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YOUR BOTTOM LINE
Examining the American Dream: Home Ownership; Controlling Workplace Emotions; Short and Long-Term Global Effects of Today's Cuts to Higher Education; Five Simple Steps to Fix Your Finances
Aired April 2, 2011 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, HOST: Is the American dream of home ownership gone forever? A bold new call this week that the worst is over.
Welcome to YOUR BOTTOM LINE. I'm Christine Romans.
At the housing peak in June 2007, the median home price of an existing home in this country was more than $230,000. Today, a third of that value is gone; the median existing home price in February, $157,000.
Here with me now, Shawn Tully, Carmen Wong Ulrich and Jack Otter.
Sean, your cover piece in "Fortune" proclaims forget stocks, don't bet on gold, after four years of plunging home prices, the most attractive asset class in America is housing. State your case, sir.
SHAWN TULLY, FORTUNE MAGAZINE: Well, first of all, it's always good to buy when down in value by 40 percent, including inflation, as opposed to when tripled. You don't hear that very much. Typically you hear, you know, buy gold, buy stocks, these are assets that have been bid way up in price recently, bonds the same thing.
Housing has been going down for virtually five years. We finally gotten back, and it should have gone down. It needed to go down. Because housing is drive because housing I s driven by rents, prices are driven by rents and when renting is much cheaper than owning, which was the case for a very long time, people are going to rent.
And what we've seen is for five or six years, all household formations got into rentals. We've become a rental society. And now finally, and it just really the turning point came early this year, it's now much more cheaper to own than to rent, especially in the markets that have been the hardest hit.
ROMANS: I want to show you the results of a recent survey about home ownership, in particular. The reason people gave for home ownership, the No. 1 reason, having a place to raise a family.
That, frankly, is why I bought a house, having nothing to do with the cycle of home prices in this country. Building equity rather than paying rent, making a good long-term investment, acquiring an asset. You start to see more of the financial and community-related, only two percent for tax deduction. Now I want to show you some new material from the National Association of Realtors. They go a little bit further, here. This is their "Field Guide for the Benefits of Home Ownership," this is in magazines across the country from "Martha Stewart Living" to "Popular Mechanics," they have a pull-out field guide saying home ownership has proven to reduce crime, you're 28 percent more likely to vote, you're 10 percent more likely to attend church, less likely to be a teenage mother, clearly making a strong push, Jack Otter, for home ownership. A lot of people are thinking about a home, right now, with none of these things in mind.
JACK OTTER, MONEYWATCH.COM: And good for them. Because they shouldn't be thinking about anything --
ROMANS: Because they're thinking about how much money they have in their paycheck.
OTTER: Right, exactly. You know, on the one hand, of course, this NAR thing is ridiculous. All of the stats are probably accurate, and they're exactly backwards.
The people who are in a position, they're stable enough to own a house, have all of these good attributes; it's not the other way around. The house didn't make them better people. More importantly, I mean, I know there's an national obsession with owning a house that has survived this horrible crash.
People think, as soon as I get out of college, I got to buy that house. And I think that's a really bad attitude. I agree with Shawn 100 percent that right now houses are -- it's a good time to buy and you want the assets that have come down, not that all those assets that have gone up.
But you don't buy a house if you're a young person who might very well get a job offer in a state across the country. I mean, right now people can't move to where the jobs are because they'd have to take a big check to the closing, they'd have pay somebody to take the house off their hands. But if you're renting, hey, great, I got a great offer, I'm going to go take it.
CARMEN WONG ULRICH, PERSONAL FINANCE EXPERT: That's key. The key here is understanding too what is the key to actually making money of the house and the big part it is staying put. And it's not like an asset like gold where you want to buy and sell it, and you it go up within a year, this is a place where you have to actually stay put.
And on the topic of the survey in terms of the voting and all of these stats are just ridiculous because they say nothing about age, like the older you are, the more likely you are to own, that sort of thing. so it, like you said, it's not about that backward. It's about really are you in a position to buy?
ROMANS: How do you know that?
