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How Financial Reform Affects You; New and Existing Home Sales Up; Paying for College; Recipes for Financial Success
Aired May 1, 2010 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STEPHANIE ELAM, CNN HOST: The big story this week from the nation's capital, Congress trying to crack down on Wall Street firms to eliminate the threat of a future financial meltdown. Think this doesn't affect you? Think again. We'll break down this macro issue to a micro level to make sure you and your wallet come out on top.
And did you just hear that? That's the clock. It just ran out for kids to decide which college they'll attend this fall. We'll show you how to pay for all of that education. Plus recipes for quick and easy financial fixes. Each solution takes 15 minutes or less and none will cost you so much as a penny. The show that saves you money, it starts right now.
Good morning, everyone. Let's begin, as promised, with this week's cover story. The CEO of Goldman-Sachs along with other executives from the Wall Street powerhouse went before Congress to assert their firm. Did not mislead investors and did not bet against the housing market. All this of course lead to calls for reform from Washington and from the rest of country. What does this mean to you?
Here to break it all down is our old friend, Jack Otter, executive editor of MoneyWatch.com. Jack, thanks so much for being here.
JACK OTTER, EXECUTIVE EDITOR, MONEYWATCH.COM: Great to be here.
ELAM: And you know a lot of people hear what's going on with Goldman Sachs and they go this is so far removed away from you. What can the average guy take away from this Goldman-Sachs story?
OTTER: Sure, there's a very, very important lesson here. Let's say for the sake of argument, Goldman did absolutely nothing wrong. Everybody's a big boy here. They sold some stuff, they bought some stuff but the crucial point is incentives. These salesmen who sold these securities, they wanted to unload them, not necessarily because they were bad, but because they were making a commission, and as retail investors we do not want to deal with people who are making commission on us.
Because obviously, their incentivized to sell us one thing over another which may be better. For the regular guy on the street whether it's a life insurance policy, a mutual fund, anything financial, if you want to buy it from a broker, know what you want, fine. If you want financial advice, go to someone who does not take commissions. ELAM: Yes and know who they're working for, who they're dealing with. You could be hurt that way. Let's talk a little bit about consumer reform because it's working its way through Congress. Who would benefit from these reforms?
OTTER: Well certainly the Goldman thing gave consumer reform a big boost.
ELAM: For sure.
OTTER: The one part of reform that's really aimed at the regular guy is this consumer financial protection agency. What it's supposed to do is rein in the worst of the excesses we saw, the crazy mortgage, ridiculous credit card rules that sort of thing. Now, it's not completely clear how it will succeed. There's an overseer board. I'm not sure how that's going. Nobody knows exactly how that's going to work.
But the point is, if it does rein in these things that's good for the dupes who ended up buying these things and let's face it, this crisis started one lousy mortgage at a time at the retail level. On the other hand, it might cost the rest of us a little more. Banks have to make up the money.
It's unfortunate if the rest of us may have to pay an extra tenth percentage point on a mortgage. That said, do we really want a financial system that's built on sort of taking more from the duped so the rest of us can get a better deal? Probably not.
OTTER: If they blow up in the end, we're all in trouble.
ELAM: If the economy stays stabilized, because everyone's getting a fair deal, that's probably a better thing.
OTTER: No question about that.
ELAM: So the vocabulary word of the day according to Jack Otter is fiduciary.
ELAM: Explain, please.
OTTER: The point is that, this is going back to the idea of incentives. To make sure that a financial adviser is acting in your best interests and a fiduciary is a legal term. It's somebody who's legally required to act in your best interest when giving you financial advice. Under the proposal, there are brokers who would not be fiduciaries when they are say selling you a stock, but would be fiduciaries when giving you advice. Frankly, I don't think that's workable.
ELAM: How do you balance that out? OTTER: That's tough to ask anyone. So I say, go a fee-only financial adviser who is a fiduciary, who can look at your entire financial picture, such as your 401(k). He has no financial interest there, he can't sell you anything there, but he'll look at it and give you best advice. He'll sell you the cheapest mutual funds, he won't put you in bad products, variable annuities and universal like that cost people so much.
