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“America’s Money Answers Man” and a nationally-recognized expert on personal finance, Jordan Goodman talks about all things finance—from the personal aspects to the market and economy. He gives some great insights about how inflation is affecting not only the US but the rest of the world as well. He urges everyone to invest instead of keeping their money in a bank account where it’s losing value. Teaching some sustainable manners to grow wealth, he taps into the topic of crowd space fund and housing while sharing the benefits of paying the mortgage right. Learn the economics that have changed the tax laws, the six financial personalities, and the future of lending. All of this and more as he also adds a personal touch, sharing his mentors and financial philosophy and his “The Money Answers Show”.
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Jordan Goodman: Finance, The Economy, Markets, And Growing Wealth
Ayn Rand, founder of the philosophy of objectivism and author of best-selling novels like Atlas Shrugged and The Fountainhead claims that humankind’s greatest virtue is rationality, our ability to think. It’s the primary variable that sets us apart from the other animals in the animal kingdom. As challenges and inefficiencies of the passive manifested, we rise up and figure it out. The world has always had its challenges. The list is endless in our day and age, have faith that someone is working on them. My question to you is, “What are you working on? What are you trying to solve?” As you may have concluded, that is the topic of our show today, solutions and answers to challenges. My guest is America’s Money Answers Man. Welcome to The Wealth Standard Podcast. This is episode twelve of season three and my guest is Jordan Goodman.
Jordan, thank you so much for spending some time with me. I’m excited to have you on. Welcome.
It’s great to be with you, Patrick. I appreciate it.
You have one of the most impressive resume résumés in relation to personal finance, investing and so forth. It spanned in multiple decades, multiple market corrections and rebounds. I’m assuming you’ve probably heard and seen it all. Why don’t you maybe give the audience an idea of your background, how you got this personal finance and investing bug and how you’ve kept the bug going? Because going through 1987, then dot-com and then 2008 and 2009, what was the bug initially and what keeps you going?
I went to Amherst College undergraduate and the Columbia School of Journalism, where I majored in economic reporting there. Soon after that, I went to Money Magazine, where I was for eighteen years. That was on the glorious ‘80s. It was all about mutual funds, everybody was trying to make lots of money there. I saw the boom. I saw the bust. The night of the 1987 crash, I was on Nightline with Ted Koppel saying, “We’re not going into depression tomorrow.” I said, “This is a market event, not an economic event.” Then I saw the boom again in the ‘90s and the dot-com crash and the boom again in the mid-2000s and then the 2008 crash and now in the last few years, we’ve had an incredible boom as well. My mission is to help people navigate these very difficult waters in the investment world, but everything else as well. I help people with mortgages, credit card debt, insurance and all kinds of things. I’ve been doing that for about 40 years. I’ve gone through a lot of different cycles, up and down. I love to help people and to answer their questions and do podcasts like this. I’ve got my own show called The Money Answers Show.” I’m on lots of regular radio shows all the time. It’s been my mission and passion from the beginning.
As I mentioned, you’ve probably heard of every product, strategy and idea in the books. How have you come to conclusions personally? Especially the conclusions you talk about that are viable. They have a good degree of certainty and it would help to sustain your level of credibility.
When I was at Money magazine, there are all kinds of things being pushed at us all the time. We have to get through these things and see what works and what doesn’t. There are things that do work. A lot of people are so overwhelmed by so many choices that they end up doing nothing. That’s not going to get your head. If you keep your money in a savings account, checking account or CDs, you pretty much earn zero. That’s not keeping you up with the cost of living. Your purchasing power is being lost silently by having your money earn nothing. A lot of people don’t realize that. Officially, inflation is maybe 2%. In the real world, it’s much higher than that. You see what’s happening to tuitions. They are going up 6% to 7%. Healthcare costs are going up dramatically. Healthcare premiums are going up dramatically. Property taxes are going up. Now, the after-tax cost of housing is going up because the tax deduction has been limited to $10,000 for both property taxes and state income taxes. On high tax states, the after-tax cost of housing is soaring dramatically. Gasoline oil is up. There are a lot more inflation out here than most people are officially recognized. Therefore, you have to have your money earning something to be able to at least keep your purchasing power if not gain some of that.
Isn’t it interesting the conversation around inflation can be a show by itself because you have a lot of things that are going down in price, whether it’s TVs or automobiles and then you have computers. Then you have things that are offsetting that and typically, they’re the things most controlled and influenced by government.
