Michelle Singletary

Washington, D.C.

 Michelle Singletary writes the nationally syndicated personal finance column The Color of Money, which appears in The Washington Post on Wednesdays and Sundays. Her award-winning column is syndicated by The Washington Post Writers Group and is carried in dozens of newspapers nationwide. She has written three personal finance books, including her latest, “The 21-Day Financial Fast: Your Path to Financial Peace and Freedom.” Singletary was the financial expert for “The Revolution,” a daytime program on ABC. For two years, she was host of her own national television program, “Singletary Says,” on TV One. She is a frequent contributor to various NPR programs and has appeared on national talk shows and television networks, including “Oprah,” NBC’s “Today,” “The Early Show on CBS” and CNN.

In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges. As part of this ministry, she and her husband also volunteer to teach financial literacy to prison inmates. She is a graduate of the University of Maryland at College Park. She has received the Distinguished Alumni Award from Johns Hopkins University, where she earned a master’s degree in business and management.

To stay informed about various money issues subscribe to Michelle’s weekly retirement and personal finance newsletters, which will be delivered to your inbox every Monday and Thursday.

Archives

Books by Michelle Singletary:  

"The 21 Day Financial Fast: Your Path to Financial Peace and Freedom"

Buy it from Amazon

"Spend Well, Live Rich: How to Get What You Want with the Money You Have"

Buy it from Amazon
Recent Articles

THE COLOR OF MONEY COLUMN

(Advance for Sunday, Nov. 18, 2018, and thereafter. Web release Saturday, Nov. 17, 2018, at 8 p.m. Eastern time.)

(For Singletary clients only)

By MICHELLE SINGLETARY

WASHINGTON -- When will discrimination die?

I keep hoping there will come a time when the color of my skin doesn't dictate how I'm treated -- especially as I shop for loans.

But that day has yet to come. Once when I was buying a car, I asked the salesman to give me a quote on the interest rate were I to take the dealer's financing.

At the time, the average rate for a used auto loan was about 5 percent. I had good income and exceptional credit scores. After pulling my credit report, the salesman said he could offer me 10 percent.

"That's awfully high," I said. (The salesman didn't know I had already been pre-approved through my credit union for a rate of about 4 percent.)

I suspected what was happening. I had reported on class-action lawsuits brought against auto-finance firms alleging they allowed dealers to charge interest-rate "markups" to black and Latino customers more frequently, and at significantly higher rates, than similarly situated white customers.

I kept pressing the salesman about what I felt was an interest-rate overcharge.

"I guess you have some blemishes on your credit," he said.

Oh, no, he didn't.

It took an amazing amount of self-control on my part not to cuss that man out. I was sure he was racially profiling me. It's happened many times before. He was counting on two things: I was unaware of my good credit standing, and I might not be inclined to shop around for a better rate. I only buy cars with cash now.

There is still a two-tier pricing system that penalizes blacks and Latinos who are creditworthy of better rates.

It happens with auto loans as well as mortgages.

But what if you took the human element out? Surely, minorities would get as good a deal as other borrowers with similar credit histories with a supposedly race-neutral automated application system, right?

No. Even with automation, mortgage bias exists, according to recent findings by researchers at University of California, Berkeley.

The Berkeley study looked at 30-year, fixed-rate, single-family residential loans issued from 2008 to 2015 and guaranteed by Fannie Mae and Freddie Mac. It found that -- whether they apply for a mortgage loan face-to-face or online -- blacks and Latinos are charged 5.6 to 8.6 basis points higher than white borrowers with comparable credit history. The extra mortgage interest is costing minority borrowers $250,000 to $500,000 more per year.

"Algorithms have not removed discrimination, but may have shifted the mode," the researchers wrote.

When refinancing, minorities pay 1 to 3 basis points more. Interest-rate discrimination can boost lender profits 11 percent to 17 percent per loan.

So, how can a machine discriminate?

It's all about the formulas fed into the algorithms, the researchers conclude.

"With algorithmic credit scoring, the nature of discrimination changes from being primarily concerned with human biases ... to being primarily concerned with illegitimate applications of statistical discrimination," the researchers wrote.

By law, lenders can't discriminate based on race. They can however price loans based on credit risk. With an online application, the algorithms may be categorizing borrowers based on behavioral ethnic or demographics profiling, the researchers said.

"Even if the people writing the algorithms intend to create a fair system, their programming is having a disparate impact on minority borrowers," said study co-author Adair Morse, a finance professor at UC Berkeley's Haas School of Business.

Here's a key point the study made: Statistical discrimination could be occurring because minority borrowers are less likely to rate shop.

However, it's not just minorities who don't shop around for mortgage rates. Nearly half of consumers don't comparison shop for better rates before taking out a mortgage to buy or refinance a home, according to a study earlier this year by Freddie Mac.

On average, borrowers could save almost $1,500 over the life of the loan by getting one additional rate quote and about $3,000 for five quotes, Freddie Mac said. For minorities who are up-charged, the dollar savings would be even greater.

