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The Color of Money

Michelle Singletary: Welcome. Should be a great discussion today with the market going crazy up and down. So let's get started.

Pentagon City, Va.: Michelle - I just paid off my car loan last week! I'm so excited! I wanted to get rid of debt before I try to buy a place - and you provided some extra encouragement for me to do that, so I thank you! My question is - how long does it take for that payoff to show up on my credit report? Thanks!

Michelle Singletary: WAY TO GO!!!!! It's so great to get rid of a debt. Good for you. You should notice a bump up in your credit scores over the next few months. Technically it can change immediately after your creditor sends the data to the credit bureau or bureaus after you've paid off the loan.

Northern Virginia: Michelle, I wanted to say thank you, thank you, for your advice! Last week I paid off my final credit card balance, and I feel so relieved. Last June I had almost $8,000 in combined balances on four cards, one with an interest rate as high as 19%. I cut out clothes shopping, packed lunches, clipped coupons, and did everything I could do pay down the debt. What a great feeling to be rid of the weight of the debt. Thank you, and please keep up what you are doing. To other readers, have faith and discipline -- it can be done! Michelle Singletary: Oh my, yet another great testimony. Really, I'm so, so proud of you. Consider this a virtual hug (). And love your encouragement to others. Yes, it can be done. Just do it.

Reston, VA: Hi Michelle, I just submitted a question but I don't think it went through. It's not related to today's column but I know you've talked about this before. I grew up in a single parent household and I was lucky to get a scholarship to the college of my choice. My younger sister wants to go to a big public university that is out of state, but her financial aid package gave her very little. She's very upset because she thought she had a good chance at getting a scholarship or need-based aid. I don't know what to tell her or how to help because I don't have the money and neither does our single parent. I told her that going into debt would be a bad idea but I don't think she agrees. Advice?

M ichelle Singletary: You've told her the right thing. But you can't make her listen. So help as best you can. Help her compare costs of hopefully an in-state school she's chosen. Show her what she would make given her career choice and how much she woudl need to make to service a lot of debt. Perhaps the numbers will show her the right path. Can you promise to pay for her books at least? That's what my husband and I did with one neice. Paid for all her books and supplies for four years.

New York, NY: I had to brag that I paid off my credit cards!!! It took me 4.5 years and cost me $62K...but I am a free woman!! I still have student loans but the money I used for my credit cards is being directed into my student loans. For those who still have credit card payments, the best thing you can do is to STOP using them. Use a VISA/MC debit card so that you always have a "credit card" but you only spend what you have. I was lucky that I was able to pay off my credit cards without ruining my credit. I was also lucky that I caught my credit cards trying to raise my rates and was able to get on top of it. That should be a key priority in regulating credit card companies. They should not be able to pull a "bait and switch" because their idea of a deadline is very different from the rest of the world's idea. I encourage everyone to keep up the great work on paying things off! It's so wonderful to come home from a paid vacation and know that you won't be paying for it twice!

Dave Kansas: Paying off your credit-card debt is excellent news. This is something that everyone is trying to do. It is important to reduce expensive credit-card debt for many reasons, one of which that paying those high interest rates makes it harder to save and invest for things like your retirement or the kids college. As you note, getting out from under those high interest rates sure feels great.

Washington D.C.: I bought my house in August 2003. I have a 30-yr fixed rate mortgage at 5.75%. It looks like I could afford a 15-yr fixed rate mortgage at 5% now. This would require me to put less money into retirement savings, but would not otherwise burden my monthly budget. I have no other debt, I have an emergency fund and a general savings account. Do you think it would be a good idea to pursue a refinance, or should I keep putting my money elsewhere?

Michelle Singletary: Before you decided to refi do the math? How much will it cost you to refinance? How long will you stay in your home? And while a 15 year will save you money, you'll stuck with that payment. A 30-year may give you more breathing room should you lose your job or get ill or whatever. Not saying 15 is bad or you shouldn't do it. But just think about it. 5.75 is still good. And you can turn a 30 into a 15 by just making extra payments to your prinicipal.