ELAM: True. As we go forward in a nutshell what can consumers expect? What changes can we expect will really be here possibly for the long term?
OTTER: Sure. I think banks might end up more like utilities, especially spinning off the derivatives business. What does that mean for you? That means a more stable system. That could mean higher fees from your bank because they got to make it up somewhere. But it means at least for the moment until we figure out the new bubble that we'll see a more stable system with less profits but less danger.
ELAM: A new bubble. Something else will come up?
OTTER: Always is. We'll find something.
ELAM: All right. Jack Otter thanks for coming by and explaining this to us.
OTTER: Great to be here.
ELAM: Lots more to come this morning on the show that saves you money. Some quick and easy recipes to cook up financial success in 15 minutes or less, plus whether you're looking to move or stay put, we'll show you the right way to remodel in 90 seconds.
ELAM: That home buyer tax credit expired yesterday. Many industry insiders will tell you it provided quite a boost for the housing market. Now that it's gone where do we go from here? Greg McBride is here and he's a senior financial analyst for BankRate.com to help us break it down. And when you take a look at these numbers, Greg, starting off with the new home sales, there was quite a jump.
GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM: March numbers in particular were really strong, especially new home sales but even existing home sales numbers picked up in recent months. With credit expiring we can expect those numbers to backslide over the next few months.
ELAM: OK. This 27 percent pop in new home sales, we shouldn't get used to that?
MCBRIDE: No. Unfortunately, there will be a letdown very similar to what we saw last fall before it was extended. There was a rush of people to get in, because they thought the credit would expire. We saw something similar this spring.
ELAM: All right. So let's take a look at the existing home sales. Numbers not as strong as new home sales, right?
MCBRIDE: Not at strong, but still up and very strong in that context. Also an improvement, but still well below where we were a few years ago during the housing boom. That measure based on closings. It will be July or August before we start to see a dip in those numbers.
ELAM: OK. That's right because you just had to get in a deal why April 30th. You didn't actually have to close on the house.
MCBRIDE: Correct. The closing deadline is June 30.
ELAM: It's a different thing there. Let's take a look overall at home prices. How have they been doing?
MCBRIDE: Home prices, the case sheller index came out and it showed for the first time since December '06, the year over year rate of change was positive. Now, the question is, does this mean home prices have bottomed? I think the jury is still out on that, because the foreclosure inventory continues to pile up faster than banks are selling it off.
ELAM: All right. Greg McBride, thanks for breaking it down for us.
MCBRIDE: Thanks Stephanie.
ELAM: Whether you're looking to sell your home or stay put, a little extra work around the house could pay off in the long run. But don't call a contractor just yet. Here with some rules for remodeling is Mandy Walker. She's a senior projects editor for "Consumer Reports." Mandy, thanks so much for joining us.
AMANDA WALKER, SENIOR PROJECTS EDITOR, CONSUMER REPORTS: Sure. My pleasure.
ELAM: All right. So let's start off with the basic. If you're going to make changes take care of the practical ones. Right?
WALKER: Yes. You want to fix things that are bothering you in your family. For example, if you have several children down the road and you need another bedroom, think about converting a bedroom. It's not the time to worry about putting a wine cellar in the basement, or a granite top.
You want to fix the practical stuff first, and that includes energy efficient appliances. Now there are still some tax credits. Some of them are expiring at the end of the year so think about more efficient heating systems or air conditioning or windows or even solar like a solar hot water system, you get a credit for that, too.
ELAM: And take advantage of the credits.
WALKER: Might as well.
ELAM: But the other thing while doing all this, make sure you don't really just become too much for your block. Right?
WALKER: That's right. It's not the time to build the castle on the block, or the scientific term is mcmansionize your house.
WALKER: Buyers are going to look for the least costly house on the best block where they can buy. That's what you want to be. You don't overdo the fixes now.
