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Money Lessons For Your Child; Which Days to Purchase Airlines Tickets On; Get the Best Credit Rating Possible

Aired April 24, 2010 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


POPPY HARLOW, CNN HOST: Well, Financial Literacy month may be coming to an end but the lack of financial know-how in this country continues to be a major problem. We're going to take a look at what some school are doing and what you can do to teach your children the money lessons that they need to know.

Plus, saving money now, how ta make the most of price matching deals and the top credit score killers. You want to know what they are. We'll show you how to boost your score to get the best loan, car deal or rate on your credit card. It is the show that saves you money, and it starts right now.

Well, good morning, everyone. As you know financial literacy is critical, so how did you first learn thousand manage money? Was it through your parents or through your teachers or through trial and costly errors? Well, in a recent survey by the National Foundation for Credit Counseling, only six percent of people polled say they learned about personal finance in school. Just six percent. And that, some say, is the problem with financial literacy in this country.

But, CNN's Christine Romans found one school on Chicago's south side that is trying to change that.

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): Meet America's future investment bankers and accountants.

UNIDENTIFIED FEMALE: We have to look out for the dividends.

UNIDENTIFIED FEMALE: I like checking the Dow.

UNIDENTIFIED FEMALE: My favorite stock is Apple.

ROMANS: At Ariel Academy, students learn to you to make money...

UNIDENTIFIED FEMALE: The financial ratio, it helps the business like...

ROMANS: Save money...

UNIDENTIFIED FEMALE: I think everybody should at least save half of their money.

UNIDENTIFIED FEMALE: Don't forget your decimal.

ROMANS: And invest money, real money. Thanks to the school's unique saving and investment curriculum.

CONNIE MORAN, DIR ARIEL INVESTMENT CURRICULUM: The incoming class gets a $20,000 endowment. When they get to fifth grade, students will start to choose stocks they think we should be buying, and we will buy them.

UNIDENTIFIED FEMALE: Stock prices (INAUDIBLE) $67.58, and the dividends is 14 cents per share.

(APPLAUSE)

ROMANS: When students graduate from eighth grade, the $20,000 goes back to the incoming first grade. Any profit above that amount gets split, half goes to improving the school or to charity, the other half gets divided among the kids.

UNIDENTIFIED FEMALE: I'm not going to invest in that at all.

ROMANS: Of course, some years, like 2009, there's no profit, and the kids learn that investing is no slam dunk. But that doesn't deter kids like Ariel graduates Mario and Miles Gage.

MARIO GAGE, ARIEL ACADEMY GRADUATE: I have my own portfolio and it's just really amazing. I'm able to take that I learned at Ariel to the next level.

ROMANS: Miles and Marioy weren't the only ones in the family getting an education.

MICHELLE GAGE, MOTHER OF ARIEL ACADEMY GRADUATES: And I started looking over some of the materials they were bringing home. It was still a little foreign to me, but then they kind of broke it down, like children do, and I started getting a little excited about that, and then the knowledge, and I'm like, wow. You know what? This is fun.

ROMANS: Fun and finance doesn't often appear in the same sentence. But that's not true at Ariel. From age appropriate learning to an inspirational environment and a ultimate reward, attending a McDonald's shareholding meeting. Making this all possible is John Rogers, chairman and founder of Ariel investments after which the school is named.

Ariel, along with partner Nuveen Investments, put up the $20,000 for each grade. In 1991, Ariel started working with this public school on the south side of Chicago, because it was one of most underserved in the city. Ninety-eight percent of the student body is African-American, 78 percent are considered low income. Nowadays, test scores are on the rise outperforming the district and the state average with the help of teachers like Connie Moran.

MORAN: Good morning.

ROMANS: Named "Teacher of the Year" by the National Foundation for Teaching Entrepreneurship in 2007.

UNIDENTIFIED FEMALE: Ever since I've listened to Miss Moran in class I heard her say invest in your money, invest in your money, invest in your and now I'm going to listen to her.

ROMANS: Christine Romans, CNN.

(END VIDEOTAPE)

HARLOW: Great story. Well, if you're not lucky enough to have a school like Ariel in your neighborhood, how do you make sure that your kids learn these money lessons? Well, Lynnette Khalfani-Cox is the author of "The Millionaires' Kids Club" and the founder of AskTheMoneyCoach.com.