Rhode Island: Hi Michelle, Is there any talk of reforming the way FICO scores are used for everything from hiring decisions to the rate you get on your mortgage? Don't get me wrong; my score is fine. But it's nonsensical to me that I can't take an action that makes sense from a smart consumer perspective (canceling a long-held credit card because I dislike the issuer's new policies) without suffering a hit in my score. The way these scores are calculated seems arbitrary, secretive, and capricious, yet the scores are used to basically evaluate your worthiness as a citizen. Unlike your credit report, there is no way to appeal if you feel your score does not reflect your credit-worthiness. I know there is lots of talk of reform - is this issue in the mix at all? Marla

Michelle Singletary: No reform from FICO. However, if you close that card and you have not other credit card debt you won't take a big hit. And the good history of that card stays on your credit reports. Closing accounts only matter if you have outstanding debt on other cards.

Jackie, Arlington, VA: Hello Michelle and Dave, I know that there is money to be made even during this recession/crisis. Can you provide some insight as to what kinds of businesses/investments are likely to profit as a result of the situation. Any such leads that will also benefit the country by leading us in new and positive directions such as alternative energy, local food supply and better understanding of how to use credit would be terrific. thanks!

Dave Kansas: It is certainly a challenging environment. The government seems determined to invest heavily in alternative energy, which might create some good investment opportunities. Health care has traditionally done better than most sectors in difficult times, but the scale and scope of the government's health-care reform plans make that a trickier sector to think about.

Arlington, VA: Ok. In the past, you have referred to people like me, those of us who are upset that many who spent irresponsibly are going to benefit from government actions to help the economy, as whiners. But the other day I saw a story that exactly encapsulated my problem. The story the other day about people still spending money, had this: "At the end of the day, I knew exactly what I wanted," said Choi, 31, manager of an Arlington County-based technology company. "I needed the car, I had the money. So why not?" Well, just because she has the money right now, doesn't mean she should recklessly spend $48,000 of it on a new ego boost, er, car. What if the technology company she works for folds tomorrow? Maybe it is the one company that will NEVER fold, strong, like say Lehman Brothers... So instead of buying a sensible car, she strokes her ego. Can't we have some sort of means testing before we give people money? Oh no, I'm whining again. I'm off to drive away in my 1995 Toyota Corolla.

Michelle Singletary: Actually to be correct I called people whiners if they were complaining THEY weren't getting anything from the bailout when they didn't NEED any help. As for this woman. Do you know her whole financial picture? If she has a well funded emergency fund, life happens fund, no debt (other than her home)I can't say whether she shouldn't buy that car. There are people -- even in this recession -- who are still doing well and can truly "afford" to spend on what they want. But the key word here is "afford." Now if she has credit card debt, student loan debt, no emergency etc. yes she's darn foolish.

Brier, Wash.: Should you maximize your 401(k) if you have this at work?

Dave Kansas: This depends on your personal financial situation. It's important to pay down expensive debt, like credit-card debt, before maximizing your 401(k). That said, if your company provides a "match" of any kind, which is essentially like free money, then you should find a way to at least take advantage of that. And don't forget that your 401(k) almost certainly has more options than just the stock market. Diversification is important.

Washington, D.C.: Dear Michelle: Why is the government giving a break on COBRA costs to people who were let go after September 1, yet they're not giving a penny to people like me - people whose companies went out of business last August. Since then, I've been paying for health insurance, and I bet I've been paying more than those people who pay for COBRA, and now they won't even have to pay full price for their COBRA. But I still have to pay taxes so that the AIG bigshots can get their big bonuses. When is the government going to do something for people like me?

Michelle Singletary: Honestly, I don't know why they selected the sept date. But your situation is why we need another way to make sure people have health care other than tying it to their job!

Cameron, NC: Michelle, thank you for your column this morning. I took you advice and submitted a comment to the FRB and would like to share it with you. As I understand the present rules, if one would make a purchase or withdrawal greater than the amount in one's account, the bank would gallantly step in to cover this transaction to spare one the embarassment of having the transaction declined. And for this service, the use of which is mandatory, the provider is recompensed the trivial amount of $35 even though the overage may be as small as $.01. Compared to these benevolent entities, payday lenders and loan sharks are virtually saints. What ever happened to the "overdraft" protection of yesterday, where the overage was treated as a loan rather than an opportunity for the bank to garner outrageous penalties. I would much rather see a regulation whereby we could return to the overdraft protection of yesterday. Failing that, I propose the customer be given the choice to opt out of the egregious overdraft protection as presently constituted and instead choose to be notified when insufficient funds are present and then decide whether or not to conclude the transaction. Michelle Singletary: Thanks! Good comment.