ELAM: All right. And as you're doing the fixes, if you come across mechanical or structural issues, those have to be addressed first, right?
WALKER: Right. That's really the first thing to think about and that's if you're staying in the home or if you're going to sell. You want to fix that leak in the roof, and the wet basement and the siding things that are coming off. People that are going to be shopping for a home, if you are selling, are going to be comparing your home to houses where roofs don't leak that may be the same price. You're either going to fix it or you're going to get less money.
ELAM: All right. Staying in that tone of looking at what sellers need to do, there's also some low cost or even free things to do to make the house look more attractive.
WALKER: Think about all the shows that are very popular now about staging your home. That's the kind of things you want to do. You want to clean the house. You want to get it so clean they don't know whether or not you have pets. You want to think about de- cluttering. They don't need to see all of your collection of "Star Wars" figurines. Pack those up and get them in the basement, get them out. They want to see their own things in your home. You want to the de-clutter. And it also means neutral paint. That's a really good idea.
ELAM: Get rid of the special things and make the house so they can see their stuff in there.
WALKER: They come in and feel they can just move right in.
ELAM: These are all things that people can probably do this weekend Mandy Walker. Thanks for coming in to help us break it down.
WALKER: My pleasure.
ELAM: All right. The cost of college, it does seem like it's always going up, right? Up next, we're going to help you pay for that education without breaking the bank.
ELAM: All right. All of you college-bound kids, you got in, but you've got to stop partying for a second. Cross your Ts, dot your Is first. Make your final decision and mail the enrollment form and deposit check to the school of your choice by the end the day today. It's the enrollment deadline for most schools.
For the schools you're not going to attend, let them know in writing of your plan freeing up your spot for another student. It you're on the waiting list, contact the admissions office to let them know of your continued interest in the college and update them on your spring semester grade activities.
The bad news is, as of today you've lost your negotiating power. All can you do is say, you're not going. If you want that college education, I'm sure a lot of you out there do, it's time to raise cash and not dig yourself deep into debt.
Here with advice how to pay for college is Kim Clark. She is senior writer for "U.S. News & World Report." Kim I want to start by taking a quick look at the numbers on the cost of college over the last couple of years. For a public four-year school, the cost has gone up more than 6 percent. Private schools up almost 4 1/2 percent. You say there is some good news here. You say some folks might get money back on taxes.
KIM CLARK, SENIOR WRITER, U.S. NEWS & WORLD REPORT: It's a wonderful tax break this year. Anybody who pays any tuition this year, if they earn less, for a couple that earns less than about $160,000 a year they can get up to $2,500 back on their taxes when they file in January or February, whenever you file them. So that's $2,500 you may not realize you have.
ELAM: That would help out a lot of people. You also say there may be a way to enlist your friends and family in a way to help you get all of that money together for school.
CLARK: Well, a lot of people don't know about this. You know how you have credit cards, for example that give you frequent flyer miles. There are credit cards that give you little rebates to your college savings funds. They don't cost anything. Just like the frequent flyer miles don't cost extra. If you can get your grandparents and your aunts and uncles to sign up and use that, every time they charge a penny, two cents goes into your college savings account. If you get enough charging on that credit card you can really build up money.
ELAM: And get one for yourself and do that, too, right?
CLARK: Of course. I wouldn't encourage college students to use credit cards, of course they could.
ELAM: Maybe you signed on with mom and dad, watching what's going on there. Take a look also at scholarships. I know a lot of people are thinking, maybe I could get free money this way. Is it too late?
CLARK: Well, it's certainly true that most schools, states and charities, their scholarships, deadlines, are usually earlier. There's great news. Because the biggest program, the federal program is still accepting applicants. It you're an amazing procrastinator and you haven't filed your free application for federal student aid for last semester, you still have time to fill it out and get it maybe retroactive aid. Fill out FASFA for this year and last year.
ELAM: Tell me about loan forbearance and loan forgiveness with these new laws. How is that factoring in?