Glad you're here, thanks for being here, Lynnette.

LYNNETTE KHALFANI-COX, PERSONAL FINANCE AUTHOR: Thank you. Great to be here.

HARLOW: I think the main question is, just how critical do you think especially now for kids to learn about how to manage their money?

KHALFANI-COX: I think it's enormously critical. You know, if you look at the past two years and what we've experienced as adults in this country, a lot of that was linked to a lack of financial literacy and I always tell people simply put, financially illiterate children grow up to be financially illiterate adults. And if we don't teach the young generation, right now, they are doomed to make the same mistakes that a lot of us made.

HARLOW: And you know, I'm sure most parents have the best of intentions, they want to teach their kids about money, but they say three years old, five years old, they're too young for that. Are they? I mean, what's age appropriate?

KHALFANI-COX: Right. I always tell people that, listen, as soon as your kids start asking you about money, as soon as they start picking up those pennies or those coins and nickels, or they go into Wal-Mart or Target and they ask you for toys, that's the age at which it's appropriate to start talking to them.

The marketers are not waiting. The commercials that are trying to sell to them, they're not waiting. I have a 4-year-old at home in addition to a 10-year-old and 12-year-old. I talk to all of them about money. And my 4-year-old, I've been talking to her about it since she was two years old.

HARLOW: So, toddlers aren't young enough -- aren't too young.

KHALFANI-COX: Absolutely not. Again, she'll say to me things like, she thought that a nickel was more in value than a dime, because the nickel was bigger than the dime. I had to explain, no, this is sort of the equivalent of five pennies. But which one is more? Five pennies or 10 pennies? And she got that. So, you do it in an age appropriate way, you do it with games and you make it fun for the kids, too.

HARLOW: And you do have to teach them. I just I took my little nephew to Disney World, he wanted everything, but he knew he could only buy so much with what he had. So, it's about learning what to do with what you've got.

KHALFANI-COX: Absolutely, you know, you said author of the series called "The Millionaires Kids' Club" and the idea there is for kids who are between five and 12 years old, the central message of the book, and I hope parents learn this message to tell their kids, is that you have choices with what you can do with your money.

Kids see us spending all the time, so they think that's what money is for, to spend and buy stuff. But actually we have to tell our kids to save money. Yes, you can spend it, but you can also invest it and you can donate it. That's the lesson that they're learning at that school in Chicago and I think it's great.

HARLOW: Teach them a little philanthropy at a young age.

KHALFANI-COX: Exactly.

HARLOW: What about finally, parents that say, well I'm not that financially literate. Got into a mess with my house, you know, there was a foreclose, et cetera, they think they can't teach their kids. Are they wrong? Can they actually?

KHALFANI-COX: They're very wrong. Actually, even if it's only your mistakes that can be incredibly instructive to kids. You know, I've been very open about my own personal story. I wrote a book "Zero Debt" about how I was $100,000 in credit card debt and paid it off in three years. Even kids can understand, mommy made a bad choice in the past or this is what we did wrong.

If you are willing enough to be open and honest with your kids they were learn from your mistakes and not repeat them. So, don't just feel like I'm not an expert, I haven't done it all right. Sometimes, the things that you've done wrong, if you can say it in an age appropriate way for your kids, you'll say, I don't want you to make the same mistake, honey, learn the lesson from mom and dad. And that's a great thing.

HARLOW: That's great advice, Lynnette. Thanks so much. Appreciate it.

Well, up next, from travel insurance to the best deals on airfare, how to navigate the skies this summer. That's coming right up.

(COMMERCIAL BREAK)

HARLOW: Well, volcanic ash, it has been the bane of many travelers this week with more than a few folks spending their long awaited vacations stuck at the airport. So when does it pay folks to buy that travelers' insurance and what will the summer airfare look like? A lot of big questions out there for fliers and joining us from Dallas with all the answers is Rick Seaney from FareCompare.com.

Rick, thanks for being here. Appreciate it.

RICK SEANEY, FARECOMPARE.COM: It's great to be on.