The things you talked about, you buy them once every five years or every ten years, a computer or a car, but your everyday things like tuition or gasoline or food or healthcare, those are the ones going up. There is a lot more inflation in the system than people talk about.
My wife showed me something. She’s from Mexico originally. They are in the process of their elections and the prices have more than doubled in the last six years. We often don’t pay attention to other markets, but inflation is rampant everywhere, not just the US.
In the emerging markets like Mexico. In Venezuela, money is completely worthless. In Turkey, South Africa and Argentina, their currencies have plummeted against the US dollar, which means that everything is more expensive for them. Inflation is way up there in all those emerging countries and it’s painful because their dollars, their debt is denominated in dollars. As the dollar has been rising, it’s getting more and more expensive for them. There is much more inflation in the world than the official numbers will tell you.
Your point was to invest instead of keeping your money in a bank account where it’s losing value. Figure out ways to grow that wealth, but do it in a sustainable manner.
I’ll give an example. Something I’m involved in is called the Secured Real Estate Fund. The website for it is SecuredRealEstateFunds.com. It’s a way of getting an 8% yield over a one-year timeframe and the net asset value stays at $10 a share. It doesn’t go up or down. As interest rates have been rising, people are losing money in bonds. In something like this, as interest rates rise, it doesn’t affect you because it stays at $10 a share in net asset value. They lend money short-term to commercial real estate projects on the country. It’s a new concept, which is called crowdfunding. This is like a crowdfunding fund. The SEC started approving these things in 2016. It’s technically called a Regulation A-Plus Fund. What it means is the average person can get into something, in this case a minimum $5,000. In the past, it would have been like $100 million for a big pension fund and they can get an 8% yield paid monthly. They can either take it or reinvest it inside an IRA, outside an IRA. They have a good track record. One of the things that’s unusual about it is they get a profit-sharing distribution as well. The projects that they fund when the projects sell, the developer shares some of the profit with the fund and gives 8% to the shareholder. In 2017, the actual return was 8.7%. So far this year, it’s been about 8.4%. There is a way without having the volatility of bonds, you can get an 8% yield as opposed to zero in the savings account or a checking account these days.
Maybe you can expand on some things that I try to talk about often when you come to an opportunity that’s worth sharing with your audience. I too have seen lots of opportunity in that crowd space fund. We had a good company on here a couple of years ago, Fundrise and they spoke at an online event that we did. They were in DC where some of the pioneers were getting that reggae done. They have a tremendous platform. I see tons of opportunity there, but looking at an idea. In this case, it’s secured real estate funds. It’s also getting a specific return and so forth. How do you about looking at an opportunity and realizing that an idea and a product is one thing, the execution is another? You have great ideas out there all the time, but the people behind it, the systems behind it, the business behind it jack it all up. How do you go about looking at an opportunity like that and determine, “This is a company that has history, has reliability. They have a mission. They’ve proven things historically.” How do you go about doing that?
You’ve got to look at the track record. In the case of the Secured Real Estate Funds, the fund managers who make the real estate decisions have been doing this for 30 years have a long track record before they ever did this specific plan fund. It’s $150 million in projects they’ve done. I’ve talked to him. He has an 1,100-point checklist before he’ll do a deal. He’s seen every mistake everybody has ever made and he makes sure they don’t make it again. They check out the underwriters of the project very carefully and make sure the project makes sense. They also hand the money out in draws. They don’t get to give them all the money upfront and say, “Come back in a year.” They say, “Put the foundation and we have to inspect it and then make the next one.” There’s a lot of safekeeping and also to diversify across the country both geographically and by different types and not putting it on one thing. They’ll some apartment buildings. They’ll do medical offices. They’ll do student housing. They’ll do assisted living. It’s diversified both geographically and by types. The Fundrise, my understanding of that it was like individual deals that you can do.
They have portfolios now too. They started out with individual deals and that’s where they got in the door with the SEC and they spent tremendous time and energy, but they were right on the corner in DC. They leveraged their parents’ big development company that’s been around forever. It started individually, but then got to the point where they were linking up with different markets and portfolios.
That makes sense. You want to do a diversified portfolio. If something goes wrong with a particular deal, it doesn’t hurt you. It’s part of a bigger portfolio, so that diversification makes sense. There are definitely options out there, but the point we’re making is you don’t have to be sitting there in the bank earning nothing while your cost of living is going up. Those are two examples that can hopefully help some of your folks.
