: Yeah, I like to have it in a "don't touch" account. Right? Something that unfortunately you're not going to get a lot of interest on right now with the fed having cut interest rates, let's be honest, you're not going to get juiced-up returns. But that's OK. This is your safety money to deal with an emergency. What I call a "dreaded-D," like a downsizing or a divorce. Put that money into something that's liquid, a money market account, an online savings account, something that you can access.
WILLIS: Right away. OK. One of the problems that I find is that people won't talk to each other. Spouses just can't get to the position where we know we have got problems we have got to sit down and talk about it. How do you open up a conversation?
KHALFANI-COX: Well, you know, it doesn't happen just in marriage, it even happens in the dates phase because couples don't talk about money. You really have to make it a mantra to disclose everything, discuss everything.
WILLIS: No secrets. You hear that?
KHALFANI-COX: Decide it together. It's tough because, you know, people think it takes romance out of the relationship and it puts the relationship in a business dynamic and that nothing could be further from the treat. You have to set priorities together.
WILLIS: All right, Lynnette, thank you so much for that. Great information, as always. Lynnette, stick around. Coming up next on OPEN HOUSE loans, job hunting, even retirement concerns, advice for yourself and even your children. Then the right way to teach your kids about money. And unraveling the mystery of autism, we're breaking down the economics of the disability. Stick around.
WILLIS: Hey, it's nearing graduation time and many college seniors are feeling the effects of the credit crunch, from paying off student loans, job hinting and even retirement concerns. Students across the country have been e-mailing us their questions and we are here to answer them. Back with us once again, Lynnette Khalfani-Cox and joining us, Anya Kamanetz, she's the author of "Generation Debt."
Good to see you guys. All right, well let's get into these questions. Kay from Georgia writes, "I'm graduating from college in May, start manager I first job this summer. What can I start doing right away to avoid getting myself into financial trouble in such a shaky market?" -- Lynnette.
KHALFANI-COX: Learn how to budget. Learn how to save money. Be practical with your finances, don't overspend. A lot of recent college grads make the mistake of getting that flat screen TV, a new apartment, a car, et cetera, et cetera. You know, learn how to live within your means early on, that will put you in good stead the rest on in life.
WILLIS: So Anya, can you add to that. I mean, people do, they have a ton of college debt going into that first job, how do they get themselves into a good financial spot?
ANYA KAMANETZ, AUTHOR, "GENERATION DEBT": It seems overwhelming, but I think that, just like Lynnette says, you know, you need to prioritize, there's a lot of online tools available now, maybe from your bank, maybe from some free types of tools that you can go online, share with others, you know, you're not alone in this.
WILLIS: Great. OK, Chase has a question, "As a 21-year-old college student, should I start saving for retirement now through an IRA or should I put my excess money towards school and recreation, waiting until I'm in the workforce to start saving for retirement?" -- Anya.
KAMANETZ: Well Chase, I wish I could tell you it's live for today, but the fact is that every dollar you put away today for retirement is going to have so much more power to grow even three or four years from now. So, you know, as much as you can put toward retirement, it doesn't mean that you should be borrowing school loans on the one hand and putting it in an IRA with the other hand.
WILLIS: You know, I'm just amazed that Chase is thinking about retirement.
KHALFANI-COX: That's a couple decades away, that's a good thing. Very important.
WILLIS: Let's go to Hames in New York, "I'm a student graduating in May from college, receiving a bachelors in finance, but as time goes by and financial firms like Bear Sterns go under -- should an underglad, soon to be graduate, be worried about how financial jobs will be available for hiring?" Hey, I can relate to this, Hames. Hames has a great question, Lynnette.
KHALFANI-COX: Yeah. I think yes, he should be concerned about it. You know, they were talking about in New York City alone, obviously the heart of Wall Street, the prospect of 30,000 jobs being lost in this financial downturn. That's not to say, though, that you won't be able to get a job. If you are a good hot commodity yourself, firm outs there might still want you. And don't just think the banking sector in financial services. If you've got that degree in business, you can work for an educational institution, you can work for a hospital a retail, they all need your skill set.
WILLIS: Exactly, let's go to Nick, "I'm a student going into the college world very soon. I've heard recent news that it's now harder to get a loan for college. Can you please explain why? How about grants or scholarships, will it be harder to get them too?" -- Anya.
KAMANETZ: The credit crunch is affecting the availability of private loans. These are the subsidized higher interest student loans.
WILLIS: Banks don't want to loan for any reason these days, right?
KAMANETZ: That's right. They're really turning off the faucet for those unsecured loans. The silver lining to that, however, is that those private loans are more expensive way for paying for college. So, if you can work it out a plan that involves grants, scholarships, federally subsidized student loans and work, I think it's going to be great. It's going to be better for you in the end, then if you took out all those private loans.
