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Protecting Your Money; Financial Therapy; Winterizing Your Home; Car Buying
Aired October 11, 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 HOST: Hello, I'm Gerri Willis and this is another special edition of OPEN HOUSE, the show that saves you money. From winterizing your home to scoring the best deal on a new car, we are all about protecting your money. Hey, we'll even help you explain what's going on with today's economy to your kids. But first, in the latest sign of the times, consumer borrowing is down for the first time in more than 10 years. The Federal Reserve reported that consumer credit decreased by $7.9 billion in August. Americans intelligently tightening their belts. Economists had expected borrowing to increase by $5 billion that month. Government bailouts, triple digit losses for the Dow, and your shrinking 401(k). Don't freak out. Time now to stash your cash in all of the right places. Let's get to our panel of experts.
Walter Updegrave is a senior editor for "Money" magazine. Lynnette Khalfani-Cox is personal finance expert and author of "Your First Home."
Welcome, guys. OK, people are freaking out. Walter, I want to start with you. This is the e-mail I get. I want to pull my money out of the stocks; I'm going to cut my losses. Why not do that?
WALTER UPDEGRAVE, "MONEY" MAGAZINE: Well, I think this is the kind of thing that may make people feel good at the moment, but they may be undermining their long-term retirement prospects. I mean, what you really have to think is when I am going to need this money? I mean, if you're a young person, you got many years before retiring, and you're going to look back and this will, as frightening as it is today, will be like a little blip on one of those long-term charts that you see...
WILLIS: You promise that, but the pain is so deep. Lynette, what are safe places now to stash my cash?
LYNNETTE KHALFANI-COX, AUTHOR, "YOUR FIRST HOME": Well, a lot of people, obviously, are turning to treasuries, to government-backed securities...
WILLIS: But they're paying nothing.
KHALFANI-COX: Yeah, they're saying that's better than losing money, though. And I think for a lot of people, certainly those who are in retirement or at that pre-retirement phase, it's a good choice for them to be a lot more conservative and a lot more defensive.
WILLIS: OK, well, let's talk a little bit about asset allocation, Walter. I know this is something you think a lot about, a lot of my e-mail inbox just packed with questions from people in their 60s, their 70s, they're approaching retirement, they're in retirement, still in stocks, what should their asset allocation be?
UPDEGRAVE: If you're approaching retirement or you're already retired, you probably shouldn't be more than say 40 to 55 percent in stocks the rest in bonds.
WILLIS: You still need that much.
UPDEGRAVE: Well, you need that because you're going to be retired for a long time. You still may be living for another 30 years ad want to maintain your purchasing power in the face of inflation. Now, I realize a lot of people right now are saying yeah, but the stock portion keeps going down. Well you have bonds for balance and another thing you can do if you're retired, you can control your spending a little bit. I mean, this is a time when you may need to, and I think people are starting to do this, scale back. And in some cases, with retirees, you may not even have to pull back your spending entirely, maybe just don't take an inflation adjustment one year and that will help you get over it. What you're trying to do is get over this difficult period without suffering too big a decline in your retirement savings.
WILLIS: Yeah, and I think a lot of people are probably going to have to go back to work, bite the bullet, maybe get a little more income.
Lynnette, Let's talk about people who don't have 401(k)s. We're always talking about people who are in these employer-sponsored accounts who have gotten a lot money from their work life. Not everybody's in that situation.
KHALFANI-COX: That's correct, you know, a lot of low to moderate income workers or people who frankly choose not to participate in a 401(k) or 403(b) plan do have options. I love IDA accounts. Most folks don't know about these. It stands for Individual Development Accounts and essentially these are savings programs. You stock away money and you get a grant, a matching contribution, believe it or not from a government agency or from a corporation. They do it to encourage fiscal discipline, to make people want to be savers for a goal, for your first home purchase, for starting a business, maybe for your kids' college education. There's a great Web site IDANetwork.org. You log into it, put in your zip code, tell them where you live, they'll show you where to get an ID account in your specific area.