Bowie: Mr. Kansas, can you explain in simple terms how trading firms can lose so much money on derivatives without someone, somewhere, MAKING the money? I understand one popular derivative was the credit default swap, and this was often done by buying a legitimate swap that underwrites, say $1 billion worth of actual mortgages, and then leveraging it 20 times with additional $19 billion as a side bet. I can see how that original $1 billion can simply be lost. But doesn't there have to be somebody making the $19 billion?

Dave Kansas: It's a great question. One reason that trading firms lost a great deal of money is that they bought and held instruments that simply lost value in dramatic fashion. Since they had borrowed heavily to buy these assets, as you noted, the decline in value was amplified by that borrowing. These are the "toxic assets" sitting on bank balance sheets that we read about all the time. Since they're just sitting there, it's like a home that's worth a lot less than before. A falling home price doesn't make anybody money, just means the owner has an asset with less value.

Washington, DC: You were the best one at Tavis' State of the Black Union. Not sure recession is good but i see your point, get back to basics.

Michelle Singletary: Thank you very much!

Washington, DC: I tried to post this earlier, but my browser did something and I don't know if it went through. Do you know if there's any help coming for renters, in the way that it's coming for home owners? Money's not particularly tight, but I'm dreading a likely high increase in rent--and am getting more and more disenchanted by constantly bailing out other people, even though I intellectually know why that's necessary. I don't have any debt, and I do have some savings, but not nearly enough to put money down on a house, so I'm frustrated in seeing help for others when a lot of renters are hurting too (or, if not hurting, then at least annoyed at being ignored yet again).

Dave Kansas: You raise a great point, and the overarching aspect of it is that the various government plans don't help everyone. Renters are benefiting in many places because of market conditions -- rents are mostly falling, though not everywhere as you note. I'm not aware of renter rescue plans at present, but the government is active in trying to address a wide range of issues, so perhaps renters will get their due. I'm a renter, so I can relate.

Longmont, CO: We have about $20k in savings. This is for emergencies, big things that come along and our back-up in case of job loss, etc. It doesn't feel like near enough to cover all of these things. That being said, my husband's job (I am a stay-at-home mom) is very stable and our credit cards are paid off. We have no car payments. Should we be applying extra cash to our outstanding debts (signature loan HELOC) or use it to build up savings. We are managing our monthly payments fine and have an extra $500 or $1000 some months to set aside or use to pay things down. Thanks for all of the useful info that I get from your column every week! Michelle Singletary: Do this: -- Calculate what it takes to run your household for three months. That's your emergency fund (I would recommend higher but let's start there) -- Put money in a "life happens fund." This is the money to use for "big things" such as car repairs. You should NOT be using your emergency fund for such expenses, especially since you are one-income housheold. -- Once you put some money in life happens, perhaps $1,000 then aggressively without delay pay off those two loans. Why? If your husband lost his job, you would be toast if he doesn't find work soon. You will quickly find servicing your mortgage, signature loan, HELOC, food, health care expenses (on your own) will take your family down quickly.

New York, NY: I am in my mid-20s with a fairly stable job and a healthy amount of saving. My first foray into the market was unfortunately "ill-timed." I started an IRA near the market peak only to watch its value drop dramatically. Intellectually I know I should invest more in the market, but it is hard. What advice do you have for those of us waiting on the sidelines? I should note that I've continued to invest in my IRA/401k although much of those funds are sitting in a moneymarket account.

Dave Kansas: At your age, you are in much better shape than a lot of folks in terms of planning for your retirement. It is extremely difficult to time the market, especially when you have a time horizon of 40 years, such as you do. We've seen strong gains in stocks lately and over the next four decades stocks should outperform other assets. It's hard to think about four decades in the hear and now, I know. I'm 41 and my own retirement investments are weighted toward the stock market. As we grow older, we should dial back our stock exposure.

Alexandria, VA: Concerning today's column, I certainly agree that consumers should not be automatically enrolled in these programs. However, the real problem here is a lack of basic personal finance skills and laziness. Before the rise of the debit card people wrote checks to pay for things. These transactions were recorded in checkbook registers, and with a calculator and a few minutes time each week everyone knew how much money they had in their accounts. Using a debit card to make a purchase makes tracking account balances more difficult. As a suggestion, people having trouble balancing their accounts should purchase a commercial product, such as Microsoft Money (which I've been using for years, and really is quite good). The cost of the software is not much more than a single overdraft charge, and it will allow individuals to easily track their expenses and account balances (as well as a host of other things, such as budgeting).

washingtonpost.com: It's Time to Retire Mandatory Overdraft Fees

Michelle Singletary: Pardon me but people bounced checks ALL the time before debit cards. But you are right, it's a matter of keeping track. But the fact is the banks know people won't keep track and that because of that they CAN charge fees. They could help by not allowing the transactions to go thu. But NOOOO that would be too consumer friendly. That would be too much like right.