Maybe go back to something I was curious about. As you’ve received probably tens of thousands or maybe millions of questions, what are the more common ones that you get? That is agnostic to the market or the period of time whether it was ‘80s, ‘90s, 2000s or now?
Master Your Debt: Slash Your Monthly Payments and Become Debt Free
Getting out of debt, that’s a big one. We are in a debt bubble right now. The big four, mortgages, credit cards, student loans and car loan debt are all soaring dramatically. People don’t know how to get out of debt. That’s an area that I’ve specialized in. The book I did is called Master Your Debt where I go into all this in some detail. That’s an area where I could help people and I’ll start off with mortgages, which is the biggest debt that people have. They don’t realize that if they do it right, they can pay off a 30-year mortgage in about five to seven years or so on their existing level of income. This is generically called mortgage equity optimization. It’s transformative to people. What a difference in their life? You have a couple who is 35, whose mortgage is paid off by 40 instead of 65. Isn’t that going to be so much better for them? Even more so now, with the new tax law means that there are limitations on mortgages. You don’t get that deduction you get in the past. You want to pay those mortgages off as fast as you possibly can. I’ll do a brief explainer of how mortgage equity optimization works. It’s not something most people have heard about.
What you do with a traditional system, you have a 30-year mortgage. You make the same payment for 30 years and you keep your money in the checking account earning zero. The system works well for the banks. You give them your money for free and you pay them the terms of interest with all the interest being upfront loaded in the first ten to fifteen years. You make very little progress on the principal. That’s the existing system. The mortgage optimization system reverses everything. Your money is working for you instead of the bank. You use a home equity line of credit, HELOC, is what they’re called, which is a liquid line against your house. You put money in, you can take it out whenever you like. You keep your income in the HELOC pushing down your principal every day. HELOCs are based on what’s called average daily balance, how much do owe now?
Let’s say you had a $50,000 HELOC, you’ve got a paycheck for a $1,000. You put it in, you now owe $49,000 instead of $50,000. You’re paying interest on a lower and lower balance all the time. You pay your bills out of the HELOC and the point is your money every day is pushing that principal down. You combine the HELOC with the first mortgage, what I call the blended strategy and you pay the first off. Let me do a very oversimplified example of how this might work. Let’s say you have a $300,000 home and you had a first mortgage of $200,000 on it. You would go say a 4% rate or something like that. You would go get a HELOC for maybe $50,000 would be an example. You open it. It’s free and clear. You write a check on the HELOC $50,000 towards the first. Now, instead of owing $200,000 in the first, you owe $150,000 on the first and $50,000 on the HELOC. You get your money in there. You pay that HELOC off over a year or so, $50,000 down to zero. You then do it again. Instead of $150,000, you owe a $100,000. You pay it off. Do it twice more and after four years, your first is paid off. You pay off the HELOC. In the fifth year, you are now mortgage free.
That’s a dramatic oversimplification, but that’s the idea is every day your money is working for you instead of the bank. There’s a free website. You can model it for yourself to see if this would be appropriate for you, which is TruthInEquity.com. You go on there and they do what’s called a personal profile. You put in your income, your expenses, your home value and your mortgage. It’s going to say, “Based on what you’re doing now, it’s going to take you 28.5 years to pay off your mortgage. Based on the numbers you gave us, it’s going to be 5.3 years,” or whatever comes out to be. Then they show you step-by-step how to do it. There are three things you need to make that work. You’ve got to have a positive cashflow, more money coming in than going out. You’ve got to have equity in your house and you’ve got to have a decent credit score of 680 or higher to qualify for the HELOC. I bet the vast majority of your people are going to have those three things. They can save tens of thousands of dollars in needless interest and 25 years or so off their mortgage. That’s a very powerful strategy. Probably a lot of people have not heard about it because the banks are certainly not going to tell you about that one.
Banks offer product, rarely do they offer a strategy. If you look at the primary expense people have in life and it’s their housing. It’s interesting especially now because there are some ways in which you can analyze whether a home is worth buying or is it better renting. It’s all based on the circumstance. Right now in most markets based on finding a place to live, it’s arguably less expensive to rent than to buy. When you buy, you have to come up with the down payment, which means that money can’t be invested, so you have a cost there. You also have maintenance and upkeep, insurance and taxes that you’re responsible for. Sometimes those payments can end up being more than what a rent payment would be. It’s interesting where people look at their housing. Housing to me, you want to optimize the economics of it, but economics shouldn’t always determine or be the leading influence. Because I did that and I got my wife mad at me for several years. I did it twice. The idea is like there’s an emotional decision and there’s a financial decision. An emotional decision often drives that, but when it comes to the economics, that’s still vital. The way in which you acquire is important, but the way in which you manage your mortgage and how you manage your cashflow is also vital.