ULRICH: And yes, I agree with these guys, if you are in a position to buy, now is a good time to buy, especially if we see Fannie and Freddie go away and interest rates go up, it's an absolute bargain right now. But the key point is, you have to be in a position to buy, you have to have great credit and I get yelled at and get e- mails about this from people all the time who say to me, especially mortgage lenders who say how could you dare say that?
Well listen, the guy who e-mails me who has a credit score at 540 and gets a mortgage at eight percent, that's just not sustainable. So if you really want the best rates on your mortgage, clean up your credit, have lots of cash savings, and be ready to stay there for a long time.
In the past we used to say three years, now we say at least five because this market is going to slowly move up, slowly.
UNIDENTIFIED MALE: Definitely at least five.
ULRICH: Slowly. This is going to be slow.
ROMANS: Do you have 10 percent to put down, too? That's very clear. And in some places you need more than 10 percent. In some places where -- and you're getting a bigger loan. This is going to be one of the reasons why the house, as an asset, is not like gold or a stock, as an asset.
TULLY: Not at all. And housing over time, if you buy it, the average period appreciates about three percent a year, a little bit more than inflation, maybe one point more.
And that's good, that gives you a nice nest egg return coupled with the savings by paying down the mortgage you're accumulating, which is a very healthy thing, but you don't want to speculate in houses the way people -- mom and pop, the average person was doing in the old days unless you happen to be buying foreclosures somewhere.
ROMANS: And I think 32 percent of home sales are people using cash to buy homes and in some cases, there are middle class families priced out, but in a lot of cases, investors who have cash.
But take a look at the best reasons not to own a home, they're almost all financial; 21 percent say the monthly mortgage payments are too high, 21 percent are worried their house will lose value if real estate prices drop, 19 percent say they're losing the flexibility to move if they find a new job, and, wow, almost one in 10 say it's too expensive to make the down payment.
Spending too much time and money on upkeep, that's interesting. We had a big build-up of all of these great apartments on cheap credit. There's great apartments that are out there.
OTTER: And a lot of them are sitting empty right now. And I think this is maybe the one reason that I might be a tad less optimistic than Shawn is this overhang of foreclosures, some that haven't even happened yet. One estimate is that it's nearly eight million houses, the official NAR estimate is about eight and a half months of inventory waiting to be sold. But CoreLogic just came out with a study that says it could be more like three times that. So I think this is going to weigh on housing prices for a long time. But again, it really shouldn't make a difference. Don't think of it as an investment, think of it as a place that you want to raise your family, that's why you bought a house, and hang on to it for 10 years. And 10 years from now, people who bought now will look like the smart money even if we do overshoot.
ROMANS: All right, Shaw Tully, Carmen Wong Ulrich, Jack Otter, thank you so much. Have a great weekend, you guys.
If your mortgage payment doesn't make you cry, maybe your boss does. The age old question, is it ever OK to cry at the office?
ROMANS: Attention office workers: You probably spend more time at the office than doing just about anything else, except sleeping. It's the focus of your energy, your emotions, and all too often, your frustration.
So, think about this: Have you ever cried at the office?
Anne Kreamer is the author of "It's Always Personal: Emotion in the Workplace." And Rod Kurtz is the executive editor of AOL Small Business --
ROD KURTZ, AOL SMALL BUSINESS: I'm laughing, I'm not crying.
ROMANS: I know you said -- Rod says well, I cry at the movies, but not at the office.
KURTZ: Oh, you blew my cover, Christine. Come on. Come on. The ladies love it. The ladies love it.
ROMANS: The ladies love it when you cry in the movies.
KURTZ: That's right.
ROMANS: Anne is it ever OK to cry at work?
ANNE KREAMER, AUTHOR: Yes, it is. One of the shocking things we found out. I did a national survey with J. Walter Thompson, getting a snapshot of emotion in the workplace, and 88 percent of all Americans want more emotion in the workplace than they see today.
ROMANS: It's not a sign of weakness?
KREAMER: No, we developed the sense that it was a sign of weakness when women started to go to work in the '60s. To go to work you would act like a man, "man up," remember was the sort of, you know, directive. Today, it actually can be a sign of empathy, compassion, and going to our center of strength. ROMANS: Do women feel differently about crying in the workplace than men feel about crying in the workplace?