CLARK: Another heartening thing, great news, as of last year, anybody who had federal student loans, not parent loans and not private loans but federal student loans, even if you graduated five years ago, you can call the department of education, consolidate your loans with the department of education and ask for income-based repayment.
That means your payments will never exceed more than 15 percent of your income. It you're a teacher you won't go broke paying back student loans. If you're a teacher, other public servant and make ten years worth of payments going forward, at the end of your 120th payment, anything you owe is forgiven.
ELAM: That's pretty cool. Tell me about this. Let's say you get on campus. The season started for school. Back there in the fall. Where is a way to save money once there?
CLARK: Every penny saved is a penny you don't have to work and earn and raise for a scholarship. It really pays to cut costs. Many people don't realize at a public university it costs more to pay for your dorm and your food contract than it does for your tuition. So saving on your dorm and your food really can make a big difference.
ELAM: Kim Clark, thanks so much for joining us to help break it down for all the people heading to college this fall.
CLARK: My pleasure. Thank you very much.
ELAM: Up next, how to look like a million bucks but on a shoestring budget.
ELAM: Whether you're job hunting or just looking to update your wardrobe for the warm weather, which we're so happy about, our next guest says you don't have to spend a lot of money to look great. Christina Caldwell is a shopping expert and editor of Coutorture.com. Christina, thanks for being here.
CHRISTINA CALDWELL, COURTORTURE.COM: Thanks for having me.
ELAM: All right. You want to have the basics. People who are going out there working, interviewing, do all those things, let's look at the women first. What should a woman have in her closet?
CALDWELL: There are basics that every woman should invest in especially when dressing up and having to be in the office, but it's good to invest in things that will take you from the office to after hours as well. Some of the most important things we have for a woman is of course the little black dress. Got to have the little black dress. But for the office it's not a cocktail dress. It needs to be a little more conservative. I really love a shirt dress because it looks -- it still flatters the body, but it's covered up and a bit more conservative.
ELAM: And you can put a blazer over that, too.
CALDWELL: Exactly. Which brings me to my next item, so the menswear style blazer, which we have here, this is actually that's one's from Zar and everything on the table is under $100 and on the rack.
ELAM: This is keeping it on a budget.
ELAM: So the blazer there you can use it with jeans, a lot of different things.
CALDWELL: You wear it to the office it instantly makes you look smart. Throw it down with a pair of skinny jeans and killer heels, you're ready to go at night.
ELAM: Yes speaking of heels, you say every woman needs to have a pair of the basic black pump.
CALDWELL: Yes the basic pump and I suggest doing something with a bit of platform. It actually makes it more comfortable if heels aren't your thing. If you still can't do it, go for a pair of ballet flats. These are new from J. Crew and they're $98.
ELAM: Also you're saying you have the whole idea of the basic white shirt. That's just a staple everyone should have.
CALDWELL: It's a staple everyone should have and you need to make sure it fits you well. Same for men and women. I would suggest finding a brand that works for you and buying in multiples and make sure it's crisp and pressed and it always looks timeless and chic with a pencil skirt.
ELAM: It doesn't look good if you're not ironed and you're at work. Let's talk about the men. What do men need to have in their wardrobe?
CALDWELL: First of all, I think men who don't like shopping it's really important for them to get comfortable shopping online and going to sites where they can see a lot of different things under a certain brand or price. And it's also important for them to go to their girlfriend's and their wife's stores. A lot of things we have are from Top Shop, Top Man, from J. Crew, Banana Republic. Stores they might not think of for themselves even Zara. Just like with the girls, make sure that things are tailored to your body.
ELAM: I always talk about shoots and billows. That's what I call it when a guy has on a dress shirt and it has too much fabric out there. If you get a slim fit it makes you look more put together. CALDWELL: This is from Brooks Brothers. It's $70. Right now they're having buy three for $199. It comes in extra extra slim fit, extra long, and regular. So you'll find it there that fits you.
ELAM: Also with the ties you want to find a few basics as well to help you out.
