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Senator Max Baucus' Health Care Bill; Winterizing Your Home; College Kids and Finances: When to Bail Them Out

Aired September 19, 2009 - 09:30   ET


GERRI WILLIS, CNN NEWS ANCHOR: Hello, I'm Gerri Willis and this is YOUR BOTTOM LINE, the show that saves you money.

The very latest in health care reform, what the proposals would really mean to your bottom line. Plus we're breaking out the Truth-O- Meter. Then and winterizing your home, you better believe it's not too early to get ready for that cold weather ahead and save some big one. And when to financially bail out your kid on campus, when it's appropriate and whether they should go it alone. YOUR BOTTOM LINE starts right now.

Well, it's been one year since the collapse of Lehman brothers which helped push the economy into a tailspin. For so many of us, this year has seemed endless, but some good has come out of all of it. Valuable lessons we have learned about out spending and saving and what we still need to work on when it comes to our personal finances.

Here to help us today, two of our favorite people, Ryan Mack is the president of Optimum Capital Management and Lynnette Khalfani-Cox is the author of "Zero Debt: The Ultimate Guide to Financial Freedom."

Welcome to both of you.

RYAN MACK, OPTIMUM CAPITAL MGMT.: Thank you for having me.

All right, so Lynnette, I want to start with you, what are the lessons we've learned here, do you think?

LYNNETTE KHALFANI-COX, THE MONEY COACH: You know, I think one thing is that we can't take risks that we shouldn't be taking, obviously, whether it's overextending yourself with credit and debt, "leverage" as they say on Wall Street.

Clearly for consumers I think one of the big lessons that I'm glad to see we've learned is that we've got to save, we've got to get back to basics and we're seeing that reflected in the numbers. People are, in fact, saving more, after so many years, where the savings rate was flat to negative and that's a good thing.

WILLIS: Yeah, that's definitely a good thing.

Ryan, what would you say?

MACK: Well, defiantly savings is one of the top key issues, when individuals say emergency fund and making sure that it's that much more important, 9.7 percent unemployment rate, a lot of people losing their jobs, six to nine months of living expenses is imperative.

When you look at it, if it costs you $2,000 to support yourself in a given month you need to save $12,000. That seems like a whole lot of money. Well, just make mohills from your mountains. Start saving $1,000, 12 times and then that might -- maybe they can divide it up and be able to make sure they can get that emergency savings.

WILLIS: You mean, It takes small steps. You'll eventually get to your goal.

MACK: Exactly.

WILLIS: You know, I think, though, there are still some lessons out there we probably haven't learned and we're still struggling with that and one of them has to be about credit cards and credit scoring and this is still such a tough topic for so many people. Lynnette what, would you say about credit scoring? This is a mist troy so many people.

KHALFANI-COX: Right, I think that consumers haven't yet gotten used to the fact that we're in an entirely new credit landscape and I think this is going to be a changed environment for years, if not decades to come. And so one of the things I think people need to do is to recognize that, yes, we're in this short term period where banks are raising interest rates, tacking on additional fees, slashing credit lines, but you need to be vigilant about every aspect of your credit.

Every single transaction is what I'm telling people, every single transaction counts. Pay that library bill on time, pay those, you know, student loans and mortgages and credit cards, et cetera, but don't forget about the small things, too, like your cell phone or your utility bill because you don't want something seemingly small to ding your credit rating and to hurt you down the road.

WILLIS: Yeah, they're pulling in credit card lines, the credit card issuers are raising interest rates, this is really hurting a lot of people, people want to start their own business and maybe finance it by credit cards.

Ryan, I want to talk to you a little bit about 401(k)s and to do that, I want to show people some numbers, folks out there some numbers about what's gone on with 401(k)s. You know, we've had a real rebound this year. On average 401(k)s are up about 12 percent this year. You know, it's cold comfort for people who had major losses last year. What do you style people who are trying desperately to save for retirement, right now?

MACK: And your 401(k) plan it's crucial to understand. I mean, you've been talking about the time dollar cost averaging is crucial and those individuals who bailed out in January, February, even all the way up into March, thinking that they would not tie the market.