KREAMER: Yes, this is the sad thing, when men cried, they reported in our survey, that they felt refreshed, cleansed, better, you know, the world was a new place. When women cried at work, they reported that they felt ashamed and victimized, it was a very stark difference.
ROMANS: And men are easier on women who cry in the workplace than women are on themselves. More women said it was not OK to cry in the workplace.
KREAMER: It's true. For then it was just like, one time unprofessional moment. For women it was a moral failure.
ROMANS: It's interesting --
KURTZ: It's because we're so sensitive.
KREAMER: I know that.
ROMANS: It's so interesting too, because men were more likely to say it's OK to cry, but men were less likely to cry.
KURTZ: Yes, I think it's probably women holding each other to a higher standard, I think, you know, historically, you know, women feel the need now to be managers that they are and I think it's the statistics are bearing that up. You know, the movie with Tom Hanks "A League of Their Own," said, you know, "there's no crying in baseball."
The reality is, there's a lot of crying in baseball and every other profession. I think, you know, I talk to a lot of entrepreneurs for a living and they love to see employees that are invested, that care about their job.
You know, emotion shows that you care and as a manager, that's what you want. You don't want to take it, you know, too far that you can't get your job done, but it really does show you're invested in what the company is doing.
ROMANS: Well, the taking it to far, I mean, OK, so an occasional cry is probably good I mean, this is where we kind of define ourselves, our frustrations after all of this time at work. How do you make sure you cry appropriately that shows you empathetic and not as someone who can't handle what's going on?
KREAMER: I think the read trick is to not let it build up. So, if you're feeling -- people cry out of frustration, out of anxiety, out of feeling overwhelmed, and unheard. So, if you feel like you're getting into one of those kind of, you know, pressure point moments, go to your boss and say, look, I'm having some trouble here, can you help me? And avoid it.
ROMANS: It's the proverbial straw that broke the camel's back. The thing that makes you cry at work, is not the thing you're really worried about, it's the 25 things that happened before that.
KREAMER: That's exactly right.
KURTZ: And I think you want to vent, too. You want to talk to your colleagues at the water cooler. I mean, a little, you know, healthy venting is a good thing. I think, to your point, you don't want it to build up, but you also want to do it productively and constructively.
You don't want to just say how much you hate your boss or how much you hate your job, you want to get to a better place, that way it doesn't build up and you have this, you know, volcano moment.
ROMANS: Anne Kreamer, author, "It's Always Personal," thank you so much. Rod Kurtz, AOL Small Business executive editor. Thanks, you guys.
To prepare for a job that won't make you cry, you need the right education. But this will make you cry, college tuition is up 400 percent since the 1980s. We'll help you beat the system.
ROMANS: Whether you're in kindergarten or Chem 177, budget cuts are coming near you. It's particularly painful at the state university level.
Since the recession started in 2008, some 43 states have either made cuts to higher ed or they've raised tuition to make up for a lack of funding, 34 states have cut K-12 education.
Steve Perry is CNN's education contributor. He's very concerned about higher ed cuts, because this is where the kid has to be prepared for the global economy -- Steve.
DR. STEVE PERRY, CNN EDUCATION CONTRIBUTOR: Well, the bigger issue is not -- recently it's been the cuts, but the bigger issue is that our colleges and universities are raking the students over the coals, in fact, we can look at one college, Michigan State University, that report of 569 percent increase in tuition since 1990, this is pre-recession. In fact, throughout the country, there's been almost a 400 percent increase in tuition. What are the students getting that's 400 percent better than it was in 1990?
ROMANS: Let's ask that question, because the average cost of a private college is $27,000 a year, an average of $7,000 for a public school, these state universities.
Sandy Baum is with the College Board.
Sandy, the advantage of a public school education it's more affordable for kids who can't afford to go to those fancy private schools, what do the state budget cuts mean for tuition for these universities? And why is it, no matter what, in good times and in bad, college tuition just goes up? SANDY BAUM, COLLEGE BOARD: Well, the state budget cuts are a real problem for the states themselves, for the economy, and for the students who depend on them. And it is true that for many students going to the public college or university is the most inexpensive choice.