Boise, Idaho: While I genuinely believe that it is admirable for people to pay off their debt and save for the important things in life, I see a new and somewhat disturbing trend taking place where people with good jobs and good income are tending to hoard their money and/or go cheap on purchases. Unless cash starts to flow freely, I think this whole situation will get worse and worse. Your thoughts?

Dave Kansas: The Paradox of Thrift is an issue. When we save, it affects economic activity. And in the current climate, people are saving more aggressively than usual. We spent a lot of the past years not saving nearly enough, so this is a necessary correction. At a certain point, people will want some new clothes, want to replace an older car or make other purchases. This pent-up demand will build and when people feel more secure about their savings and personal financial situation they will start to spend again. The risk is that the hoarding will continue overlong, which would crimp economic activity. A big issue is confidence and fear. When President Roosevelt said the Only Thing We Have to Fear is Fear Itself, he was referring to this kind of hoarding and non-spending, based on fear. That fear will be reduced as people feel more confidence in their savings and their jobs. That will take some time.

Michelle Singletary: Dave makes a good point. But you have to distinquish between hoarders and people who know darn well they need to save and should have been saving long before now. And frankly, I think we all should take a look at our finances because things are bad. A three months emergency fund used to good cuz you could find a job in that time. But what if your unemployment goes on longer, 3 or 4 or 5 or 6 or 7 or 8 months? Or you find employment but it's part-time or you have to take a HUGE cut and you have fixed expenses you can cut (mortgage, car payment, student loans). So hoard if you have to, if you know you should. If you've got the bases covered, spend wisely.

Baltimore md: Hi Michelle and Dave, Is wall street (dow, s&P) a reliable indicator of how the economy is doing?

Dave Kansas: The stock market is considered a "leading indicator" in the sense that it will go down before the economy gets really bad and will rebound before the economy gets better. So, some people think the recent gains in stocks indicates that the economy will get better later this year. But, the stock market can sometimes send false signals. For instance, in the 1930s there were several very strong stock market rallies, but they all petered out and the economy remained moribund.

Rockville, MD: My question is about the proposal to sell the banks' troubled assets to the public. Basically, why would anyone want to buy something like that?

Dave Kansas: Great question, and in the recent past the answer was simple: nobody. That's why the government is stepping in to provide money and guarantees to encourage private investors to acquire these troubled assets. That's what this week's plan is all about. The idea is that with government assistance, buyers will emerge to take on these troubled assets. That would remove these assets from bank balance sheets, making them stronger and thereby more likely to lend more normally once again. That unlocking of credit would help the economy recover, and optimism about the program is one reason stocks have risen this week. It's a complex program with many potential hurdles, so it's not yet clear if it will work.

Washington, DC: Hi Michelle--I have a really basic question that I can't seem to find a good answer to. How much money should you keep in your checking account? I'm trying to build up a little more in mine just to avoid being paycheck-to-paycheck, but is there a good rule of thumb? Thanks!

Michelle Singletary: That is a good question. I do like to keep a cushion in my checking. Go back over your checking accounts and look at when you've been at the lowest and by how much. For example, once you paid your rent or mortgage how close might you have come to being overdrawn should you say take out $20 or $50 in cash? Your cushion is directly related to how you use your account. I like to have a least a few hundred. But then my husband, our treasure, is constantly (particularly every day) checking our account to make sure everything is balanced.

Extra Money - Where too: I was thinking of paying off 40% of my mortgage this year with cash I have in a regular savings account. Is this a good idea? Fed gov't job and I have no other debt (Pay off CC every month), full contribution to TSP, full emergency fund and will still have at least 9 - 10 months of spending cash in CDs and savings. It just seems like this is a better idea than getting 1% interest.

Dave Kansas: You have strong hand to play. Currently, mortgage rates are pretty low, so the cost of the money in your home isn't very high. Paying off much of your mortgage will add to your already secure situation, which isn't a bad thing. The question is how comfortable you feel about taking risks. The stock market, for instance, might offer a better return than paying off your house, but that choice also has far more risk than paying off your house.