By the way, the scoring models are better now at allowing consumers to rate-shop for a single loan. For its newest versions, FICO says all inquiries done within a 45-day window for auto, mortgage or student loans are treated as a single credit inquiry.

It's also easier than ever to check your credit score. If you have a credit card, your issuer likely offers a free credit score. If not, you can get a free score from Discover at creditscorecard.com. You can also get free scores from these two sites: creditkarma.com and freecreditscore.com.

Since bias still exists, decrease the likelihood that you'll be discriminated against by shopping around and being better informed about your creditworthiness.

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Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@washpost.com. Follow her on Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

(c) 2018, Washington Post Writers Group

THE COLOR OF MONEY COLUMN

(Advance for Wednesday, Nov. 14, 2018, and thereafter. Web release Tuesday, Nov. 13, 2018, at 8 p.m. Eastern time.)

(For Singletary clients only)

WRITETHRU: Last graf, new 1st sentence.

By MICHELLE SINGLETARY

WASHINGTON -- I used to watch the game show "Who Wants to Be a Millionaire" and dream of answering that final trivia question to win my way into a world of wealth.

But the reality is I can barely remember where I last put my eyeglasses, so I doubt I could recall enough trivia to win $1 million.

Luckily, you don't have to win on a game show or hit the lottery to join the ranks of millionaires. The vast majority of them simply work and invest their money to achieve a net worth that has two commas.

The number of millionaires worldwide is estimated to increase over the next five years, reaching an all-time high of 55 million, according to Credit Suisse Research Institute's latest Global Wealth Report. There are currently 42.2 million millionaires in the world. Within the last 12 months, the U.S. added 878,000 new millionaires -- representing around 40 percent of the global increase.

But two researchers have a message for you. You don't have to literally be a millionaire to have a rich life. It's all about your perspective on prosperity.

Consider this: A person needs net assets of just $4,210 to be among the wealthiest half of world citizens in mid-2018, according to that Credit Suisse report. To be in the top 10 percent, you would have to have a net worth of just $93,170.

Want to be in the top 1 percent? It would take a net worth of $871,320. Net worth, or "wealth," is defined as the value of your assets, including real estate (mainly your personal residence), minus your debts.

At the lower level of the wealth distribution, 3.2 billion adults -- or about 64 percent of the world's adult population -- have a net worth below $10,000. Many struggle with having enough to eat, not whether they can eat out.

Although you may never become a millionaire, there are things you can learn from those who have become affluent and others who are likely to join their ranks.

So let's look at the millionaires among us. This month's pick for the Color of Money Book Club is "Richer than a Millionaire: A Pathway to True Prosperity," by William D. Danko and Richard J. Van Ness.

You may not know Danko by name but have probably heard of his research on the rich. He is co-author of "The Millionaire Next Door," which has become a must-read for its groundbreaking examination on wealth in America. Along with his co-author Thomas J. Stanley, Danko introduced us to seemingly ordinary folks who had amassed extraordinary wealth.

Studying the affluent led them to this conclusion: "Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend."

Stanley died in 2015, but Danko has carried on their research and continues to expand it by looking at what it takes to feel rich even if you aren't worth millions.

In the new book, Danko and Van Ness surveyed 1,354 homeowners and separated them into two groups. There were those with a net worth of $100,000 to $1 million. They call them the "up-and-comers" or "mass affluent." The second group was households that had wealth of $1 million or more.

Here's what it takes to be a millionaire: Work hard, be frugal, save, avoid excessive debt and be a consistent investor. By the way, you don't have to be an entrepreneur, physician or attorney.

"Just holding a well-paying, suitable job will enable wealth building," the authors point out.

Most folks are understandably doubtful they'll ever reach millionaire status. GOBankingRates surveyed 1,008 people and asked: "Do you think that you will become a millionaire during your lifetime?"

An overwhelming number -- 71 percent -- said no.

"For most, it is a challenge to become a millionaire," Danko and Van Ness write. "But even if millionaire status is attained, there is no guarantee that satisfaction will follow."

In fact, their research showed that it's not just about the money.

The overarching theme of this book is figuring out what it takes to achieve financial security but also defining wealth in a way that could make you realize you're already richer than a millionaire.

I'm hosting an online discussion about the pursuit of wealth at noon Eastern time on Nov. 29 at washingtpost.com/discussions. Danko will join me to take your questions about his research.

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Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@washpost.com. Follow her on Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

(c) 2018, Washington Post Writers Group

THE COLOR OF MONEY COLUMN

(Advance for Sunday, Nov. 11, 2018, and thereafter. Web release Saturday, Nov. 10, 2018, at 8 p.m. Eastern time.)

(For Singletary clients only)

By MICHELLE SINGLETARY

WASHINGTON -- The cost of college has risen so high that many families are relying on two generations to help cover expenses.