But for other students, it can actually be cheaper to go to an expensive private college where they get a lot of student aid. So those sticker prices can be quite deceptive. It's true that college prices in general do go up faster than the prices of other goods and services.
A lot of that does have to do with budget cuts. The expenditures of public colleges and universities haven't been going up so fast. It's that they've been having to make up for the lack of public funding through raising tuition.
ROMANS: Sandy, I've heard this before that tuition's going up, but, you know, financial aid packages are going up too, but when we talking about financial aid packages, are we about loans? I mean, aren't kids -- aren't kids paying more money to go to school today, Sandy?
BAUM: Actually, the amount on average that students are paying for tuition and fees is not going up faster than other prices in the economy and that's because the federal government has done a lot to help students pay for college.
Now, that might not last because there is a lot of talk about cuts in federal student aid, but the federal government, state governments, colleges and universities themselves all give a lot of grant aid.
So students do borrow to go to college and many students borrow more than they should. They also work to help put themselves through college and actually living costs are a big problem for many students.
PERRY: No, the students are borrowing as much as they need because that's the only way they're going to get to stay in school. I work with a particular population of students, many of whom come from historically disadvantaged populations, they're not borrowing beyond what they want, in fact many families don't even want to borrow because their credit was bad from the housing situation. Our children are struggling to make the basic tuition payments. They're coming home in their second year because there isn't enough.
The federal government has made some grants available, but it hasn't been enough to meet the rising costs of public education and private college education. There's got to be a stop at some point because we are going too fast, too far. Families don't make $50,000 a year, so how can they afford to pay $50,000 a year to go to college? Even $27,000 a year? It's too much, because so many families are borrowing to the teeth. They're pulling it out of their homes, they're working two and three jobs, it shouldn't be cost prohibitive to participate in the middle class by way of college. This is not the way the American dream was set up.
We look at community colleges versus state colleges in the same state. One school can have $333 per credit, that's the four year college, then the community college is 133. Why is three times more or two-thirds greater? Because that college is not taking into consideration the very needs of the state, it's simply going up and up and up and one of the reasons is they keep building.
College presidents and their boards are spending more money than they have, as a result, they pass those costs on to the students. Yes, there have been cuts, recently there have been cuts in what's happening at the state level; however, this has been going on since the '90s, so that dog don't hunt. The reason why is because the colleges are not being mindful of their students. They're putting their wishes above the specific needs of the children and families of the states.
ROMANS: Sandy, let me -- I want to look at some numbers, because you make an interesting argument about the amount of aid the kids are getting. In 2010, the average amount of aid for a full time undergraduate was about 11,500, that includes more than $6,000 in grants. Grants don't have to be repaid, loans do. Grants don't.
Sandy, you're saying that tuition is steadily increasing, but not increasing faster than the cost of other things and that financial aid is increasing. Make that case again. Because I feel like a lot of people -- a lot of students we talk to, a lot of parents, don't feel this way.
BAUM: That's not exactly what I said. And the situation is much more complicated than this description just made it sound. People are struggling tremendously in this economy. If you lose your job and you lose your house, I mean, you have huge problems, you can't live, you can't afford any extra expenditures. And we have real people and people need a lot of help.
Tuition is rising rapidly, tuition at public colleges and universities is rising particularly rapidly, but the sticker price is not what most people pay. About two-thirds of college students are getting grants.
And you have to look closely at what different students are paying. It's a very complicated system, it's very hard for people to understand, We should simplify it, give people better information and we should protect people, because it's a great investment for most people, but not for everybody, it doesn't turn out well for everybody and we need to make sure that the people for whom it doesn't turn out well are protected in the long run.
ROMANS: Thank you so much, Sandy Baum from the College Board, also Steve Perry our education contributor. Both of you, have a wonderful day, thanks for your insight.
If money makes the world go round, why do so many smart people do such dumb things with their money? Five simple steps to fix your finances. (COMMERCIAL BREAK)
ROMANS: Have you ever really stopped to think what is your money for? And what do you want it to do for you? My good friend, Bruce Sellery, is the author of "MooLaLa: Why Smart People do Dumb Things with Their Money and What You can do about it."