HARLOW: Oh, volcanic ash. Truly has a bane of travelers this week. So, let's say, like most folks, you didn't buy travelers insurance and you're still stuck because of this volcanic ash issue. What can you do?

SEANEY: Well, there's a couple things can you do. If you're in Europe, there's a European passenger bill of rights that says, really, that they should put you up. There's been a big argument in Europe, right now. For instance, some of the airlines that were selling $20 tickets don't want to put people up in hotels and a variety of other things, so there's been a big argument going on.

But, in the U.S. typically it's called an act of god and really, the airlines don't have to do anything for you except refund your ticket price and try to re-accommodate you when you can, so you're pretty much left to your own devices.

HARLOW: Yikes, that's why you see so many shacking up at the airport. But, the question, too, all right this brings to mind people that don't buy travel insurance. When is it worth it overall, Rick, and when's it just a waste of money?

SEANEY: Yeah, typically what I tell people is, is if you're buying a $200, $300 ticket, it's probably not worth your effort. If you're buying a trip that costing thousands of dollars, you're looking at, you know, between five and 15 percent and a 15 percent is if you want to cancel your trip for any reason whatsoever, just because you feel not like going, and six percent to eight percent if something happens, like if you're going into the Caribbean during hurricane season or something like that.

So, really, I think it's really -- I've done it for medical insurance purposes when I go to Asia and stuff like that, so you can cover your trip and your medical. I personally like doing the medical part, especially if you're going to be away for a couple weeks.

HARLOW: That's a good point. But people should also check before they buy travelers insurance, right? And see if it's included in their home insurance, auto, life insurance, or even through their credit card.

SEANEY: Absolutely, you should check all of those things and also not all insurances are created equally. You need to really read the fine print. I know a lot of people that are stuck in Europe right now didn't read the fine print on their travel instructions.

HARLOW: Sure. But, something you've got to do. You've got to shop around, obviously, also, we look towards the summer. People say, should they book their tickets now. What are you seeing for summer airfares, because we know the airlines that have lost billions because of this volcanic ash issue. They're going to try to make up some money somewhere.

SEANEY: Yeah, absolutely, this week we've already gotten a $20 round-trip hike for domestic airfares. It looks like it's going to stick as of yesterday. So, prices are going up for domestic, I think. And a lot of that is because, I think, some travelers have the jitters about going to Europe this year and we'll see more traffic to Canada and the U.S.

Right now if you're buying a ticket, you probably should wait, because all of the sale fares are only good through the end of June travel. So you should be waiting a couple weeks if you want to go in July or August before you buy those tickets.

HARLOW: OK, and the best time to look online to buy those tickets, what are they?

SEANEY: Yeah, absolutely, really the best time, a Tuesday at 3:00 p.m. through Thursday, because what happens is airlines file their sales on Monday night. All the other airlines start matching during Tuesday morning, and the maximum number of cheap seats are in the system on Tuesday afternoon.

HARLOW: Good to know. And finally, the cheapest days to fly? Would assume, what is it? Saturday? Something like that?

SEANEY: Actually, Tuesday, Wednesday and Saturday are the cheapest days to fly. So, those are your best bets. Even if you only do half of your trip on those days, you can save money.

HARLOW: Tell me about it. Rick, thanks so much, I appreciate it.

SEANEY: Sure.

HARLOW: Thank you.

And you can, of course, check out CNNmoney.com for more on travel insurance, when it pays off and when it's just a waste and, of course, the day's business news that matters most to you.

And you know, we've all heard the pitch, we'll beat or match any competitors price, but come on, when does that work? How do you get the best deals or just about anything? Stick with us. That's coming right up.

(COMMERCIAL BREAK)

HARLOW: All right. So, you've heard of the pitch. The store promises to match or even beat a competitor's price, but is the deal too good to are true? Here to tell us what to watch out for to make sure you're getting the best deal possible is Mandy Walker, she's the senior project editor with "Consumer Reports."

Mandy, thanks for being here, appreciate it.

MANDY WALKER, CONSUMER REPORTS: Sure, my pleasure. HARLOW: We all want to save money, especially (INAUDIBLE) spending a little bit more now, but they're still careful. So, you say you really have to read the fine print, because not all merchants are going to match their competitors?