Michelle Singletary: Me, I would go for the mortgage. I have NEVER met anyone who had all that you have -- emergency fund etc. and regret being mortgage-free or near mortgage free. As long as you aren't cash poor, debt free is the way to go.

Credit Report Question: Two years ago, due to some personal issues(death in the family) I forgot to mail a store credit card payment, so I decided to pay online, it just happened to be the day it was due, but well before the cut-off time. Well the following month I received a bill charging a $10 late, when I called to complained I was told it was because they were unable to process the payment for a few days, though if I had mailed a check and it was received on the due date it would not have been considered late, go figure. I argued for months that it should count as on time since I paid it in good faith on the due date, their website did not indicate that there would be a delay in processing online payments and that I was paying the statement in full, all to no avail. Now I have a $20 delinquency on my credit report and the store has gone out of business. Do I have to live with this for the next 5 years? Michelle Singletary: In the scheme of things that one late payment isn't going to bring your score down by that much. Just forget it and going forward keep paying your bills on time.

Herndon, VA: Michelle, I'm a single mom with 4 kids and I worry about being laid off. I've been using any extra cash I have to pay off debt, but should I be putting it in a savings account instead to use if I lose my job? Or do you recommend that I pay down my debt and use credit in the event I'm laid off? Thanks!

Michelle Singletary: I suggest you do both. Save and pay down debt. So if you have say $100 extra month, put $50 in saving and $50 on the debt. And I would never recommend you live off credit, even if you are laid off. You just dig a bigger hole for yourself.

Rockville: Unless one plans to retire or otherwise use one's long-term stock purchases relatively soon (e.g. college), is there any reason to want the stock market to go up?

Dave Kansas: Well, a rising stock market can have a positive effect on consumer confidence, it can help companies raise money to expand businesses and hire people and it can throw off taxes (capital gains, etc.) that help fund the government. So, those are a few reasons that a rising stock market can have additional positive effects.

Washington, DC: Michelle, Due to a job loss last year, I had to take out an emergency home equity line of credit. I am now employed and am determined to pay off the loan as soon as possible. I was speaking with my mortgage provider the other day and mentioned that each month I pay more than the minimum payment on the loan. She told me that I should not do that - that it does not work the same way that a 1st mortgage does. I was speechless - this can't possibly be right, can it? She insisted that I should only be paying the minimum. I am quite angry - it seems so incredibly irresponsible to be giving such poor advice, although this mortgage provider is one that was responsible for taking on many risky loans, so I suppose I should not be surprised. Not so much a question as a comment and a warning to remember that mortgage companies are interested only in the bottom line for themselves.

Michelle Singletary: That mortgage person is an idiot! You are right not to listen.

Boston, MA: My husband recently argued to me that his large Stafford student loans are good for his credit score because they show an ability to pay down a large loan. Compared to not having the loan at all but all others things equal, is the Stafford student loan, which is not yet even in repayment, good for his credit score? Michelle Singletary: Seriously, he said that with a straight face? And you married this person? You poor dear. Tell him for me he's an idiot. Okay, don't tell him that. It's mean. But no debt is good debt. He could have a GREAT credit score with NO student loan debt. Many people do. It's not carrying debt that gives you a good score, it's paying it off and on time. Most importantly paying it on time. So your husband is wrong, wrong, wrong. Good thing he married you.

Spender: For the poster from Arlington, VA who quoted a recent article about people spending money: we are out here! I, too, just bought a car (Dodge Avenger, American made, highly recommend) - saved for 9 years and the time was right. We are planning house renovations. We have emergency funds, a "what if" fund, vacation fund, Christmas fund, 529 college funds (and no, we are not extremely wealthy but focused savers). Yes, the 401k tanked just like everyone else but we are optimistic and have time on our side. The press assumes EVERYONE is destitute -- yes, there are people hurting. But some of us have not had a change in lifestyle with this financial mess, just living like we always do and being sensible

Michelle Singletary: Good point.

Color me cheap: I'm one of those people who is doing fine, but cutting WAY back on discretionary spending. The routine $50 birthday gift card has become a $25 gift card. Dinner out with the girls is now dinner in. I'm sure there are those who think I'm cheap, but over the past five months I've added $28,000 to my bank balance. That feels pretty good. By the way, my biggest complaint about the whole AIG bonus thing was the fact that ANYone (yes, you, Mr. Pearlstein) could call $165 million an "insignificant" sum. I think in that statement can be found the seeds of our destruction.

