Return to Transcripts main page

CNN Live At Daybreak

Tax Rebate: Spend or Save?

Aired July 23, 2001 - 07:24   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
COLLEEN MCEDWARDS, CNN ANCHOR: The first batch of tax rebate checks will be arriving in 92 million mailboxes this week. President Bush hopes the taxpayers will spend their refunds and breathe new life into the sluggish economy.

CNN's Brooks Jackson looks at the benefits in this case -- maybe -- of spending vs. saving.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice over): Blow it on shopping? That's what they want you to do with your tax check, but financial advisers say there is a better choice.

RIC EDELMAN, FINANCIAL ADVISER: If you do go to the mall and you blow it on whatever it is you happen to want to buy, you'll be just as poor next month as you are now. But right now, you are $300 richer -- maybe $600 richer. And you want to preserve that wealth for your financial future.

BROOKS: Just banking $600 at 3 percent interest, it becomes $618 after one year and nearly $700 in five years, with monthly compounding. Or even better, pay off $600 of credit card debt. And at a typical 18.5 percent rate, you will save $121 in compounded interest payments in just the first 12 months alone.

(on camera): Or you could use the $600 to make an extra mortgage payment. We asked the Mortgage Bankers Association to figure out how much you would save.

(voice-over): Combine that tax check with some pocket change to make an extra $619 payment now, and you will cut a full five months of payments off the end of a typical 30-year mortgage, saving a total of more than $4,300 in interest payments on a $150,000 7 percent loan.

(on camera): And you can expect even bigger returns if you put the money into an individual retirement account or college account, where the money can grow tax-free.

(voice-over): Open a college fund with that $600, then kick in the price of a pizza every month -- $10 -- and in 15 years, by the time that 3-year old is ready for college, you could have more than $6,000 if the stock market goes up at its historical average of 9 percent a year. Or for really big gains, make that $600 the first of an annual investment program for retirement.

BOB CORCORAN, FIDELITY INVESTMENTS: If you were to invest $600 a year, and you were able to invest another $600 every year in your IRA, after 30 years, assuming you had a 9 percent return, you would have $89,000 -- almost $90,000 in your IRA -- waiting for you at retirement. And that's a lot of money.

BROOKS (on camera): So you can do what they want you to do, spend a little money, or you can be a rebel, a subversive: Save it and spend a lot of money later.

Brooks Jackson, CNN, Washington.

(END VIDEOTAPE)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com