Bruce Sellery, why do smart people do dumb things with their money?
BRUCE SELLERY, AUTHOR: The first thing they do I -- well, lots of reasons, right? But the first is they don't answer the question, what is money for?
ROMANS: It's to buy things.
SELLERY: No. Well, it could be to buy things, but bigger than that. Once you've bought the things --
ROMANS: More than retirement and more than even saving for a college education.
SELLERY: It's holistic, it is experiences, it is contribution, it's family, it's home, it's stuff, it's wild cards and people don't answer the question --
ROMANS: That's existential. That's not financial, that's existential..
SELLERY: I am deep. That's first step in getting a handle on your money. I call it laying the foundation. And you answer the question what's my money for. I do workshops all the time. When people answer that question, their eyes light up and their shoulders go down, because they say you know what, it's for adventure, it's for experiences, it's for family, it's for choices. And when you have your vested interests covered, it is more likely that you're going to do the more responsible thing rather than buy the Jimmy Choos in the moment that --
ROMANS: Well, you have to do what -- you have to know what you want before you can do what you want with your money.
SELLERY: Set two, determine what you want. And I love when people think holistically, because, you know, so much of what people talk about in financial planning is retirement, retirement, retirement. That's not inspiring for most people. They want to think bigger about a villa in Tuscany and if that's what it'd going to take to have them get a handle on their money, they need to do that. So, they need to dream big.
ROMANS: I don't want a villa in Tuscany, I just want to make sure I can get my kids through college and there's money left over at the end. Am I not dreaming big enough? SELLERY: No, you're dreaming big enough, but when there's -- at the end, what are you doing? Where are you? You're not dead.. Do you want the person delivering your eulogy to say, she had a fully funded retirement? (snoring) So boring. Boring! Not enough. You want the person that's eulogy to say, they contributed to the family, they had a great life and a fully funded retirement is not enough.
ROMANS: So develop a plan.
SELLERY: No. 3, develop a plan. People do this at work all the time. They develop a plan to launch a product, to teach a class and then they don't develop a plan for their money. It makes me crazy, because they have these skills and they don't use them in their lives.
ROMANS: Well, I would say, people can develop a plan for how they're going to lose weight or they're -- in fact, there are people that are total gym rats yet have no idea how much money they have socked away for their retirement.
ROMANS: They know exactly what day of their workout routine they're on. They have to switch to weights today and start doing cardio.
SELLERY: They have the skills they just need to reapply.
ROMANS: So, the same thing happens for your money. You have to think the same way about your money.
SELLERY: Absolutely. You do. And, same thing with exercise, you need to take action with your money. And that's easier said than done. I fully admit it, but we ask the wrong question when it comes to action. We ask the question, why am I not taking action? It's a virtually useless question, and yet we talk about it with at the cafeteria with our coworker and with our therapist after work.
We need to ask a different question. We need to ask the question: what is it going to take to take action? It's probably creativity, patience, discipline or courage. One of those things. That's where we need to focus our attention.
ROMANS: It's interesting because one of the things I feel is that most people, their financial future happens to them. It is not something that they are actively managing and what you're saying it's not working at a job, this has to be a running conversation every day, you're smart financial choices.
SELLERY: No. 5, stay engaged. It is not something you can do once. Wouldn't you love if you could fill your fridge up and just show up and it was full.
ROMANS: So, just thinking about your money and your financial future and your financial choices is like going to the grocery store, it's like going to the gym, it's like filling up your gas tank, it's that frequently that you need to reassessing and figuring out that you're on the right path.
SELLERY: Right. Yes, stay engaged.
ROMANS: Bruce Sellery, "MooLaLa," thank you, Bruce.
That's it for us. We want you to send us an e-mail to yourbottomline@CNN.com, find me on Facebook and Twitter @christineromans. We want to hear what kind of decisions you're making in your family and what is important for you.
That's going to wrap things up for this morning. Back now to CNN SATURDAY for other stories making news, right now.