WALKER: Right, they won't all match prices or do price adjustment, which you get after you buy the item if you see it at a better price with 30 days, usually, they may match it. they may do that, they may do a price adjustment, or price matching, but they may neither one like Amazon.com. So you have to check it out first.

HARLOW: Sure, but often you have price reductions online, so you say look there?

WALKER: Look online definitely first, right, for the best price.

HARLOW: And you know, when it comes to the proof that you need to get that price match or adjustment, you need it in writing, right?

WALKER: Probably. They're probably going to require it. I mean, you can go in and say gee, your competitor's offering half price and they're going to want the proof, which makes sense, so bring that ad in. Bring the printout from the Web site, see if they accept photocopies. Find that ahead of time, again.

HARLOW: And often you have some competitors that are beating prices, not just matching them?

WALKER: Right, sometimes they will give you an additional 10 percent, like Sears is usually exceptions, their own holding companies like Kmart, they'll just match the price.

HARLOW: That makes total sense. And you know, also you have to think when it seems like a great deal, some things are not covered if you do a price guarantee.

WALKER: That's right. Sometimes they won't include things like delivery, or installation. Some stores won't even match certain merchants like maybe Apple or whatever it is. so, once again, there's a lot of ifs, ands or buts, out there.

HARLOW: A lot of ifs, ands or buts. But you can save money.

WALKER: Sure.

HARLOW: A big one here is, is the item in stock or not? Right? That matters if you're trying to get a price match?

WALKER: Right, because the merchant say well, nobody's getting that price because it's not in stock anymore, they can't get it. If it can you ordered and in with a certain number of days, sometimes, like Sears it's within seven days, they'll still do the price change.

HARLOW: OK, but what if thing are on sale? I mean, so often you see price reductions now, already. So, if an item is on sale, does the price matching or beating the competitor's price even play in there?

WALKER: It depends on the sale. Sometimes there are exceptions to things like liquidation sale, clearance sale, or grand opening sales or even black Friday sale. Sometimes, certain seasonal sales they won't match. Like, Best Buy might not match prices on Thanksgiving or a few days after. So you need to check that out, too.

HARLOW: You know, what's the most fascinating thing, look, I'm a deal hunter but didn't know what we were talking about before is that you can get a better deal sometimes by returning the item and also using your credit card? Your bank can actually help you win in this one?

WALKER: They may be able to, if the price goes down, you find a better price out there, and the store won't do a price adjustment, check with your credit card company, see what their policy is.

Citibank, for example, will do a price adjustment for you. You'll have to have a proof of purchase, and what the new sale price is and with 60 days, they'll refund you up to a limited amount, and there may be some restriction there as well, like for online purchases. So, once again, you've got it read that fine print.

HARLOW: You do, but, good. Thanks for helping out there. Mandy, thanks. We, appreciate it. Thanks so much.

WALKER: Sure.

HARLOW: Well, as banks shy away from making risky consumer loans, a mediocre credit score folks, it's not going to cut it anymore. So, to get the best rates you need a killer score. We're going to show you how do get that, right after this.

(COMMERCIAL BREAK)

HARLOW: Well, having a good FICO score is important than just about anything when it comes to getting a good mortgage, a car lease or a good interest rate on your credit card. And you all know that, but most of us know that your credit worthiness ranges on a scale from 300 to 850, but what most of us don't know is how that score is made up. So here's how it works, there are five categories that make up your credit score.

Of course, your payment history is a big chunk of that, it's 35 percent. Your debt load is 30 percent and how old is your report that means how long have you had that credit? That counts for about 15 percent, and then finally, whether you're searching for credit, that's another 10 percent, and the diversity, the different types of accounts that you have, that wraps up the final 10 percent, there.

And according to the folks at FICO, lenders have already raised their standards by about 20 to 40 points this year. So, while a score in the 720 to 740 range before might have gotten a great mortgage rate in the past, some lenders now say they're looking for a score of at least 760 to offer you the best loan that they've got. So, what are the sure-fire ways to kill your credit? John Ulzheimer, president of Consumer Education for Credit.com is here to make sure that you don't do that.

John, thanks for being here. Appreciate it.

My pleasure, Poppy.

All right, let's talk about first the No. 1 way to just destroy your credit. What is it?