There are the parents, who are increasingly saving in 529 college-savings plans, where earnings are tax-free if used for qualified educational expenses. Then there are the grandparents, who are joining in the mission to get children through college with less debt. They, too, are saving in 529 plans.

Here's the problem. Many grandparents become concerned that their 529 contributions will adversely affect their grandchildren in the federal financial-aid process.

The Free Application for Federal Student Aid (FAFSA) looks at income and assets for parents and students. A 529 owned by a grandparent doesn't get reported on the FAFSA.

But once money is withdrawn from a grandparent-owed 529 and used to pay for college expenses, it's considered income to the student, and it has to be reported on the FAFSA. Because up to 50 percent of a student's income is considered available to pay for college, money used from a grandparent's 529 can reduce aid by as much as half of the distribution amount.

There are ways for grandparents to manage 529 withdrawals to minimize the impact on financial aid.

-- Instead of opening a 529 themselves, grandparents can contribute to a parent-owned 529 plan, which only reduces eligibility for need-based financial aid up to 5.64 percent of the net worth of the assets.

-- Grandparents can open an account and reap any state tax deductions for themselves. But when it comes time to withdraw the money, they can transfer ownership to a parent. Be sure to check first with the financial company managing the 529 plan to confirm you can switch ownership and/or that there are no tax consequences in doing so.

-- Families can use the grandparent's 529 money last. The FAFSA uses tax information from two years ago. So grandparents can wait until after Jan. 1 of the sophomore year to take a distribution and it won't affect a subsequent year's FAFSA, assuming the student graduates in four years, says Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com, a site created to help families understand 529 plans.

Kantrowitz said if it will take a student five years to graduate, then grandparents can wait until Jan. 1 of the junior year to take a distribution. During a recent online discussion, I invited Kantrowitz to answer questions about 529 plans.

Q: My in-laws are making 529 contributions for my three kids. At some point, my in-laws will pass away, and I hope this is long after my kids are out of college. But if it's before they start college, is there anything my husband and I need to do to make sure that the kids have access to these funds?

Kantrowitz: A 529 plan has an account owner and a beneficiary (the child). There are three typical scenarios involving grandparents and 529 plans:

-- The grandparent is the account owner, and the grandchild is the beneficiary.

-- The parent is the account owner and the grandchild is the beneficiary.

-- The grandchild is the account owner (a custodial account) and the beneficiary, with the grandparent acting as custodian until the grandchild reaches the age of majority.

If the grandparents are the account owners, ask them if they have specified a successor owner, in case they pass away. If they haven't, suggest they name you or your spouse as the successor.

Q: If the grandparents are owners of a 529 account and they transfer ownership to the parents to reduce the effect on aid, does that count as taxable income to the parents for that year?

Kantrowitz: Generally, a change in account owner or rollover of a 529 plan is excluded from income at the federal level. At the state level, it depends on state law. Some states treat a rollover to an out-of-state 529 plan as a non-qualified distribution, which will subject the earnings portion to income taxes at the beneficiary's rate, plus a 10 percent tax penalty, plus recapture of state income tax benefits. So it is best to roll over from a grandparent-owned 529 plan to a parent-owned 529 plan in the same state as the grandparent-owned 529 plan.

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I understand the concern about how FAFSA rules treat distributions from grandparent-owned 529 plans. It makes many wonder if it's worth funding a 529 for their grandchildren. They worry they are getting in the way of free money.

However, if the alternative is not to save, that doesn't make financial sense. Much of the need-based aid is in the form of loans. And, as I've repeatedly reported, most students don't get enough in scholarships -- need-based or merit -- for a full ride to college. So there will be a gap, and savings in a 529 plan can help fill it.

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Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@washpost.com. Follow her on Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

(c) 2018, Washington Post Writers Group

About
Michelle Singletary writes the nationally syndicated personal finance column The Color of Money, which appears in The Washington Post on Wednesdays and Sundays. Her award-winning column is syndicated by The Washington Post Writers Group and is carried in dozens of newspapers nationwide. She has written three personal finance books, including her latest, “The 21-Day Financial Fast: Your Path to Financial Peace and Freedom.” Singletary was the financial expert for “The Revolution,” a daytime program on ABC. For two years, she was host of her own national television program, “Singletary Says,” on TV One. She is a frequent contributor to various NPR programs and has appeared on national talk shows and television networks, including “Oprah,” NBC’s “Today,” “The Early Show on CBS” and CNN. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges. As part of this ministry, she and her husband also volunteer to teach financial literacy to prison inmates. She is a graduate of the University of Maryland at College Park. She has received the Distinguished Alumni Award from Johns Hopkins University, where she earned a master’s degree in business and management. To stay informed about various money issues subscribe to Michelle’s weekly retirement and personal finance newsletters, which will be delivered to your inbox every Monday and Thursday.

Archives

Books
  • "The 21 Day Financial Fast: Your Path to Financial Peace and Freedom"
  • "Spend Well, Live Rich: How to Get What You Want with the Money You Have"
Links