They've missed almost 54 percent return on the S&P 500 on the way back down, so those individuals who bailed out, they now know the difference between real and paper losses, they locked in some of the losses so have a long-term strategy. Make sure you're allocating assets appropriately. If you're 25 and maybe you might have a 90 percent stocks, 10 percent bond asset allocation, but if you're 55, that shouldn't be necessarily the allocation that's appropriate for you.

So looking at your 401(k), at least once a year to make sure you have the appropriate asset allocation moving forward is the best thing to do.

WILLIS: You know, this is, you know, a windfall opportunity really for a lot of first time home buyers to buy, but my guess is people will make mistake overbuying. Lynnette what do they need to know?

KHALFANI-COX: If you can take advantage of the $8,000 tax credit before December 1, by all means do so, close on those mortgages, if you're close to doing that. Realize that it's not just, though, about principle, interest, taxes and insurance. So many homeowners just think I can afford the mortgage because the bank said so and these are the costs I have to pay. Think long-term about maintenance, repairs, upkeep, decorations, furnishings...

WILLIS: Insurance.

KHALFANI-COX: All of those things contribute to the overall cost of owning a home and so don't just be taken in by the fact that oh I have to pay x-amount in principle and interest for the loan.

WILLIS: Now Ryan, you have some cautionary words about the tax credit, what would you say?

MACK: Well, we have to make sure the driving decision in all of our decisions is not because we're getting a tax credit, it's not because we're getting a tax deduction on the interest that we're paying on our homes, but we actually want to buy homes. Have we looked and have we researched and figured out exactly how much home can we afford? Have we done the necessary due diligence and making sure our FICO scores are trying to get to 750 or higher.

So a lot of times individuals are hearing that timeline, you know what, let me go out and buy this -- get this new home because I can get $8,000. Well, you might not be ready to purchase a home right now and it might not be the right time for you.

Renting can be good if you're renting with a purpose and saving your money diligently and getting yourself prepared to actually purchase a home responsibly.

WILLIS: It's a bigger deal than you think and costs a lot of dough. OK guys, thanks so much for your help today and of course we want to remind people, the recession may be close to over, but you've still got to be careful with your money.

MACK: Right:

WILLIS: All this health care news can be confusing. There's this plan and that plan, and that's why we're here. We're going to separate fact from fiction when it comes to your bottom line.

Plus, readying your home for the winter months ahead. Really, it's not too soon to save some big money, next.


WILLIS: We heard the headlines this week on health care. A new plan from Senate Finance Committee chairman, Max Baucus. But does it mean for your bottom line? Let's get the latest from Eamon Javers, financial correspondent for Politico in Washington.

Great to see you.

EAMON JAVERS, POLITCO: Hey, thanks for having me.

WILLIS: All right, so, you know, I think, people are struggling to get their arms around this bill and it's hideously complicated, over 200 pages. Let's talk first just about how it's different from what President Obama talked about in primetime just the other night.

JAVERS: Well, the key difference is sort of one that everybody expected to see. President Obama has said he favors the so-called "public option" in health care. That's a government-run program that would exist side-by-side with private insurance companies. Obama thinks that's the way to go. Senator Max Baucus on the Hill, however, ditched that idea, and instead comes up with something else all together called "public cooperatives," which would be non-profit health care companies that would be an alternative for the private industry.

That's a big difference in tone and it's largely done because most think the public option simply can't get through the Senate, there's not enough votes to do what the president wants to do.

WILLIS: Well, I want to talk about co-ops, but first let's talk about the price tag, the president said any plan would have to not impact the federal deficit. We're not going to raise taxes to pay for this. Can that possibly be true? We already have critics out saying no way.

JAVERS: Well, we are going to raise taxes to pay for this under the bill. The taxes would go, taxes and fees would go to different industry groups within the health care industry, so pharmaceutical companies, insurance companies, hospitals, all would pay new taxes and fees to finance this thing.

The $856 billion number is the amount of government outlays that would be incorporated into this plan, but what both Baucus and Obama are saying is that it would be deficit neutral, that is net-net it costs the taxpayers nothing to do this, because of those fees, and also because of savings, they say, they can find in the current system. There's a lot of waste, fraud and abuse, for example. There's a lot of economies of scale they can get so they say they're going to save money and cost you nothing to do this.