Michelle Singletary: I don't have a problem with your cutting back. If that's what makes you feel safe.

$$: Michelle and Dave, We're seriously thinking of cashing out our (depleted) mutual funds and either putting them under the mattress or a long-term CD. Are we over-reacting? What about cashing out a decimated 403(b) and IRA?

Dave Kansas: The concern and frustration is understandable. The answer to your question depends a bit on your age and immediate financial needs. If you are closer to retirement, you should be moving some of those assets into a CD or Treasurys or highly rated corporate bond funds. You should also be sure that expensive debt, like credit-card debt, is paid off. Money in a CD can't out-earn expensive credit-card costs. If you are younger, I would counsel some patience, but also diversification and prudence. The mattress pays poor returns, so I would counsel against that.

Washington, DC: Regarding student loans, I have two questions. First, why would taking a student loan be a bad financial decision? If the resulting education leads to greater earnings that offset all costs of the loan, there is a net gain. While I agree with the idea to seek less costly options such as in-state schools, many education investments pay off, long-term. My college degree has been important to me in terms of earnings, and was paid off very quickly. Even a loan in the $150K region could be paid relatively rapidly with a top job. Second, do loans directly to students based on their actual situation alone exist? If so, who loans to students based on the student situation? I thought that many of they so-called student loans are actually co-signed, based on parent incomes, backwards in that they are based on need more than ability to pay, etc.

Dave Kansas: I think that a student loan can be a good investment, since higher education is an important tool for success in our economy. Finding less-expensive education options, such as in-state schools, is also prudent. I think a combination of working/earning money and loans, if needed, is the best way to pay for college. As for special situation loans, many loans are direct to the student and some require co-signing. The Department of Education has more information on this. www.ed.gov.

Michelle Singletary: One day I should just post the dozens and dozens of e-mails I get from people in student loan debt and who will be in that until their 50s or 60s or 70s. You say why is it bad even at $150,000 if you get a top job? Because most people dont' earn that kind of money -- EVER! Only a small part of our population earn six figures. Even those who do find the debt to be overwhelming. Get lots of letters from doctors and lawyers who are crumbling under their debt. Just like a lot of things we've bought this baloney that you should pay whatever it takes to go to whatever college you want. It's a lie. And it's a lie that is hurting a lot of people.

Arlington, VA: I know it's all a matter of degree, but I worry that the consumer culture has so overtaken us that when we ratchet back to a much more realistic spending pattern we get people worried about "hoarding." I'm all for spending money for things that we "need," but no business should expect everyone to buy a whole new wardrobe each year. It's just silly and non-sustainable. We don't all need the new shiny thing.

Dave Kansas: Fair point. I do think there was some excess as people used their homes and the stock market like ATMs. People are probably overdoing the thrift at present, out of necessity and prudence, and a return to "normal" may look a bit less like what we saw during bubblier times.

Washington, DC: Hello, Dave. I have all the "right" things - life happens fund, 6 months emergency savings, no debt other than a 30-year mortgage at 4.875%, automatic withdrawals at work for retirement as well as automatic withdrawals that I'm using to max out a Roth IRA, automatic withdrawals for charitable contributions as well as separate contributions when I come across something I like. My problem is I'm becoming careless about my spending- expensive groceries and so forth -because I feel too comfortable. Can you tell me anything that will help me watch that unnecessary spending?

Dave Kansas: Glad to hear you have the "right" things -- that's important. But even when you have those things, budget discipline is important to develop. Helps you save more smartly for the future. Sites like quicken.com, wesabe.com and mint.com all have good budgeting tools that would help with your spending.

Rockville: Hi Michelle. A couple of months ago, I asked about opening a 529 for my one-year-old son. You said that since he's so young, I should just do it now. My husband and I have still not opened the account (although we're setting aside the money) because we don't understand your advice. As long as the plans are losing money, why would I put money in them? Doesn't it make sense to start the account with X$ rather than X-Y$? Thanks!

Michelle Singletary: What you are talking about it timing the market. And you can't do it. If you can't afford to invest then don't invest. But I haven't stopped contributing to my kids 529 plans because now I can buy shares of good companies at lower prices. Once the market starts to rise and you wait, you will be jumping in at the top or as equities cost more. You can't time the market.

