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CNN Live At Daybreak
What To Do With Tax Rebate Check
Aired July 23, 2001 - 08:22 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.
CAROL LIN, CNN ANCHOR: The first tax checks will arrive in mailboxes this week. What will you do with that money? Well, that's your business, but as CNN's Bill Delaney reports, businesses are encouraging you to spend, spend, spend.
(BEGIN VIDEOTAPE)
BILL DELANEY, CNN CORRESPONDENT (voice-over): In case you're worried about what to do with your bit of the $38 billion in 92 million tax rebates, hey, relax, help is on the way.
(on camera): At this Wal-Mart outside Boston, sign after sign, persistent as the piped-in music, let customers know this was the place to bring that rebate check. No fee to cash or spend it right here.
(BEGIN VIDEO CLIP)
ANNOUNCER: Waiting on your tax rebate check?
(END VIDEO CLIP)
DELANEY (voice-over): Home Depot offers a kind of rebate blue print. Pizza Hut's cooked up a rebate recipe.
(BEGIN VIDEO CLIP, PIZZA HUT AD)
ANNOUNCER: It's the Pizza Hut Twisted Crust Tax Cut Special. Almost as good as a refund but tastes a whole lot better.
(END VIDEO CLIP)
DELANEY: Wal-Mart manager Ross Morrow expects to savor a late summer sales lift.
ROSS MORROW, WAL-MART MANAGER: I think people are saying that, wow, it's actually going to happen so.
THERESA LONGO, SHOPPER: I think it's a really good thing that they did for people. I mean regular working people need a little extra money.
DELANEY: Not that at Boston's upscale Atrium Mall -- the well healed weren't expected to make the most of their little extra money, too.
UNIDENTIFIED FEMALE: This money is like found money to consumers. Our retailers are gearing up for the busy back to school time. The timing couldn't be better on this.
DELANEY: A few, even at the Atrium Mall, weren't buying in.
UNIDENTIFIED FEMALE: The government could use it in a better way for poor families.
DELANEY: What do you think you're going to do with it?
UNIDENTIFIED FEMALE: Probably give it away. Probably, you know, use it as a donation to some charitable organization I guess, yes.
DELANEY: For some, it won't be so much a question of giving money away as giving in.
GARY CARTER, WAL-MART ASSISTANT MANAGER: I'd like to go on vacation with it. You know just go away somewhere with it. That's what I'd like to do with it.
DELANEY: But your wife wants a refrigerator, you told me.
CARTER: Yes, she wants a refrigerator, yes.
DELANEY: Cold comfort for a few as tens of millions of others now warm to the idea of a little extra money.
Bill Delaney, CNN, Boston.
(END VIDEOTAPE)
COLLEEN MCEDWARDS, CNN ANCHOR: Well, so what are you going to do with your money? Have you decided yet?
LIN: Well, we're thinking about it, but the money experts have their own ideas about your little windfall. And one of them is Beth Kobliner. She is a financial journalist and the author of "Get A Financial Life."
Morning, Beth.
BETH KOBLINER, AUTHOR, "GET A FINANCIAL LIFE": Good morning.
LIN: So what do you think people should do with their refund?
KOBLINER: I think they should absolutely either save it or use it to pay off debt. I think spending it is not a great idea.
LIN: Really?
MCEDWARDS: Does that depend who you are though, Beth, maybe walk us through it. Let's say you're in your -- let's say you're in your twenties, we'll start there. KOBLINER: OK. Well, if you're in your twenties, chances are you have lots of credit card debt. And I'd say the best investment you could make is use it to pay off that high rate credit card debt. You know paying off a credit card that's charging you a rate of 16 percent is the equivalent of earning 16 percent on your money guaranteed after taxes.
And another way to look at it, say you owe $1,000 on your credit card and you only make those minimum monthly payments. If you put that $300 towards that $1,000 debt that you owe, you'd actually end up saving yourself about $900 in interest and shave off six years in debt repayment. So paying off your debt is really the smartest way to use, I think, that tax rebate.
LIN: Interesting. Hard to convince, though, a twenty-something to do just that. I think they're probably thinking more about Tahiti.
What about people in their thirties?
KOBLINER: Yes, but you're not going to get very far on 300 bucks to Tahiti.
MCEDWARDS: Yes that's true.
KOBLINER: I don't know, maybe you'll get one-way there. I don't know how you're going to get back.
(LAUGHTER)
KOBLINER: I think for -- maybe for a lot of people that's OK, though.
I think that if you're in your thirties and you don't have credit card debt, I -- and you're looking say to buy a home in five years, there's a government kind of bonds called an I Bond. It's a super safe. It's like the old-fashioned savings bonds with a twist. It's protected for inflation. Right now it's paying about 5.9 percent. And that's -- it goes tax deferred. And it's free from state and local tax.
It's not as sexy as Tahiti, but I think I bonds are a great underrated kind of investment. A lot of people don't know about them. They're on the government's Web site or you can usually get it through a bank. So I'm a real advocate for I Bonds.
MCEDWARDS: Well, Beth, let's say you're in your forties and lets just say you're a pretty sophisticated investor. You don't have any debt, maybe, beyond your mortgage. The government would have us believe that it's your obligation to get out there and spend it.
KOBLINER: Forget it. That's not your obligation. Your obligation is to make sure you're saving for your future. And one way to save for your future, if you're in your forties, is to make sure you're maxing out of your company 401(k) plan at work. Many companies have matching -- for every dollar you put in, they'll put in 50 cents or a dollar. That's an immediate 50 percent or 100 percent return on your money. For that person, the smartest thing you can do is make sure to make -- take advantage of your 401(k).
And if you don't have a 401(k) at work, say you're a married couple, then open a Roth IRA. This is a terrific way to save tax deferred again. If you put that $600 you get from your refund into a Roth IRA, 30 years from now that $600 can likely be close to $10,000. Of course, $10,000 30 years from now isn't going to be worth what it's worth today, but it's a whole lot better than not saving.
LIN: Yes.
KOBLINER: So I say your obligation is to start saving that money.
(CROSSTALK)
MCEDWARDS: But I guess that's the challenge, too, isn't it? I mean how do you convince people no matter what age you are that 300 bucks or 600 bucks isn't just chunk change?
LIN: Right.
KOBLINER: Well, you know, I've been talking to lots of people. Even on my way here, somebody was telling me, you know what I'm going to use that money to pay off that debt that I have, send it to pay off my bills or send it to pay off that credit card debt. Because even though it doesn't feel like a lot of money, you're chipping away at that high-rate debt or you're starting to save for your future and small amounts really do make a difference. I think a lot of people feel like I'm not going to throw it -- you know what'll I get, a pair of pants and a blouse and you know maybe a pair of shoes and that's about it. So I think a lot of people are beginning to feel, particularly in these tighter times, that savings and paying off debt is the way to go.
LIN: All right. So when financial experts like yourself say pay yourself first, it doesn't mean to go shopping then?
KOBLINER: That's right. That's right.
LIN: OK, thanks.
KOBLINER: You know and people are saying now with these polls that they're more likely to actually save that money.
LIN: Interesting. All right. Well that's not exactly what the Bush administration had in mind but we'll see what people do.
Thanks so much Beth Kobliner.
KOBLINER: My pleasure.
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