The economics have changed because of the tax law particularly in the higher tax states. Not always but in many cases, renting does make sense particularly if you want to move, which so many people go from one job to another. You don’t want to be tied down to a particular place and have to sell your house into a bad market. A lot of people get stuck that way. There are some people in 2008, 2009 that have been able to sell in bad market. There are good markets, Seattle, San Francisco, Austin and other places where the market is doing well. The prices are so high if you sell and you have no place to go. Housing is a big issue. A lot of people don’t deal with it correctly.
I want to go back to a few things. Your housing that’s a strategy. Money in the bank is another strategy. Debt is something to be to be conscious of. Talk about mindset when it comes to money and finance as opposed to strategy because I’ve seen a lot of the things that you’re talking about right now. I’ve heard about it before and seen certain programs. I’ve seen some succeed and some fail, but it’s rarely the results of the actual product or service. It’s typically the results of the actual person executing properly. Talk about how you address those concerns and questions that people have or maybe they don’t even know or they don’t even recognize that they’re the problem. How do you typically approach that idea or that situation?
Master Your Money Type: Using Your Financial Personality to Create a Life of Wealth and Freedom
I did a whole book on this topic called Master Your Money Type, where I divide people into six financial personalities. Understanding what your personality is going to help you make the right decision or at least understand the decision you’re making. I’m not going to go into all the details, but the six types are strivers, high rollers, ostriches, squirrels, coasters and debt desperados. It came out of how your upbringing was or what your parents were. You might be the same or you might be the opposite of your parents. If our parents grew up in the depression, they’re going to be squirrels. They are going to be very fear-oriented, penny pinching, worried about everything and not wanting to take any risk. In general, the Baby Boomers have grown up in prosperity, so they tend to be coasters or high rollers even. That’s part of the mindset is to understand the way you look at money. When you’re dating somebody or going to marry them, understand what their money type is. You don’t have to be the same money type, but at least it can avoid a lot of conflict if you know where you’re coming from and the way you look at money.
Aside from your book, there are ways in which you can determine what that mindset is. If you’re happy with your finances, then there’s no real need to change your mindset. If you’re unhappy, if things are unhappy, if things are not working, what typically is the basis of shifting from maybe the ostrich to the striver or is money mindset static and you have to deal with that the rest of your life?
You’re going to have a predominant one based on your upbringing, but be the best you can, be the best squirrel you can be. If you’re going to be a squirrel, you don’t have to be an uber squirrel and get out of your risk tolerance a little bit. If you keep your money in the bank earning nothing, you may feel safe as a squirrel, but you’re losing purchasing power. Push the envelope maybe not in your normal level of comfort, so you can do better in these things. The debt desperado is too comfortable with getting into debt. You go to a casino in Las Vegas and there are ATM machines. People are taking money out of 18% to put up on the tables. It drives me crazy. That’s the desperado mentality. You’ve got to have a counterweight to your normal money type.
What are some books that you’ve read or mentors that you’ve had that have formed your original financial philosophy and then talk to us about how it’s evolved over the years and who you are influenced or pay attention to now to get an idea of where things are, what opportunities are and where things are going in the future?
The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later
Peter Lynch was a very informative one back in the ‘70s and ‘80s and picking stocks of companies you know very well. He did so well with that. That was certainly of influence to them. I like Ric Edelman. He has a book out called The Truth About Your Future: The Money Guide You Need where he talks about all the new trends that are happening whether you like them or not. You can have them work for you or you can have them work against you. Robotics, cloud computing, 3D printing, artificial intelligence, biotechnology and there’s a whole bunch of different things. They are happening. You can get run over by them or you can have them work on your behalf. That’s been an influential thing. He has got an exchange traded fund called The Exponential Technologies Fund with the symbol is XT, which has about 200 companies that benefit from all those exponential technologies. That’s an example of how you can have it work for you because a lot of people don’t know these things are coming. Their jobs are going to be disappeared out of robotics or artificial intelligence. They don’t know what hit them. That’s an influence that has been very helpful.
What are some of the topics you’ve been discussing consistently on your show, The Money Answers Show?