KHALFANI-COX: I absolutely agree.
WILLIS: Lynnette, what are Web sites to go to?
KHALFANI-COX: Scholarships.com is one. There's a lot of people out there who think, you know, I've applied for one or two scholarships and I got turned down. Not enough. You've got to apply for 10 to a dozen scholarships.
WILLIS: It's a fulltime job.
KHALFANI-COX: You really do. It pays off in the long-run.
WILLIS: Finaid.org is a great place to go, too. All right, let's read Chelsea's e-mail from Rhode Island. "As a university senior, I have multiple loans and I was just laid off from any part-time job because profits there plummeted. I know many students who are in a similar position. Why are students who are dependents not receiving tax rebates?"
KHALFANI-COX: The short answer is, because you're a dependent, you're being claimed on somebody else's, your parents, tax returns.
WILLIS: So, ask them for the money?
KHALFANI-COX: They're going to get at least $300 for the student.
WILLIS: Let's go to the next e-mail. Kimberly in North Carolina, "I recently renewed my apartment lease at a six percent increase, now my housing costs take up over 30 percent of my take home pay. I'm considering buying a place of my own so I can actually get something for my money." I love the hear that. "My FICO score is around 800 and I have saved over $15,000. I don't plan to get a place until winter and I start my student loan payments in November. Would it be better to pay the minimum on the student loans or to pay most of them down and have less for a down payment?" Anya, what do you think of that?
KAMANETZ: Well, it's a complicated question, I think this is obviously a really smart girl that's done a lot of her home work, which is great.
WILLIS: Don't you love her?
KHALFANI-COX: Eight-hundred FICO score? That's great. $15,000 in savings. I love it.
WILLIS: Of course, you know, you compare the interest rates on the two loans, right? What's the interest rate on your student loan and what's the interest rate you could get by investing? Those are the two things you can consider.
KHALFANI-COX: And I think that given her situation, clearly she's managed her finances well. I say pay the minimum amount on the student loans right now, go ahead and put that money towards the down payment on the house, keep a little in cash reserves so you have a home expense fund in case anything goes wrong with the house.
WILLIS: Great advice. Thanks to both of you, really appreciate your time, today. Still ahead, how one elementary school is teaching its kids about finances.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: ...health, I always said that your insurance would pay for it, but sometimes you have to pay for it.
(END VIDEO CLIP) WILLIS: And the crushing cost of autism, with World Autism Awareness Day this coming Wednesday, we are unraveling the money angle when OPEN HOUSE comes right back.
WILLIS: So, it's not easy for mom and dad to budget these days, but fifth graders at one Massachusetts school are getting early lessons in money. Jackie Brousseau of CNN affiliate WWLP has the story.
JACKIE BROUSSEAU, WWLP REPORTER (voice over): Fifth graders at Stony Hill Elementary School are taught how to budget their money using real life scenarios. Each student chooses a profession, dresses the part and learns how to allocate a $40,000 a year salary, paying for everything from a mortgage to a car payment to groceries. 11- year-old Elizabeth Judicki (ph) chose to be a fashion designer. And can't believe how much everyday necessities cost.
ELIZABETH JUDICKI, STUDENT: Health, I always thought that your insurance would pay for it, but sometimes you have to pay for it.
BROUSSEAU: The goal of the pilot program caught by Country Bank is to encourage kids to think about their future.
JODIE GERULATIS, COUNTRY BANK: So, they're not going to be having bad credit reports. They're learning the consequences now.
BROUSSEAU (on camera): The program not only teaches students how to budget, but also teaches them how to write out a check, and how to open a real-life savings account. Some of the students say it's taught them what it's like for their parents.
UNIDENTIFIED MALE: They must have to pay a lot of bills.
JUDICKI: If you have a lot of money, you can't spend it all in one place. You have to still pay all of your bills first.
BROUSSEAU (voice over): Teacher Michele Mistalski says she can tell the program is working just by looking at the shock on her students' faces when they see how much things cost. She believes it is a crucial life lesson that should be taught in every classroom.
MICHELE MISTALSKI, FIFTH GRADE TEACHER: It's everyday math, this is not anything that's going to go away from their lives. It's something they're going to have to do for the rest of their lives.
BROUSSEAU: The program is so successful, that modified versions of the financial lesson will soon be taught to students in every grade at Stony Hill.
I'm Jackie Rousseau for 22 News. (END VIDEOTAPE)
WILLIS: So cute. You know, the program also helps students open their own bank accounts. A teller makes weekly visits to the school so students can deposit their savings. Even with toddlers, you can start educating about the concept of money. The first step is simply to take your little ones to the store with you. Now, this can be an opportunity for kids to see how much thing cost and money is handled by a cashier. And don't forget to send the right messages. Kids may see parents as ATM machines because they only see their parents giving out cash or credit.