WILLIS: Right, I guess the devil will be in the details and we'll see if that could actually work.

But I do want to drill down on co-ops a little bit, because this is probably what a lot of Americans are going to end up using at the end of the day, these non-profit exchanges, really, where you would go and choose some kind of health care, if you don't have one, from an employer, right now. What does that look like?

JAVERS: Well, what the bill lays out is a system of exchanges where you can go online and look and see, compare price and level of coverage and all the different details of health care, which are so complicated to have that all in one place to compare and do some shopping, it could be kind of helpful for Americans.

And one of the options they would consider would be these non- profit pools of insurance whereby people could get insurance not from a private for-profit company, which is charging extra money to make that additional profit margin, but from a non-profit that would insure a large group of people. That's designed to put pressure on the for- profit companies to lower their costs of health care and provide some competion, some cheap competion, so that more Americans can afford their health care insurance.

WILLIS: Fascinating stuff. Can't wait to see what's going to happen. I'm sure we'll have you back to talk about that.

JAVERS: More coming.

WILLIS: One note though to viewers about these co-ops, all of these changes, open enrollment is coming up soon, you're going to be choosing your new health care plan, you're not have to worry about these issue this is fall because this is a long way off. Eamon, thank you so much

JAVERS: Thanks a lot.

WILLIS: Now thaw know the latest from Washington when it comes to the make or break issue of health care, time now to check in with Politifact and their Truth-O-Meter. Angie Holan is the health care writer for Politifact.

Thanks for joining us, Angie, it's great to have you here.


WILLIS: All right, well, let's get right down to this. Because you have great stuff that we really want to get to. The first statement comes from the president, President Obama, who says, "Preventative care saves money." OK, can we save money by having everybody take a lot of different tests?

HOLAN: We rated this statement false, and it sounds counter- intuitive.


It does sound counter-intuitive because, you know, common sense says if you catch something early you save money. But when you're talking about health care reform and you're talking about testing everybody in the country, many studies have shown that it's not a cost saver. You have to account for the money you're going to spend to test everybody, so we rated this false.

WILLIS: All right, the second statement also from the president, who says if you already have health insurance or your job or Medicare or Medicaid or the V.A., nothing in this plan will require you or your employer to change the coverage or the doctor you have. True or false?

HOLAN: We rated this true. And the reason for this...

(BELL) that the plan goes out of its way to leave a lot of the current health care system in place. So, employer-provided insurance stays in place, Medicare stays in place. There will be new consumer protection regulations, people who get insurance through work, those plans are going to have five years to come into compliance, but there is nothing in the bill that will force immediate change.

WILLIS: All right, next statement from Rush Limbaugh what who says the government is "going to have the right to get into your bank account with the health care bill and make transfers without you knowing it." That sounds scary. Is it true?

HOLAN: We rated this barely true.

There is a clause in the bill that talks about creating standards for electronic transfers, and having to do with billing and payments. Everybody we talked to said the intention here is to bring the health care system into the 21st century when it comes to ecommerce, similar to the way you might pay your utility bill online. There are no new writes for the government to take people's money. Barely true.

WILLIS: OK, so next statement comes from America's Health Insurance Plans, and this is really written by the companies themselves, so this is the insurers talking, they say "every survey shows strong satisfaction with private coverage." In other words, if it ain't broke don't fix it.

HOLAN: We rated this half true, and the reason for this is that the insurers have a point. Surveys show that people who have insurance are either very satisfied or somewhat satisfied, and we docked them for that somewhat satisfied, and also because these surveys include people who have Medicare so we rated it half true.

WILLIS: All right, Angie, we're going to have to work on those sound effects. Thank you so much for helping us.

HOLAN: It's a lot of fun. Thank you.

WILLIS: Up next, do-it-yourself projects you can start right now to get your home ready for the winter months.


WILLIS: Winter will be here before you know it. Here with tips and tricks to save you some heat and some cash this winter is our good friend, Lou Manfredini, home improvement expert and Ace Hardware's "Helpful Hardware Man."

It is so good to see you, Lou.