Alexandria, VA: If you have the cash to pay for a big purchase, like home remodeling, but feel nervous about taking it all out of your savings, does it make sense to get a share-secured loan at a low interest rate instead? This is assuming no other debt, guaranteed income stream (in our case, it's a gov't pension), other savings still intact, etc.

Michelle Singletary: NO. If you are so sure of job, pension, etc. then you shouldn't let fear drive you into unnecessary debt. No to debt.

Washington, DC: Hi Michelle, I love your column, and wished I lived financially by your words. I fell behind on credit card payments last year and have been avoiding the collection phone calls. I know that was not very smart, but what should I do at this point? I make a decent amount of money, but circumstances spiraled out of control for me last year and I caught up on everything (mortgage, car) except the credit cards. Thanks for your feedback.

Michelle Singletary: Call. Man up or Woman up. What if you were owed the money? How would you feel about someone dodging your calls? It's the right thing to do. Call. Make arrangements to pay. You did after all benefit from the products or services you purchase on credit. _______________________

Re: Reston Comment: Michelle: In an earlier comment, you agreed that it was unwise to take out loans to go to a large, public, out-of-state school. Doesn't it depend on which school? For example, if you could go to UMichigan or UC Berkeley, isn't there a good chance that the extra investment (approx $120K over 4 years) will pay off in the long-term compared to other schools?

Michelle Singletary: Not necessarily. No. Got the emails, and moaning from people who did to prove it. Go where you can afford hopefully, prayfully without debt.

Gaithersburg, MD: Pundits pooh-pooh "money just sitting in the bank." Well, what's wrong with more people saving their money instead of the culture of must-consume-all-the-time? Anyway, don't the banks lend out our "save money"? And isn't that how things worked before fiat money?

Dave Kansas: Money sitting in the bank -- building up savings -- is a good thing. People didn't save very well until recently. Paying down expensive debt and establishing a rainy day fund make sense.

Central Virginia: Response to the "stop hoarding" question... I think it's a common mistake to assume that someone saving their money is hoarding it under the mattress. Even in the most basic savings account, the average bank is going to lend 90% of that money right back out to someone for a mortgage or car loan or any other form of spending. One person's saving is facilitating another's borrowing and spending. Time will tell which person is better off in the end.

Michelle Singletary: Good point.

Jacksonville, FL: Can Dave Kansas comment on how he views the effects on the economy of Mr. Obama's plans rolled out since the book was written? Would he change his advice on investment strategy for any of the three age groups?

Dave Kansas: President Obama has offered some very large plans ranging from Real Estate to Banking to Health Care to Alternative Energy. Government spending is expected to be very high because of the wide range of plans. The one thing I might be more wary of is the potential for greater inflation, because of high deficits. That would make Treasury Inflation Protected Securities (TIPS) something I'd think about more today than when I finished the book. Also, having a portion -- 5% to 10% -- of your portfolio exposed to commodities is another way to hedge against potential inflation.

New York, NY: We hear all these great stories of people pulling themselves out of debt, but I wonder how sustainable it is? In many instances we're talking about a complete lifestyle change--I just wonder what individuals have done to ensure that they don't "backslide" and give in to some of the impulses that got them into trouble in the first place?

Michelle Singletary: Good question. Debt-free people or people who pulled yourselves out of debt, want to comment?

Immorality of credit card rates: Dear Michelle--thanks so much for your columns and chat which I've recently discovered! What a service you provide. Can you tell me why, with the fed rate practically at zero, people are not earning interest worth spitting at on savings, yet credit card companies (owned by banks and many of those big financial behemoths and holding companies that have received our billions of taxpayer dollars), are allowed to charge rates ranging from 15 to 35%? The fact is many of us have been experiencing this downturn for much longer than others and in that context American workers/families have not seen real income increases for about 30 years -- with a brief exception during the Clinton administration -- while expenses have risen, friends and family members have lost jobs that pay decent wages, millions more of us have no health care (I won't even begin to mention dental) -- but those at the top have gotten ever more obscenely wealthy. Why won't congress cap rates since the greediest of the greedy financial institutions refuse to do what is morally right, especially in this time of great financial hardship? P.S. Even w/all this I still currently am paying more than the minimum, but I don't know how much longer I can hold on. I know millions of others are in the same boat.