JOHN ULZHEIMER, CREDIT.COM: Absolutely. And this has remained true even before the credit crunch is missing payments. When lenders give you a due date, they're not kidding. They want the payment in by that date. Do not ever give a lender any reason to ever say anything negative about you to the credit reporting agencies, because that is the No. 1 way to destroy your credit score.

HARLOW: And I would assume that carrying a huge balance is also a major no-no when looking at keeping a high score. Right?

ULZHEIMER: Yeah, absolutely. And that's a huge myth. A lot of people think that as long as you make your payment on time that you're going to have good credit and that's absolutely not true. Carrying lorg balances of credit cards, balance that approach the credit limit is another sure-fire way of destroying credit scores very, very quickly.

HARLOW: What if you want a card, the suggestion of a lot of money managers I you know, cut up a lot of those extra credit cards. If you close accounts is that going to hurt your credit score?

ULZHEIMER: It absolutely can hurt your score and here's why -- FICO scores love to see separation between your balances and your credit limits across all of your credit cards. If you're closing credit cards that you're not using, you're actually taking away available credit from the calculations, and you do not want to do that. If you don't want to use your card any longer, fine -- shred it, hide it. Just don't close it.

HARLOW: Any exceptions to that? You know, what about the department store cards that you get to get 40 percent off your bill and you just want to close it? Any exceptions to the rule there?

ULZHEIMER: Yeah. It's more important if you have Visas, MasterCards and Discovers with really, really large credit limits, $10,000, $15,000, $20,000. Credit cards that are issued by retail outlets are usually very, very low. The limits are very low. So, if you're going to choose to close a card, closing a card from a retail store is actually probably safer than closing one say, from a bank that's issued a Visa to you.

HARLOW: Good to know. I've done that. And also what about starting a new line of credit? Will that going to help you out?

ULZHEIMER: Yeah, it can help and it can hurt. If you take on a lot of new debt in a very short period of time that's going to hurt your score for a couple reasons. A) you have a bunch of inquiries on your credit reports and inquiries can lower your scores. Additionally, all of thsee new accounts on your credit reports, remember in your chart earlier, 15 percent of the score is driven off of the age of your credit report.

HARLOW: Sure.

ULZHEIMER: If you have a bunch of new accounts, then you're lowering the average age of your credit file. That can lower your score.

HARLOW: That's a great point and, you know, I think there's a big misconception out there among folks that say all right, I'm just going to use my checking account and cash. The idea no credit is good credit.

ULZHEIMER: Poppy, I am so glad that you brought that is very, very true. A lot of people make the assumption that credit avoidance is the same as solid credit management. That is absolutely not the case. Credit scoring modes like to see you using credit, a lot of different types of accounts, and they're going to reward you in your score because of it.

HARLOW: Yeah, use it responsibly. Makes sense. Thanks, John, appreciate it. Thanks so much.

ULZHEIMER: My pleasure.

HARLOW: All right, last, but not least for us this morning, today's "Free for All," free products, free services, all courtesy of us, that show that saves you money.

(COMMERCIAL BREAK)

HARLOW: All right. Let's face it. Free stuff is the best stuff, but you've got to be careful with free product programs. Your inbox could get flooded with ads or there may be hidden fees, so read the fine print carefully. But, one Web site that connects manufacturers with consumers who test products is StartSampling.com. You see it there. You can type in your location and you'll be able to see what free samples are available in your area.

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And this is my favorite one. If you really want to get out of meeting or a date, you can receive, take a look at this Web site, folks, you can get a free fake call courtesy of Popularity Dialer. No, we're not kidding. There's the return to the office call, your cousin is in need call, and even an affirmation call. That's a call that reminds you just how wonderful you are. Love that Web site. To find out more, logon to PopularityDialer.com. All right, we will be right back here next week for YOUR BOTTOM LINE, the show that saves you money, same time, 9:30 a.m. Eastern on Saturday, right here on CNN, and, of course, don't miss Christine Romans and CNN chief news correspondent Ali Velshi on YOUR MONEY, today at 1:00 p.m. Eastern and tomorrow at 3:00. But right now is a time for the check of your top stories in the "CNN NEWSROOM." Have a great weekend, everyone.