WILLIS: I love it, that's great news, because a lot of people they're not in a situation where they can have a 401(k). My fear, though, is that is what's happened in the market is that people just won't contribute. A lot of people are not. You look at the recent polling data, people are not putting money away for retirement. What would you say to them?
UPDEGRAVE: Well, this is a question I get a lot, e-mail question, and what I say is first of all you're giving up a tax break if it's a 401(k) type account. Even if you're not getting that immediate tax break, say, with an IRA, you may be with an IRA If it's deductible, so you're giving up a tax break there and also giving up this tax deferred compounding. So, the other thing is, when you're putting money in gradually, I mean, there are going to be some times when you're buying at a high price and you're going to take a loss on that money, but times like today you're buying at very depressed prices and your chances of having a very good return are much higher when you're buying at these prices. So, I think the people have to think if retirement is kin of a longer term goal and it doesn't make sense to kind of pull back today, because if anything what this crisis shows is that we're going to be more dependent on our own savings in the future for our retirement. So, this is like the -- not the time that you want to be cutting back.
WILLIS: So Lynette, let's talk about some other practical moves to make right now. Because I think what people should be doing is really battening down the hatch. Let's make sure we have some cash in case we have an emergency. What are those one, two, three steps you take right now to make sure your family's safe?
KHALFANI-COX: First of all, cut back on spending, as Walter suggested. Obviously this is not the time to go out there and splurge on the new clothes, the family trips and those kind of things. Certainly, I think you start looking at protecting your credit rating, as well, because that can cost you. If you've got dings on your credit report, you're going to pay more for everything, for your mortgage, for your auto loan, for the student loans, for your credit cards, et cetera. And doing so can actually help you save money keeping that credit intact. Again, I think people should think about practical ways to cut back. Maybe you've got 100 premium cable channels and do you really need that? No, is the answer in these current times.
WILLIS: You know, I think a lot of people are struggling just with basics right now, trying to put together the money, even tougher because unemployment rates are so high. What's your advice to people who -- they're not thinking about putting money away for retirement, they're thinking about food on the table next week?
UPDEGRAVE: Right, well, first thing, cutting back really just makes sense. I mean, you have to kind of figure that unemployment may be going up if things really start to deteriorate here, so you have to have a reserve, something you will count on when you, you know, if you become unemployed. So, you want to try to build if you don't already have it this sort of three-month emergency fund.
WILLIS: Thank you so much for your time today, we really appreciate your great advice, thank you.
Money matters, seems to have everybody talking these days, but could your financial stress be affecting your emotional health? Some folks turning to financial therapy during these tough economic times.
(BEGIN VIDEO CLIP)
SANDY HERBST, TEACHER: I needed someone to talk to. I need someone to listen to me, to see what I need.
WILLIS (voice over): Sandy Herbst didn't realize just how stressful handling her finances could be until her husband passed away five years ago.
HERBST: It was very nerve wracking, you don't know where to turn, you don't know what to do, and my husband did handle a lot of the bills and a lot of the things that we did, so it was everything was just switched back to me, totally to me.
WILLIS: So Sandy sought help.
UNIDENTIFIED MALE: I think we'll just take it out of the main account and transfer it over to your checking account.
WILLIS: With the help of a financial planner, Sandy was able to get a better grip on her finances and her fear of handling them.
MORRIS ARMSTRONG, REGISTERED INVESTMENT ADVISOR: You have to listen. And you have to hear people's concerns. You cannot brush them aside.
WILLIS: With the financial crisis taking a toll on the stock market, it's also beginning to take a toll on American psyche.
ARMSTRONG: They come to you for comfort. I'm the equivalent of comfort food.
WILLIS: The American Psychological Institute finds 83 percent of women and 78 percent of men are stressed by money, so stressed that a growing number are turning to mental health professionals.
DR ROSALIND DORLEN, CLINICAL PSYCHOLOGIST: We're seeing people come in with sleep problems, sleep is a big casualty of anxiety, especially about money. We're seeing people with eating problems, people who are excessively worrying. So, we're seeing an overall increase of symptoms that relate to anxiety. And in this case, the anxiety is money.
