"If anyone makes you feel stupid for asking questions about money, you need to find a better person to ask!"
When it comes to financial literacy, the old saying comes to mind: He who asks a question is a fool for a minute; he who never asks a question is a fool for life.
And when it comes to questions about money, who better to ask than Liz Weston, author of the bestsellers “Your Credit Score” and “The 10 Commandments of Money: Survive and Thrive in the New Economy,” and the nationally syndicated question-and-answer column, “Money Talk.” This column is the basis for her newest tome, an e-book reassuringly titled “There are No Dumb Questions about Money.” In it, Weston addresses her readers’ most oft-asked questions on subjects ranging from budgets and debt to couple’s finances and saving for college and retirement.
In an email exchange with Millionaire Corner, Weston talks about her new e-book and urges people to never lose sight of “the bigger picture” as they grapple with money management.
Millionaire Corner: The book’s title could not be more reassuring for people who, as you write, may feel uncomfortable about asking about money. How did this book come about?
Liz Weston: My publisher asked if I’d be interested in collecting my Q&A columns into an e-book. I’d just read a few really terrific e-books by bloggers that were based on their posts, and realized this could be another way to help people with their money issues. The great thing about the Q&A column is it’s all about real people and their real dilemmas.
The answers were originally written for newspapers, which have limited space. Sometimes I can’t do justice to a topic in just a few hundred words. So this was an opportunity to expand on the original answers and offer links to more resources. Also, it’s organized by topic. Instead of clicking around trying to find answers, you can read a chapter about a topic of interest, and it’s developed from beginning to end.
The book also benefits from the fact that I have a lot of smart readers. If I wasn’t clear the first time around, they let me know so I could do a better job for the book. They also tell me things I might not have known that I could incorporate into my revisions. Finally, a lot has changed in recent years, from tax law to lending practices, so I was able to bring my older answers up to date.
MC: You write that no one is born a money expert. Were you naturally good with money? Did your parents encourage financial literacy?
LW: I don’t know that anyone is “naturally” good with money. We all have to learn. Some of us are fortunate enough to have a temperament that makes that easier, or we’ve had good role models. But how often have you seen a family where one kid is good with money and the others aren’t? Same parents, same money lessons, but the children drew different conclusions. If the parents are frugal, for example, one kid might be frugal while another rebels and becomes a bit of a spendthrift.
My mom was a Depression-era baby. She was careful with money and didn’t like to see waste. She taught me to save for a rainy day, to use credit cards only as a convenience and to get a good education. I absorbed those lessons, and they helped me get a good start.
MC: Please complete this sentence: “I wish I had a dime for every time someone asked me about….”
LW: I’d say easily 80 percent of the questions I get have to deal with credit or debt. That was true before I wrote the first edition of “Your Credit Score,” and it’s still true.
I saved that for the second chapter, though, because I think people first need to understand that many money problems stem from a lopsided approach. If you’re spending too much on the basics or “must haves”—especially shelter and transportation—it’s going to be tough to create a spending plan that’s truly balanced, that allows you to enjoy today while saving for the future and paying off the past. So I talk first about the 50/30/20 budget and the importance of wrangling in those basic costs.
MC: Judging by the questions sent in by your readers, do you think the economic collapse has forced many people to become more money savvy and take a greater responsibility in their personal finances?
LW: I don’t buy the narrative that Americans were all hopeless spendthrifts until the recession scared them straight. There have always been spendthrifts, of course. Everybody can point to some shopaholic in their family or to the guy down the street who bought all kinds of expensive toys before losing his house to foreclosure. But the bigger story is that Americans had been struggling for years, decades actually, with shrinking incomes and rising costs for basics like health care and education. Easy credit papered over the gaps until the recession, when a lot of that credit was yanked away.
I think the fallout has made some people more wary of debt, and of investing. I think it’s also underscored the fact that personal responsibility is only part of the equation. We need some corporate responsibility as well. What also got yanked away was the illusion that lenders, if given a free hand, would make sensible decisions. The whole economic crisis stemmed from mortgages that made no sense, compounded by derivatives and other investments that magnified the damage. Those excesses radiated out through the whole economy, so that even people who made sensible decisions suffered—from layoffs, low rates on savings, falling home values and a volatile stock market.
We want people to avoid credit card debt, to have an emergency fund, to get health insurance, to save for retirement. But all that goes out the window if you’ve been unemployed for six months. So we as money writers can help people prepare for setbacks, but we can’t pretend there are ways to avoid or compensate for every hardship people might face.
MC: What are other ways the prolonged economic downturn has impacted how people feel about money?
LW: People are questioning the value of higher education, when actually a college degree is quickly becoming what a high school diploma used to be—the minimum requirement for a decent middle-class life. Yes, college graduates are having a harder time finding jobs, but the unemployment rate for people with college degrees is half that for people with just high school diplomas. Not everyone has to get a four-year degree, but parents should wrap their heads around the idea that their kids are going to need some post-secondary training.
MC: What are the most common money mistakes you see people making over and over again?
LW: They’re not saving enough for retirement. They start late, they raid their accounts, and they think other financial goals, like paying off debt, are more important. The reality is that a good retirement is expensive, and it will take most people a working lifetime of saving to pay for it. When it comes to retirement savings, it’s very hard to make up for lost time. If you don’t have a good start by the time you’re 35, it’s really difficult to catch up.
Also, too many people think carrying credit card debt is normal. It’s not. Less than half of U.S. households had any credit card debt before the recession. In 2010, the last year for which there are Federal Reserve statistics, the proportion was 39%. Credit card debt is toxic to your finances and should be eliminated.
MC: One of the benefits of this book is that it puts a human face on money management.
What drove the questions you chose to address? Was it the topic itself or the personal stories of the questioner?
LW: I tried to include a pretty wide mix of topics and situations. Some are questions I get over and over: How do I improve my credit scores? How do I deal with collectors? Should I raid my 401(k) to pay credit card bills? (The answer is no, in case you’re wondering.) There’s a voyeur aspect to some of them, especially the chapter that deals with families. Some of the situations are so bad that they will either give comfort to people who have similar dysfunctional clans, or else they will make you grateful your family isn’t any crazier than it is.
MC: People I imagine are most focused on spending and saving issues, but what are some money topics that people may be overlooking and that you feel should not be put on the backburner, so to speak.
LW: I’d like people to step back and think about the bigger picture. It’s easy to get caught up in our daily lives and not take a minute to think about where we want to be down the road—what kind of life we want to be leading, what we want to contribute, what kind of relationships we want to have.
That kind of blue-sky thinking is important for setting goals and giving you the motivation for achieving them. If you know you want to take time off to travel, for example, it’s easier to forgo buying more crap or eating out or whatever, because you have a clear and exciting goal.
MC: In your formative years, what is the money question you wish you had asked?
LW: I’ll use a liberal definition of “formative years” to include my 20s. So the question I should have asked was, “Why am I buying retirement property now? In Alaska? In a place where there are no roads?” I still have that 14 acres, by the way. There’s still no road to it. I’m sure the bears and the moose are really enjoying the land.
MC: Putting your title of the book to the test: Are there really no dumb questions about money?
LW: Well, I’m serious that there are no dumb questions about money. No one is born knowing this stuff, and the only way we get smarter is by asking questions from people who can give us good answers. I’m lucky in that I have access to some really smart people—experts in taxes, debt, credit, estate planning, elder law—to supplement what I’ve learned along the way from the Certified Financial Planner training program and from my work as a personal finance journalist. So my parting advice is that if anyone makes you feel stupid for asking questions about money, you need to find a better person to ask!