Other ways of getting out of debt. We talked about paying the mortgage off faster. Some of the other ones, car loans. A lot of people have big car loans, bigger than they can afford. They don’t realize they can refinance those car loans to a much lower interest rates or change the maturity to a level that’s going to bring their car loans down. There’s a free website MyLoanGem.com. You go in there and put in how much you owe on the car, how many more months you have to go, what your monthly payment is and the interest rate. Then it gives you a little dial that you can choose what your payments are going to be. Basically, the interest rate or the maturity. Let’s say you’re paying $500 a month. In the next three years, you’re finding that too much to handle, so you moved it up to six years, maybe it goes down to $250. It makes it more affordable. The new thing now is that these car lenders are putting a device in your car, which can disable your car while you’re driving along the highway if you don’t make your payment. That’s given them the courage to make a lot of subprime car loans that in the past they wouldn’t have made. Now they disable the car. They know where GPS. They can send the repo man and take your car right away. That means a lot of people have gotten car loans that they wouldn’t have gotten in the past, particularly a subprime car loan. There’s a resource that can help you do better with your car loans instead of typically what you’re going to get from the dealer.
I want to ask about what you see as the future of lending and finance from a from a lending standpoint. I look at some of the trends especially in insurance where you have these startups that are placing sensors in phones or in cars that determine how fast you go, determine if you break hard, determine if you go over certain speed limits based on the area and that’s how they determine your insurance rates. Going into lending, subprime was hurt because of a number of factors both housing as well as cars. Looking at some of the technology and optimization in which they’re keeping people disciplined in making their payment, what are you seeing there? Because there are still business loans that I analyzed that people don’t know how to calculate what an interest rate is. They think they’re getting a good deal on a 20% business line of credit or a 15% car loan. What do you see as the future as far as lending is concerned, but also consumer awareness when it comes to knowing that they got a good deal on a car or a good deal on a loan or a credit card or whatever?
The Credit Card Act of 2010 supposedly made for more disclosure, so people know what they’re getting into. You’re paying a credit card and you pay the minimum amount, it will stay around in your statement it’s going to take you 32 years to pay it off at this APR. Hopefully, that’s made it a little bit better. Let’s talk about small business loans because I know you have some small business owners as part of your followers there. That’s an area where there are some good things going on and some bad things going on. I’m talking about the bad things first. There are what are called merchant cash advances, MCAs, which they take over your credit card receivables and they take fees out every day. The interest rates can be like 400%. They don’t call it an interest rate, they call it a fee. The last I heard was there’s about $600 billion worth of merchant cash advances out there. It’s the payday lending of small businesses.
They get on this treadmill and they can get cash in a day unsecured. Then they take fees and they need another loan to be able to pay off the past one. The same thing is happening to small businesses that was happening before with payday lending and consumers. That’s would be the bad way of doing small business lending. There is a better way. There are these clearing houses that will help small businesses get legitimate loans from new kinds of sources, not traditional banks. Hedge funds are willing to invest in small businesses. There’s a website that can help people, which is called CorporateLendingSolutions.com. At that site, they have accounts receivable financing, payroll financing and equipment financing. There are lots of different ways of getting financing and they will vet you as a business owner, as a potential borrower. Then present you to the place whether it be a hedge fund or some alternative organization. We can get decent interest rate 6,% 7%, 8% or a revolving lines of credit if you are decent business. That’s a website that can help people and I would avoid these merchant cash advances, which are killing a lot of small businesses.
People are not aware of it because they use factoring rates of 1% or 2%, but they don’t disclose timeframe and frequency in which that percent is charged.
There is a loophole in the Dodd-Frank law, the Consumer Financial Protection Bureau, the CFPB, has jurisdiction over consumers but not small businesses. That’s how these MCAs are getting away with murder as far as I’m concerned because CFPB doesn’t have jurisdiction over these MCAs.
Some car loan programs fall into that too because you see some very similar ways in which those are structured as you do with merchant lending.
On the positive side, I know you deal out with insurance, life insurance and so on. One thing a lot of people are not aware of, is being able to sell your life insurance policy into what’s called the life settlement market and get hundreds of thousands of dollars that otherwise you’re going to get nothing if you let the policy lapse. That’s as we talked about mortgage optimization, the bank will never tell you about that. In this case, the life insurance company will never tell you, you can sell your life insurance policy for potentially hundreds of thousand dollars.They would much rather you let it lapse. You pay them premiums for many years. You take whatever cash value is left and they’re off the hook. This is what’s called life settlements. A simple example, say you have a policy worth $1 million death benefit and say you’re 70. Maybe you’ve got a heart condition or some medical condition, you could potentially sell that $1 million policy for like 300,000 or something like that. You sell it to the hedge fund or various other institutions. They pay the premiums and when you die, they get the million. They’re going to get a big payoff, they just don’t know when. The older you are and the sicker you are, the more you’re going to get that policy. That can be enough to fund people’s retirements and make a huge difference in their lives that the insurance companies are never going to tell them about. There’s a website for that too, which is FundingLife.com. What they do is they put together buyers and sellers. You would be the seller of a life insurance policy.