WILLIS: An important step towards combating this anxiety, opening up.
DORLEN: You know, money is a big taboo, people are much more comfortable talking about sex, I think, in today's culture, they're more comfortable talking about death, but money is a taboo subject. So, just getting people to take an inventory and a careful accounting of recording their expenses, their level of debt and seeking the kinds of problem solving techniques that will help them reduce anxiety from a financial perspective.
WILLIS: But for some Americans, easing years of financial worry may be harder than it sounds.
HERBST: I do a lot of worrying about it. I do, I think about it a lot. I wonder what's going to happen next.
Coming up on OPEN HOUSE, teaching your kids about money, a how to guide. And slash those heating bills, tips to winterize your home. Plus, how to make the most of major auto discounts right now. We are all over Issue No. 1, protecting your money.
WILLIS: Welcome to the Bad Credit Hotel. Part of a Treasury Department campaign, it's aimed at educating 18 to 24-year-olds about their money. Now, you check in, you're put up in room 205, clues throughout the interactive game help you collect knowledge, information to add to your inventory in order to make your way to room 850. And what is that? Of course, it's the number of the perfect credit score. But, educating your kids about money should start at a young age. Here with tips on how to talk dollars and cents with your little ones is Janet Bodnar. She's from "Kiplinger's Personal Finance" magazine.
Good to see you, Janet.
JANET BODNAR, "KIPLINGER'S PERSONAL FINANCE": Good to see you too, Gerri.
WILLIS: All right, well let's talk about parents and their problems with talking to their kids right now. Because news is bad, kids are worried. I mean, I'm hearing stories about children who they figure out something's going wrong and it's bad and they interpret it the wrong way. Parents don't want to talk because they don't want to worry their kids. What's the right thing to do?
BODNAR: Well, you can't really ignore it altogether. Because as you say Gerri, even if you're not discussing it directly with your kids, they're picking up signals, certainly they're picking up headlines, they're picking up signals if you're talking to your spouse about a financial situation, you own personal one, maybe you're worried about a layoff. The kids are going to pick this up and they're going to become nervous, perhaps tense, maybe blaming themselves. The key is that what they want from you mainly is reassurance, No. 1, and so you don't really have to give them chapter and verse of the family balance sheet, but you might want to ask them a question. What do you think about this that's going on? Just to see where they are, No. 1, because little pictures really do have big ears. And once you know where they are then you can respond to them in a way that's reassuring and also age appropriate. You don't want to overload them with information...
WILLIS: Right, and on that score you say stop watching TV. Turn off the TV occasionally.
WILLIS: I hate to say that to our viewers so people don't get overloaded with information. You know, people sometimes go the wrong way, the other way and they sort of make fun of it, they use humor. You say that's not right either.
BODNAR: You know, what happens is kids take you literally. So, if you -- you know, dark humor is, you know, people in a time like this will say oh, I'm going to take the bridge as my mom used to say. Or, you know, things like that, or oh, we're going to end up in the poor house. Don't use images like that. Don't do that because the kids will take you literally. And what you're really meaning is, you know, so you just have to be very -- again, reassuring with them. You don't mean this literally, but they don't know that.
WILLIS: But Janet, you know, for some folks, it's one thing to say we're tightening our belts here, we're going to spend a little less, you can't get the expensive cereal or can't buy the toy or whatever, for other folks, it's we're in foreclosure, dad's lost a job, that's a whole other conversation, right?
BODNAR: Yes, it is, and obviously it's something you can't hide. But again, you can be reassuring. If it's a job loss, for example, you would want to tell the kids what your plan is, have a plan. You were probably entitled to unemployment benefits for a certain amount of time, so you're going to have income coming in, you're going to be looking for a new job, tapping your network. And so you're going to be telling the kids this is what we're going to be doing.
And on the foreclosure scene, it might, I mean, this sounds funny, but it might actually be a better situation because if you're in a situation where you can actually afford the house or the apartment where you're living, there could be less financial tension. You know, you could have a burden lifted from your shoulders.