WILLIS: And this is important because you know, the weather is getting cold.

MANFREDINI: Yeah, right.

WILLIS: And I want to start with windows. My windows what, a mess. What can I do to keep the heat in?

MANFREDINI: All right, well, the first thing is, remember this, windows and doors are your areas of greatest loss in a home. Even after you put brand new windows in, it's natural obviously because of the glass. If you can, if it's within the budget, replacing your windows it's a terrific time because of the federal tax credit.

WILLIS: Oh, there's free money to be had.

MANFREDINI: Well, there's all kinds of that, right. And it's up to $1,500, but you need to stick with major manufacturers because not all of them qualify there's certain criteria the windows have to have in order to meet it. You can't just go out there and get it. It's the u-factor.

WILLIS: Wait, wait, wait, the u-factor? Is that what I'm looking for?

MANFREDINI: You're looking for a .30 u-factor with is the solar heat loss it has, the heat loss, rather, that a window has.

WILLIS: I assume they're advertising that.

MANFREDINI: They are, and the solar heat gain. There's another number, .30...

WILLIS: Holy cow.

MANFREDINI: So, you got to watch all this and you got to work with manufacturers. Now, if windows are not in your budget, you want to do something to cut those drafts. What I've done is prep this particular window. Now, this is a brand new window, you would never do this with this one, but for the sake of argument, I put double- sided tape around this window and I'm putting on a window film. OK? This is basically creating...

WILLIS: You're putting plastic wrap on your windows.

MANFREDINI: Plastic wrap around the window. OK? This plastic wrap, now, I know it doesn't look like much right now.


MANFREDINI: But once you tape this on and you use a hair dryer.

WILLIS: Let me get the hair dryer.

MANFREDINI: Get the hair dryer for me. Oh, I need it over here.


MANFREDINI: You turn on the hair dryer and what's going to happen is it's going to is shrink this so you don't see it. It's going to tighten up so much that you'll be able to trim around the edges. And this, OK, and listen to this, Gerri, by cutting the drafts in your windows, you can increase the energy efficiency of the drafty window by up to 70 percent. So this is a place where you're really going to lower your cost.

WILLIS: Wow, that's huge. Why buy new windows?

MANFREDINI: Well, I mean, the problem is the look and the operation. If they don't operate, if you're using a spoon to keep them open, then you might want to put that on your budget.

WILLIS: Let's get to doors. What do I do to keep drafts from going through my doors?

MANFREDINI: Same thing. Weather stripping that you can buy, you can go around the window or door. They make window kits, as well, that are larger for patio doors. Keep in mind that when you do this and put it over the door, you're not going to be able to open the door. So you, I mean, in an emergency, of course, you can rip through the plastic, so I don't want anybody to worry about that. Caulking is another thing.

WILLIS: You know, old-fashioned, but it works and it's cheap.

MANFREDINI: The greenest problem in the new millennium of using caulking around windows and doors. It's one of the most effective ways to eliminate drafts in your home.

WILLIS: I wish we could get some out, but unfortunately we can't today. All right, so let's talk about filters -- furnace filters because this, again, a really cheap way to make sure your furnace is operating as efficiently as possible. And these things not a lot of money.

MANFREDINI: And I don't want you to send the money on this, because this is a 99-cent filter. The blue filters that you get, they don't do anything for the indoor air quality of your home and so you want to upgrade to either pleated filters, then you can go up even higher. There's an Ace pleated filter, there's a 3M filter.

These are all really good filters that do a nice job of trapping particulates in the air. But you have to change them regularly because when they get clogged the furnace works harder, uses more energy and it's also very important, too, Gerri, to have your furnace inspected and cleaned by a licensed professional on an annual basis.

It will cost you about $100, but then you'll have the peace of mind that over the winter months it's not going to conk out on you in the middle of February and then you have to get an expensive service call.

WILLIS: Good point. All right, I want to talk about my lawn for a second, because it's been an issue this year. I know there are things I can do at the end of the year to make it better for spring.

MANFREDINI: Actually, the winter and the fall is the best time to take care of your lawn. So you're going to rake up all those leaves. OK, and get rid of the thatch that's grown there during the summertime, then you'll put a winterizing fertilizer.