I want to talk about the economy and what you fall as far as economics, whether it’s life settlements. Even reverse mortgages fall into a certain category that may not be applicable to the audience, but I would argue that. I look at where the demographics are and we’re on the cusp of having a very old population incapable of working, but also very ill-prepared when it comes to their future and potentially a longer life expectancy than they anticipated. Most states have enacted what’s called a Filial Law, which essentially the children or parents on the hook legally for their expenses.
If you have assets that are exhausted before maybe they use state funds or even Medicare, the kids are on the line as far as taking care of them, even if it’s an estranged child. As kids are seeing their parents age and recognizing that there is going to have to be some help associated with them. Whether it’s in financial matters or whether it’s care facilities or the long-term care because of that incapacitation. That’s where a lot of the life settlements if it’s an expiring or a term policy or an expiring universal life policy, those are ideal for settlements. Reverse mortgages had a stigma in the past, but fees are coming down. Reverse mortgages are adopting now, which is making it a little bit more affordable.
They are and those are the two main assets a lot of people have, their homes and their life insurance policies. They don’t realize they can get cash out of both of them on the reverse mortgages. They’ve made it stricter now, which is a good thing. Meaning you have to prove that you can pay property taxes and insurance. Whereas in the past, it was like people’s last desperate effort and then would default anyway. Once you can show you can pay the proper tax and insurance, you can get a reverse mortgage and then you take that assets and you’re going to pay off your forward mortgage. Hopefully, whatever you’ve got left, you can either pay off credit card debt or other debts or invest it to produce income for you.
That’s how I look at kids. There may be a paid off house and there might be a policy that they could pay out in the future to them or the house can be transferred to them through a will or passing away, but that means they have to come up with all the money right now to care for their parents. Whether it’s a care facility, whether it’s in-home care or whether it’s transportation. Kids are on the hook for that. That expense is growing.
There is a website called ReverseLoanChoices.com, which is an objective site to look at all the different possibilities with reverse mortgage. In the right circumstance, you have to be at least 62 years or older, the older you are, the more money you’re going to get. You’ll be able to get roughly 50% of the value of the home or something like that. You don’t have to make payments. If you do make payments, it’s good, but if you don’t have to, the interest is accruing. Down the road when you need to sell the house or the person dies, they would collect what they paid out in the first place plus the accrued interest. The two things we talked about, reverse mortgages and life settlements can help a lot of people. A lot of people have gotten to retirement without having saved almost anything is what it comes down to. The latest numbers I saw is 40% of the people receiving Social Security retirement benefits, it’s their only source of income. Those are two aspects.
Even those that have saved some, over 60 years old, the average retirement account is like almost $200,000, which seems a lot, but then if you look at Monte Carlo simulations, it’s nothing as you stretch distributions out over a long period of time. There’s a dilemma and it’s concerning to me. I don’t know how it’s all going to play out. In the end, kids that who are preparing for themselves and trying to gain financial education and be more responsible with their finances, it could be totally disrupted by the lack of preparation on the part of their parents.
The middle generation are being hurt by that, the parents needing their money and so on. The kids because of the student loan debt is huge that something over 50% of the kids graduating each year are going back and living at home again. You thought you had an empty nest. That was a four-year empty nest and now what I call the boomerang generation keeps coming back at you loaded down with student loan debt. The average person is graduating with about $39,000 in student loan debt. The people in the middle, they’ve given money to their kids. They don’t have time to save for themselves. Now, the parents are coming back. You’ve got the boomerangers and what I call the parents, the reverse boomerangers, the parents moving back with the kids. Let’s talk about student loan debt because it’s a big issue for a lot of people.
I want to segue into the economy too. I want to use the context as student loans are not sustainable. Credit card balance is not sustainable. Car loan balances is not sustainable and you have this big glut in the sense of debt and what’s the way out? Maybe you can talk about that when it comes to student loans because that is a very touchy subject.