Michelle Singletary: Why, cuz banks are still greedy. And cuz we allow them to get away with this by still using the cards with these rates, even if it's at 9 percent. They get away with it because they can.

Philadelphia, Pa.: Mr. Kansas: Long term investors in the stock market have learned to ride out lows and highs knowing that historically the market continues along an fairly steady long term gain. Is there any reason to believe this long term gain has been altered by the current crisis?

Dave Kansas: I think that over the long term, the stock market will still provide better returns than alternatives such as bonds and real estate. We're going through a rough patch right now, of course, but I still believe that holds true. It is usually at bottoms where basic assumptions, such as investing for the long term, come in for sharp criticism.

"right" things : We all work better with goals and so I name something I'm saving for, even if I might not actually purchase it. Examples are a car, trip, boat, or vacation home. Anything that seems really fantastic that you would save for. After all of that saving, cold hard cash in the bank is VERY hard to spend (I just want to see it grow!). So maybe I won't actually withdraw that money to make the purchase, but it was easier to save with that goal in mind.

Michelle Singletary: Good tip. Thanks. Something I do myself. And you are right, often I save for it and then find I don't really want to buy it.

Jackie, Arlington, va: Michelle---thanks for telling the truth about college loans and college in general. HS students feel so much pressure to go to the best school they can get into and it is ridiculous. Aside from the social and lifestyle reasons, there is no reason why a smart student can't attend a good local 2-year college and then transfer as a junior...not the most glamorous way to do it, but heck it beats suffering under tremendous debt!
Michelle Singletary: Amen!!!! But I fear Jackie it's just you and me hon on this page.

Arlington, VA: I'm the original poster that "spender" referenced, and I think my inexact wording caused my point to be mis-interpreted. I'm not against spending if you are in good fiscal shape, that happens to be the case with us. But it was more the extravagance of spending so much more than was needed. I think it was just the way it sounded with the "I have it so I can spend it." As you said Michelle, that does not tell us the whole story. Lots of people are cash poor who have BMWs parked in front of their over leveraged houses.

Michelle Singletary: I hear you. But one person's extravagance is another's just right spending. It all depends on the the facts. But I get your point.

atlanta: re: AIG bonuses. But those bonuses were promised. Some of those people make nothing but bonus (except the now ceo who makes NOTHING. AND no bonus. Literally, $1. So stop thinking he's pulling one over on us - he can walk away and not have a care in the world).

Dave Kansas: They were promised and I believe a lot of the anger toward the AIG bonuses was misplaced. The CEO is working for $1 a year and took the job at the behest of the government. But the reason that there was so much anger around AIG was that people are frustrated with everything that's happened in the financial markets and economy. The government needs to do a better job communicating what's gone wrong, what they're doing to try and fix it and why it matters to each and everyone of us.

For NY 20-something: Think of it this way: if everything at the mall went on sale for 50% off (or more), would that make you want to buy more or less? Why would a mutual fund or stock be any different? If you thought X was a great company at $100/share, then wouldn't it even be a better deal at $50/share? One thing I read close to 20 years ago that really stuck with me: as a young investor, the absolute best possible scenario for you is that the market is low when you are young, and then peaks later in life. Why? Because that allows you to buy a lot more shares for the same amount of money -- so when the market does turn around, you have many, many more shares there to grow. See if you can find a simulators that allows you to test out those kinds of differences over time -- I was just astounded at the difference, and it completely changed my view of the value of investing in down markets.

D ave Kansas: Warren Buffett said something like "Be wary when everyone's greedy and be greedy when everyone's wary." A lot of people said "buy, buy, buy" when the Dow was at 14,000 in late 2007, and now it's "no, no, no" at Dow 7,700. The situation we're in, economically, is certainly intense. But people like Mr. Buffett have indicated that they believe stocks represent some decent values at the current levels. That doesn't mean stocks are posed to go straight up. Historically, annual gains have been in the modest 6% to 9% range.

Michelle Singletary: Oh my, I looked up and it's 1:04 already. Got to run. Thanks to Dave for joining me today. If you haven't gotten his book, please do. It's a good read. Thanks again to all who joined me today. I appreciate your questions and comments. I'm so, so sorry if I didn't get to your question. But key an eye on my weekly eletter you may see it answered. Take care. Keep saving and to stay grateful if you've got income, repeat after me, "I'm so glad to have a job!"

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