WILLIS: That's a good point. That's an excellent point. You know, holidays are coming up, these are great words of advice for parents who are trying to figure out a way to talk to their kids. Janet, thank you so much.
BODNAR: Oh, my pleasure.
WILLIS: Still ahead on OPEN HOUSE, what you can do right now to save on your heating bills this winter. And think it's not the right time to buy a car? Well think again, more savings after the break.
WILLIS: Colder months are coming quickly, and this year with the high price of home heating oil in the dismal state of the economy, it's more important than ever to prepare your house for the elements before winter sets in. Here with how to advice on how-to save money is Ed Del Grande, he's from HGTVpro.com.
You have a ton of great ideas, we're going to get right down to it. This one is going to save my house. I have ice damming in one of my windows that means it's all collecting and endangering my roof.
ED DEL GRANDE, HGTV.COM: Well, and ice damming It's just like the name says, the ice forms a dam, the water backs up on the roof, it leaks through the shingles. And Gerri, this looks exactly like my roof at home and it has saved my roof, so it'll work well for yours.
WILLIS: So, you have to install this, but be safe too.
DELGRANDE: Yeah, you got to make sure an electrician installs an approved outdoor GFCI circuit breaker,so that's the ground fault interceptor, so that way it's not going to be a hazard around water because it will get wet. And make sure your local codes approve this. But once it's up on that roof, that will keep the ice from forming.
WILLIS: Yeah, it just heats it up, keeps that ice and snow...
DELGRANDE: Yeah, it's a wire. The wire goes back and forth and just warms everything up.
WILLIS: All right. Other thing that confuses me is that we pay somebody to come in and drain our pipes outside. You say you don't really have to do that.
DELGRANDE: Well, you could do it yourself. If you go down in your basement -- this is a typical outdoor faucet. Here is the faucet on the outside of the house. And see this pipe here, Gerri, that's where it freezes, because that's where it gets cold around the sill of the house. So, look for this valve, this is called a stop and waste, go in, shut is down and that'll stop the water from going through the pipe. And then there's the trick, open up this little drain here. All the water will come out and then there's nothing left to freeze.
WILLIS: Perfect. OK, so I don't break my pipes as the cold weather sets in. Now, you have a suggestion for indoor faucets, as well.
DELGRANDE: Right, once the outdoor faucet is shut down, if you want to wash out, let's say, an air filter or you want to fill up a big bucket of water, this is a real cool faucet. It's called a Simplice faucet. And look, it's kind of like a candy cane faucet. You got that high neck, but it's a pull-down faucet instead of a pull up faucet, so it is very versatile. It will help you out when your outdoor faucets are off. And that pops right back up.
WILLIS: All right, now you have something that looks very technical, here. And you say this is an intelligence switch? Smart? How is this smart?
DELGRANDE: This is an intelligence transfer switch for a generator system. Now, they're becoming very popular, right now, generators that are installed outside, they call them standby generators.
WILLIS: Yes, people love this because of problems we've seen with really awful weather. You wan to make sure you have a power source for your house so you don't have to rely on the power company.
DELGRANDE: Well, we're a plugged in society. An outage of two or three hours, especially if you have business or special needs people at home, you can't lose the power.
WILLIS: How does this help me?
DELGRANDE: Well, this goes into a special panel. And it's really the brains of the whole generator system. Gerri, when this senses that the power is off at the street, it automatically turns on the generator for you, the it switches your electrical controls over. It really will...
WILLIS: How much?
DELGRANDE: Well, this is a whole system. You got to look at standby systems, installed complete with everything, all the works, probably about $7,000.
WILLIS: OK, so that's a lot.
DELGRANDE: Big investment, but well worth it.
WILLIS: But for example, that's about 36.
DELGRANDE: That's about 36 and you can get them with even longer wires for about 80, but under $100. It will really protect your home.
WILLIS: Thirty six versus thousands to fix your roof.
WILLIS: How about this? How much?
DELGRANDE: OK, this is a sill cock (ph) here, remember this is already installed, but if you want to upgrade to a frost free sill cock, that will be about $35 for the part and about $250 for the plumber.