Finance: There is much more inflation in the world than the official numbers will tell you.
There are about $1.5 trillion in student loan debt outstanding. The average person is about $39,000 in debt. Every graduation season, we add about $100 billion in new student loan debt. It’s staggering. What can they do? If they’ve got a whole bunch of different federal loans at different interest rates, they can consolidate into one. There’s a website for that, ConsolidateCollege.com. The other thing they can do, a lot of people don’t realize, you can refinance your student loans to typically in the 2% to 3% area instead of 5% or 10% or much higher rates if you have private loans. You would combine private loans and federal loans into one in the typically 2% to 3% area. A place I recommend there is Credible, their website Credible.com/moneyanswers, they know it’s me that way. You get $200 off your first payment. There are about ten different lenders who will offer you different kinds of deals, some of them fixed, some of the variable with different interest rates. The point is you have one loan instead of money that can help you get that student loan at least under control a little bit. You can’t make it disappear. Because of the bankruptcy laws, you cannot discharge student loan debt in bankruptcy, that’s an IRS debt.
Do you see that changing?
No, I don’t. If that changed, nobody would ever make a student loan again because people would skip out of their student loans a lot. It’s unfortunate, but it hangs over you. The delinquency and default rates have soared on student loans. It’s up to about 20% these days because people can’t handle the amount of student debt. They can’t pay it, but it doesn’t go away the way credit card debt would if you go bankrupt.
Let’s talk about the economy because you have a lingering generation that is coming to the realization that they haven’t necessarily prepared for retirement adequately. They are staying in the workforce longer than they have anticipated. As you grow older especially in our economy, there’s less efficiency associated with working and providing value and so forth. You’re also having the opportunity cost because younger people are not getting into the workforce that could potentially make the business more efficient. There are variables that you can argue against that, but ideally that would be the case. You have people working two, three, four jobs and you still have the levels of debt going up.
Going back to 2007, 2008 or for you going back to 2000, what are you seeing right now that you saw then? What are some things that didn’t occur then that you’re seeing? The economy banks, lenders, Wall Street, they learned lessons about derivatives. They learned lessons about lending. They learned lessons through all the different booms and busts of the last couple of decades. You always have that funny thing about human beings, it’s like the gambling mentality. You make a bet and you win and now you’re like, “I’m going to take even more risks. I’m going to make another bet,” and you win and you keep making another bet. In the process, you get sloppy and sooner or later the house collapses. What are you seeing right now within the context of that statement?
I don’t think people learned, maybe they learned, but they’ve forgotten the message from 2008. That was people getting way over their heads in mortgage debt. The mortgage that they should never have taken on or should have qualified. That’s better now because the Dodd-Frank rules have made it harder for people to get mortgages and get themselves into trouble. Still you see a lot of fix and flips and people doing speculative real estate now. That’s a game that could come to an end if interest rates keep rising. Credit card debt is over $1 trillion at very high interest rates. People are way in over their heads on credit card debt. We talked about student loans and car loans. All four of them are going up dramatically. When times are good as they are relatively now, people forget the times they were bad. The banks are willing to extend them the rope to hang themselves when that comes down to. If we talk about credit card debt, if you’re in that circumstance and you’ve got a lot of credit card debt at high interest rates, there two things you’re going to do.
Get lower interest rate credit cards, a free website is GuideToCreditCard.com. All the best deals you can get there and nonprofit credit counseling. They will combine all your debt into one payment at a lower interest rate typically 6% to 7% or something like that. My favorite place that’s called Cambridge Credit Counseling, CambridgeCredit.org is their website. They’ve already got deals with Bank of America, Citibank and Chase to get your rates you couldn’t get around and it’s a discipline. It’s what’s called a debt management plan, a DMP. You make one payment a month. They pay the creditors and you can get out of debt. You need the discipline to do that, but that’s what happened to a lot of people, they spend too much. Particularly what drives me crazy, is on consumable items. A cruise or a nice dinner or something that’s gone and you’re paying interest on it a month later. You don’t even remember what you ate. That’s not a good use of your money.
The first job I had gotten when I was a senior in college is at a center like that where there’s a nonprofit arm up and there was a sales arm. This was back in 2003, 2004 and I realized that people have big issues when it comes to money and it hasn’t changed me. We’re years later and it’s still the same. That’s where it’s a combination of using strategy, but it’s also the human behavior side of things. Where if you’re in the situation, it’s not necessarily a debt consolidation or a refinance that’s going to do the trick. It’s one of the variables. The other variable is to obtain some level of financial education, so you don’t make the same mistake twice. The reason why we’re in this issue is because banks got away with murder in 2008, 2009.