Make sure your kids see you paying bills or giving to charity, as well. And giving your children an allowance can give them a personal stake in money management. There are no set rules, here. Allowance doesn't necessarily have to be tied to chores and if your child does something out of the ordinary, like washing the car or mowing the lawn, it might be a good idea to add a little extra money to that allowance.
Now, encourage your child to save a portion of that allowance, this way they'll experience the value of setting long-term savings goals.
As always, if you have an idea on how to save money, send an e- mail to us at OPEN HOUSE at cnn.com, and if you want to check out this "Project Savings" again, check out our Web site, cnn.com/openhouse.
Still to come, unraveling the mystery of autism, it's a devastating disability that can take quite a toll on both your heart and your wallet. Up close and personal with one family's story, next.
The prevalence of autism has risen to one in 150 American children, and almost one in 94 boys.
WILLIS: National Autism Awareness Day is this Wednesday and for that, we here at CNN are focusing much of our coverage on unraveling the mystery that is autism. Now, while the emotional aspect gets a lot of attention, one area often overlooked is the cost of caring for an autistic child. Parents across the country are struggling to pay for the care their children need like the Iallonardi family.
(voice over): A house in the suburbs, three young children and loving parents.
MICHELLE IALLONARDI, PARENT OF AUTISTIC CHILDREN: Pass it back.
WILLIS: Your typical family. Except... M IALLONARDI: All three of my boys were diagnosed with autism. Jackson was diagnosed at 2-1/2, the twins were diagnosed a little after their first birthday. So, actually all three of our children were diagnosed within one year's time.
M IALLONARDI: At the very beginning you're just numb, I mean, you just think, OK, three kids with autism.
RALPH? IALLONARDI, PARENT OF AUTISTIC CHILDREN: Where do you go from here?
WILLIS: Where they went was into debt.
M IALLONARDI: We first took out a loan to kind of set up an area for the children in the house to do therapy and we started out with like $15,000 or $20,000 on a home equity loan and that was three years ago. The home equity loan is now up to, I think, $67,000.
R IALLONARDI: It's very easy to say no to buying clothes and saying no to buying a better car, and so no to, you know, painting the walls or whatever, but it's hard to say no to some kind of supplement or diet or therapy that can help your kid talk.
M IALLONARDI: Eight dollars for a bag pretzels. This costing like $6.
WILLIS: It adds up quickly. A study by Professor Michael Gantz puts the lifetime cost of caring for an autistic child at more than $3 million.
MICHAEL GANZ, HARVARD UNIVERSITY: $3.2 million per person or $35 billion for society consists of medical costs such as doctor's visits, medications and therapies. It consists of nonmedical costs, such as adult care, child care, special education, transportation if necessary, and it also consists of lost income, both parent's lost income and the lost income of people with autism.
WILLIS: For Ralph and Michele Iallonardi, it's not about the cost, it's about their kids.
M IALLONARDI: You're talking about meeting basic needs.
R IALLONARDI: Basic needs, right, so you'll do whatever.
WILLIS: One thing they aren't doing is consulting a financial planner which some say should go hand in hand with the diagnosis.
Michael Beloff is a financial advisor with Morgan Stanley and the father of an autistic son.
MICHAEL BELOFF, FINANCIAL ADVISOR, MORGAN STANLEY: I find that parents tend to focus on the day to day issues, the next doctor's appointments, the meetings with the schools, meeting with the therapist. What sometimes gets lost is the long-term planning.
WILLIS: The Iallonardi's still need to plan for the financial future of their autistic sons, but that plan now involves two instead of all three of their boys. (INAUDIBLE), one of the twins was recently declassified and is said to be developing normally.
UNIDENTIFIED MALE: That was funny.
M IALLONARDI: I love my boys. We love each other, you just draw inspiration from your kids.
R IALLONARDI: If you told me a year ago that, you know, Jackson would say his first words. I couldn't put a price tag on that. The house, the equity, the line of credit -- who cares? That would all be frivolous.
WILLIS: CNN will have full coverage of World Autism Day next Wednesday. Issue No. 1 is the economy and CNN is all over it, Noon eastern next week. Your house, your debt, your savings, your job, it's all about your money. We'll answer your e-mails live during the show, so sends us your questions to firstname.lastname@example.org.
You can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN. As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week, right here on CNN and you can catch us on HEADLINE NEWS every Saturday and Sunday at 3:30 p.m. Eastern Time.
Don't go anywhere, your top stories are next in the CNN NEWSROOM, have a great weekend.
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