WILLIS: All right, so we are saving you tons of money. Ed Del Grande, thank you so much.
Up next with discounts at every turn, why now might be a great time to buy a car.
WILLIS: Well, car dealers are desperate for business. And if you are in the market for a new vehicle, well, this might be your lucky break. Here to share some tips and tricks on how to get the car you want at the right price is Peter Valdes-Dapena, autos writer for CNNMoney.com.
Good to see you, Peter. I assume that those automakers are throwing deals at people.
PETER VALDES-DAPENA, CNNMONEY.COM: Well, right now, as you know, Toyota, which is unheard of, announced a national incentive campaign -- zero percent financing on some of their most popular models, not just trucks and SUVs, but Camry's and Corollas. That almost never happens. That shows you where things stand, right now. They want people to come into the showrooms and take a look at these vehicles. GM just got finished with employee pricing in September. They didn't want to keep that going for too long. But, they still have zero percent financing and incentive deals. Ford, even on '09s, like the Ford Flex, which is a vehicle I recommend highly for people that want a large SUVs, but want good fuel economy, $2500 rebate on that and that's an '09 model that just came out.
WILLIS: All right, well, you know, it use to be (INAUDIBLE), you could get along, I'm not sure that's the case anymore. Where do you go for the best deals, if you're looking for financing? Is it to the automaker?
VALDES-DAPENA: Normally, even in today's market, the automaker has an incentive, the automaker is what they call a captive finance arm, like GMAC or Toyota Motor Credit, has an incentive to try to get you the best deal, because they want to sell you a vehicle. But, at any time, now or anytime, I always advice people to get financing wound up before you go.
WILLIS: From your bank or where do you go?
VALDES-DAPENA: You can go to your bank, you can go to your credit union. There are on line Web sites that will offer car loans.
WILLIS: But Peter, I got to tell you. OK, so you go and get that offer then you go to the dealership and you start negotiating. But, people don't even think about how much should I spend for that car. They are so focused on my monthly payment. They never think about the fact, you know what, I'm spending 40, $50,000 on a vehicle, right? Isn't that your first consideration?
VALDES-DAPENA: That's right. And most people, by getting locked into the monthly payment, that's how we ended up with people having six, seven-year car loans, which is a bad, bad idea. You want to have a number in mind. You want to negotiate a monthly payment, you want to negotiate a price. But, I understand, people aren't -- you don't know. Can I afford a $20,000 car or a $30,000 car? You have to, at some point, look at it in terms of your monthly budget. You can go to Edmonds.com or AOLAutos, KDB.com, a lot of these sites have on-line calculators that will allow you to figure out what your monthly payment would be given a specific car price and given projected interest rate, so you have some idea when you go in, you can say, this is the price range I am looking at. I know what I can afford. I don't want to go above these.
WILLIS: Right, it's nice to draw lines in the sand with these guys, because they're going to draw a different line than you will, right? Let's talk a little bit about negotiating tactics when you do get to the dealership. This is my least favorite part of the equation because I don't trust anything they are telling me. Tell me how to negotiate with these people.
VALDES-DAPENA: Well, the first thing you want to do is you talk about setting a line in the sand and setting a deadline, tell the guy, look, I'm not going to be here for four hours, I need to leave by a certain time, I got something I have to do. Go in there, a lot of dealers don't do this kind of stuff, dealers used to ask for a deposit, like, oh, when you give your offer to the sales manager, give me a credit card or some cash. If they do that, don't do it, because that's a way of locking you in there for a longer negotiation. Give them your price, tell them what you are looking for, know what you have in mind...
WILLIS: And stay to that. Make sure you keep to what you're negotiating, draw those lines in the sand.
VALDES-DAPENA: Right, keep to that. And don't just get stuck, I have to buy this car from this dealer. You're power -- you're the one with the power to get up and walk out if you have to.
WILLIS: I love that. Peter Valdes-Dapena, thank you for that. You have the power. Great message.
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. You can hear much more about the impact of this week's news 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.
Don't do anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.