Now, there are several different ones out there that go. Yeah, right there. And then even, there's a big bag there -- that bigger bag from Orgonite (ph) is actually a natural product full of iron. It's actually made -- it comes from Milwaukee county sewage.

WILLIS: So, you don't have to buy things that are going to hurt the environment. You can actually buy things that are green.

MANFREDINI: By doing that fertilization in the fall, it will promote healthy root growth and in the spring your lawn is going to come back more healthy, then you do a little spot seeding and start on that whole four-step program and you'll be the envy of the neighborhood.

WILLIS: I have to figure out how to get you to my house. That's the next thing.

MANFREDINI: We can go right after this.

WILLIS: All right, Lou, thank you so much.

MANFREDINI: My pleasure.

WILLIS: All right, still ahead, when to lend your kid a helping hand when it comes to money. A college budget checkup every parent and child should watch, next.


WILLIS: You just dropped off your son or daughter at college and said your good-byes. You probably have a lot of worries, but one of the biggest has to be whether they're going to rack up a ton of credit card debt. Only 15 percent of college freshmen pay their balance each month. College seniors are graduating with $4,100 of credit card debt and $23,000 in student loan debt. Beth Kobliner is a personal finance expert and the author of "Get a Financial Life,"

Beth, great to see you again.


WILLIS: All right, I think the big worry out there is you don't even know as a parent what you're on the hook for, you have to know what that big number is.

KOBLINER: Absolutely. No matter how much you prepare and you sort of give your kid all the lessons you think you can give them, you're still going to have to help, so that's why it's so important to be specific and give them concrete advice.

WILLIS: Right, concrete advice and know what they're spending to be able to track it just a little bit.

KOBLINER: Absolutely. You have to have a budget. No. 1, most important, know what they're spending their money on. Is it beer, is it books, what is it. And that's very important. And you might want to encourage them to get a job because a recent study showed that kids who have a job in college who work fewer than 20 hours actually have a slightly higher GPA than those who don't have a job.

WILLIS: Makes sense to me, I have to tell you.

KOBLINER: Keeps you organized.

WILLIS: The social life can be so expensive depending on whether you're in a fraternity or a sorority, the clothing you buy, the beer you buy. How do you rein that in?

KOBLINER: Well, the national average for how much people spend, kids spend on their personal expenses is about $2,000 a year. But if you belong to a fraternity or a sorority, that can easily tack on $2,500 extra. So, you have to coordinate with that with your kids. Are you paying those bills or are they paying those bills?

You know, for most schools, food, the budget, dorm life is included in the price. So, if they're racking up pizzas every night, you have to talk about, wait, why are you doing this and let's make sure that that's an expense that the kid covers, not the parent.

WILLIS: Yeah. Those conversations have to take place. I want to talk about credit cards for a second because you have a really interesting perspective on should kids in college have credit cards. Now, as you know, the law is changing.


WILLIS: And pretty soon they're not going to allow credit card issuers to be on campuses marketing these products. What do you say?

KOBLINER: Right. Unless the parent co-signs or the kid can prove they have income. Now, how a kid is going to have enough income while they're in college is another story. I would say, don't get a credit card until junior or senior year. Some people are saying rush and get one now before the rules change in February. I think freshmen and sophomores don't need credit cards. I think they get into a lot of trouble. The average freshman leaves with $1,000 in credit card debt. I think we have to re-educate young people that shouldn't be using, you shouldn't be getting into debt in college.

WILLIS: And we want to tell people, too, that, you know, if your college student is banking, watch out for the fees. Those ATM fees are high, high.

KOBLINER: Horrible. And overdraft fees, a recent study by the Center for Responsible Lending showed that people 18 to 24 are paying $1 billion annually in overdraft fees.

WILLIS: Yeah. That is a scary prospect. Well, we appreciate your help. Thanks so much for the good advice.

KOBLINER: My pleasure.

WILLIS: I know parents will really appreciate it.

As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be back next week right here on CNN. You can also catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time. And you can hear much more about the impact of this week's news on your money on "YOUR MONEY" with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

Don't go anywhere. Your top stories are next in the CNN NEWSROOM. Have a great weekend.