CALDWELL: Yes I think a printed tie is always good. It's always better to dress up a little bit than you think. If you work in a creative field, you can try a skinny tie. This one's from Top Man but I suggest just going with a basic printed tie.
ELAM: And also the basic shoes. You've got the one you can wear to work and a casual Friday and also a dress shoe.
CALDWELL: These are great with a pair of khakis. These are $29 from H&M and then it's really important to have a good dress shoe. Don't skimp on your shoes. You can find stuff that are well priced but look this great. This is from Aldo on sale for $79 right now and they look really chic and modern.
ELAM: No matter your budget, Christina has an answer.
CALDWELL: I do. Thanks for having me.
ELAM: Thanks so much. All right.
Quick and easy financial fixes that won't cost you a penny, our free for all is next.
ELAM: All right. We all want our finances in tiptop shape, but we're not always willing to pay for that advice. That's why this morning we're tearing through the pages of Kiplinger's personal finance for some quick recipes for financial success. Janet Bodnar, all these things that you can do here for -- in less than 15 minutes. Is that what you're saying to us? You're sure? These recipes are quick?
JANET BODNAR, EDITOR, KIPLINGER'S PERSONAL FINANCE: Exactly. We absolutely guarantee it.
ELAM: All right. The first one is something you hear a lot about. Don't give Uncle Sam an interest-free loan all year long, right?
BODNAR: That's right. And you get the refund and you think it's great, but, you know, you've lost the money for the last year. So our recipe at Kiplinger and Kiplinger.com is, and you can do it in under 15 minutes, you have your tax return, you just did it, you got your pay stub.
All you do is go to the IRS website and you can log into their withholding calculator and recalculate your withholding and have it properly and very well suited to your actual finances. So you can have more money in your pocket, less money withheld from your paycheck and you've got it and not the government and that's a good thing.
ELAM: Let's say you do have this extra cushion in your paycheck. That means then you can save. You say the best way to do that is to not think about doing it at all, right?
BODNAR: Exactly. Have somebody else do it for you. You're saying I'd like to get this $2,000 or $3,000 refund check every year. Well take that money, set up an automatic savings deposit. You can do that again from your bank account, an automatic transfer. You can put it into a bank account to build up your emergency funds. You can put it into an investment account and build up your investmens. And when we tried that, it took us about three minutes. So that was a real quickie.
ELAM: That's very easy to do. And you're also saying ...
ELAM: When you do this, when you go ahead make everything all organized, while you're in your wallet, go ahead and copy everything in there. I don't think a lot of people even think to do that.
BODNAR: Right. And this is so low tech. All you have to do -- I was just talking to the makeup man here at CNN about this. You just take the stuff, the credit cards, the debit cards, the insurance card. You put them on a copying machine, you copy both sides of them and then god forbid they should be stolen or lost you have all that information right there. Again, when I had my staff members try this, it took them about three minutes to do this and look at the peace of mind it gives you.
ELAM: And file it away and you can always find that data and call the companies and let them know you lost your card.
BODNAR: That's right.
ELAM: I guess in that same vein, all the important things around your house, take pictures of them.
BODNAR: That's right. And you're always told to do an insurance inventory and people just never take the time to do it. We set one of our staff members onto this. She had a typical sort of four-bedroom suburban house and her little digital camera and she had surgery on her arm when she did this.
She ran around the house and she still got it done with a little help from her husband. She didn't have time to actually record everything. You can do that online and we have those websites listed on our website Kiplinger.com. She didn't have time to do that within the 15 minutes but she does have now a photo record of everything that she has. The possessions that she would really like to insure. The things that really mean a lot to her.
ELAM: That's a lot easier than trying to explain it for sure.
BODNAR: Yeah, and you have that picture. ELAM: These are some very tasty recipes you have left us with today, Janet Bodnar. Thanks so much.
BODNAR: My pleasure.
ELAM: All right. But right now let's get a check of your top stories with T.J. Holmes and Brooke Baldwin. The CNN "NEWSROOM," it starts right now.