Return to Transcripts main page
CNN Live At Daybreak
Dave Ramsey on Saving and Spending Your Money
Aired August 08, 2001 - 07:40 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.
VINCE CELLINI, CNN ANCHOR: Fall is almost here and that means back to school. For college students and their parents, that means coming up with more money. The cost of getting a college education has skyrocketed.
Here are the numbers in dollars and cents from the Census Bureau. The average amount charged for tuition, room and board for instate students at four year public colleges and universities, $8,629 in the '98 and '99 school year. That's up 60 percent from the previous year. At four year private colleges and universities, $25,343 for that same time period. That's up almost 70 percent.
COLLEEN MCEDWARDS, CNN ANCHOR: Wow! And I'm sure we're not the only people surprised by those numbers this morning.
Dave Ramsey joins us now. He's the author of "Financial Peace." He's a radio talk show host as well.
Dave, thanks for being here. Boy, I guess that means start saving for college now.
DAVE RAMSEY, AUTHOR: Well that's no shock, we all knew that.
MCEDWARDS: Yes.
RAMSEY: But saving for college is something we all know we need to do but very few people really do it.
MCEDWARDS: And why not?
RAMSEY: Well, I don't know. It's something we talk about but it seems to fall down the old list behind the transmission that went out and the prom dress that needed to be bought. You know life ends up happening and we don't save long term because, well, we take care of the urgent rather than the important.
MCEDWARDS: Yes, and you're great at making those lists and helping people set their priorities. I mean where on that list should saving for college be?
RAMSEY: Well, we want folks to have an emergency fund in place and have their personal debts paid off so they're then able to do the retirement saving and the college saving. And there's some great new plans available for saving for college right now. MCEDWARDS: Like what?
RAMSEY: Well, for example, the ESA, the Educational Savings Account, nicknamed the Education IRA. We used to be allowed to only put $500 a year per child into that. As of the first of the year, coming up January 2002, we're going to be able to put $2,000 a year per child in that and that's like into a good growth stock mutual fund is what I would suggest, and it will grow completely tax free.
Now let's say what that means. If you have a baby and for 18 years you do $2,000 a year, you'd have $126,000 in there tax free...
MCEDWARDS: Not bad.
RAMSEY: ... and you only put in about $36,000.
MCEDWARDS: Not bad.
CELLINI: Dave, does it also begin with the kids themselves rather than the parents in learning at an early age how to save and how to use money wisely?
RAMSEY: Well, we do have to teach our kids how to handle money. Handling money is a life skill. I've got a 15 1/2-year-old. You all pray for me. We're teaching her to drive, right? Daddies have to teach their kids how to drive. Daddies and mommies have to teach their kids how to handle money and you should start young. We started with our children, three, four years old. No big deal. We're not running Hitler's boot camp for finance here, but we do want to start with doing a little bit of work - W-O-R-K -- and then you get paid when you work.
At our house we have a thing on the refrigerator called the commission worksheet. This is -- this is how we did it for years, now it's called financial peace junior. And basically we have our kids on commission instead of on allowance. Work, get paid; don't work, don't get paid. And then that gives us some teachable moments. If they work, and they will, and they get some of the money then for doing that, that gives us the ability then to break those dollars down and we break it into three envelopes. Between 3 and 12 years old, we want them to put some of their money in savings so they can buy some things. They can learn to set goals and achieve them, some things some 54-year-olds don't know how to do.
MCEDWARDS: Yes.
RAMSEY: They need to learn to spend and spend wisely, and they need to put some money in the giving envelope because, well, good humans learn to give money away.
CELLINI: And it just takes a little bit of time.
MCEDWARDS: Yes, great idea.
CELLINI: It's very simple.
MCEDWARDS: And it's something you can do together as a family.
CELLINI: Right.
MCEDWARDS: But speaking of those teenagers, Dave, actually we've got a couple of e-mails that we want to get to now.
The first one actually is from a teenager. I am a teenager worried about my financial future. I would like some advice on how to stop being a spend thrift and what I, and other teens like me, should do to have a stable financial future?
Great question.
RAMSEY: That is a great question. And Jumpstart just did a survey that said 57 percent of the college junior and seniors got an F on their little personal financial test they gave out. So most people in high school today really aren't being taught either by their parents or by the schools how to handle money. So it's a super question.
One thing you want to do is stay away from the stupid credit card. A little piece of plastic does not say you're an adult. Your personal actions and how you act and react says you're an adult. So what you purchase or how you purchase doesn't say you're an adult. Literally, one third of the kids are now carrying credit card balances and 28 percent of them -- are carrying credit cards, 28 percent of them are carrying balances on that. And we're talking in high school for goodness sakes.
MCEDWARDS: Wow!
RAMSEY: So stay away from those things.
And then I would suggest: why don't you try something like that little envelope system? Set some money aside for blow money -- for fun. Set some money aside for long-term goals or longer-term goals. Maybe right now you're starting to get ready for Christmas a little bit as a teenager.
CELLINI: Well, Dave, hey, you're talking about teenage years, what about when you first have, you know that newborn, when should you start saving and how?
RAMSEY: Well, you want to start to saving often and as early as possible because it's like anything else. We've all seen those tables that if you start early, it's easy; if you wait late, it's almost impossible. So a little bit starting really, really early will amount to a lot later.
MCEDWARDS: And back-to-school time, everybody's thinking about that right now. What kind of -- you know, what kind of tips can you give parents? What kind of lessons can they use in terms of when they're taking their kids out to go shopping -- getting ready to go back to school right now? What are some of the teachable moments, as you say, in that? RAMSEY: Well, back to school is a lot like Christmas, it's a real opportunity for the merchandisers. They know how to sell us some stuff, you know?
MCEDWARDS: They sure do.
RAMSEY: And so you've got to go to the store with a plan. Sit down, make a list of what we're going to buy with junior and then take junior with us and say, OK, junior, if it's not on the list we're not impulsing and doubling the buggy, OK. And that's what happens on back-to-school spending. Back-to-school spending will average about $527 per child this year and literally, half of that is stuff they don't need to go to school.
CELLINI: Dave, also, you mentioned your daughter and learning to drive, and one of the things I read that you talked about matching funds. You know I think so many 16-year-olds feel like they're entitled to a car. You know, try to work out something where you match the funds and at least you -- he or she is achieving a goal.
RAMSEY: Yes, a car is not an entitlement.
CELLINI: Right, exactly.
RAMSEY: Just because you're sucking air, you don't get a car.
CELLINI: Exactly.
RAMSEY: No, wrong. No, around our house you don't get -- you don't save money, you get a bike, you know, so I'm kind of hard core. But we do have 401(Dave) at our house, so if you save, we'll match you.
(CROSSTALK)
RAMSEY: And the cool thing is the 9-year-old got to watch the result of the 15-year-old just purchasing her car. And I'm really proud of her. She did a great job. She saved up a little under $10,000 -- I mean a little under $4,000 and that got her a little under a $10,000 car, because dad and mom matched her. But if you save zero, the match is zero.
MCEDWARDS: All right, 401(Dave), thank you very much. A pleasure as always.
RAMSEY: Thanks.
CELLINI: Good to talk to you, Dave.
MCEDWARDS: All right.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