They propagated a lot of the derivative markets and propagated a lot of the different loan programs. They took advantage of people in a sense and they got a bail out. I was part of that. I personally guaranteed some stuff with a partnership that I formed this company with and I got hammered. I realized how much power they have to get a judgment on you and tarnish your bank accounts. These guys have it dialed in where they can make your life miserable and force people into bankruptcy. Right now, it’s evidence of that. Wells Fargo is one of staring us in the face examples. It’s one to recognize and understand what your options are, but it’s another to essentially have a mindset and a level of education that helps you to make the right decisions going forward after you make the most of the situation as it exists presently.
Education is a big part of it and people go through school and they learn all about Greek philosophy and German music and Etruscan pottery and all kinds of wonderful things. How to do a budget and how to pay your mortgage off and invest, all the things that we’ve talked about is like a foreign idea to them. In my money types, those are the ostriches. “I don’t deal with money, it will take care of itself somehow.”
That’s the unfortunate part. There’s no perfect system. There are always these ideal systems. In politics, there’s nothing that it’s ideal regardless of what the political parties says. In the end, we have enough experience based on what’s occurred in the past to recognize where the pitfalls are with our financial behavior, our investing habits, our savings habits, our purchasing and consumer habits. There are ways to live a pretty amazing life these days. One of the things I always love to talk about and do is question everything. Even if it’s something that’s so mainstream, it seems like it makes so much sense The actual questioning of it and the understanding of it opens a person’s mind to engage their senses. People know intuitively what to ask when it comes to what they do here or what they do there. That’s where a starting place is but I look at where we’re at as an economy, as a society and there are a lot of red flags for me. At the same time, it could keep going in another ten years.
It’s making good habits is where it comes to and that’s what you do and that’s what I do. We help people get into good habits. Getting out of debt and not getting into it in the first place, having investments and savings that are working for them and making the most of their assets. We’ve talked about real estate. We’ve talked about life insurance. You make relatively small moves that can have a big positive impact. In general, I like to live a positive compounding life instead of a negative compounding. The positive, it’s producing more money and you’re getting a compounding impact. Negative compounding is you pay the minimum on your credit card and the amount of interest you owe is rising all the time. What a difference in your life if you can get the right habits to do positive compounding instead of negative compounding.
Finance: You always have the gambling mentality that is funny about human beings where once they make a bet and win, they are going to take even more risks.
Jordan, thanks so much for your time. This has been an awesome conversation.
There’s a landing page I’ve created specifically for your people, which is Go.MoneyAnswers.com/WealthStandard. You can follow up on some of things we talked about. I’ve got a free monthly newsletter they can get and see all the different resources I have at MoneyAnswers.com and videos. I’ve got a YouTube channel. I’ve got a blog. I’ve got a newsletter. All kinds of things, we’ve touched the surface and some of the ways I try to help people do better with their money.
Jordan, thanks again. This has been a very valuable conversation. Thanks for all the resources that you provided. We’ll have to do this another time.
Thanks so much, Patrick. I appreciate it.
About Jordan Goodman
Jordan Goodman is “America’s Money Answers Man” and a nationally-recognized expert on personal finance. He is a regular guest on numerous radio and television call-in shows across the country, answering questions on personal financial topics. He appears frequently on The View, Fox News Network, Fox Business Network, CNN, CNBC and CBS evening news.
For 18 years, Jordan was on the editorial staff of Money magazine, where he served as Wall Street correspondent. While at Money, he reported and wrote on virtually every aspect of personal finance. In addition, he served as weekly financial analyst on NBC News at Sunrise for 9 years and the daily business news commentator on Mutual Broadcasting System’s America in the Morning show for 8 years.
He is the author / co-author of 13 best-selling books on personal finance including Master Your Debt, Fast Profits in Hard Times, Everyone’s Money Book, Master Your Money Type, Barron’s Dictionary of Finance and Investment Terms and Barron’s Finance and Investment Handbook.
He has also written 6 special focus editions of Everyone’s Money Book on College, Credit, Financial Planning, Real Estate, Retirement Planning and Stocks, Bonds and Mutual Funds, and hosts the Money Answers Show podcast.
Jordan is also a speaker and seminar leader on personal finance topics for business executives, students, associations, investment clubs, employees and others.
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