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Searching For Jobs; New Low For Home Prices; Fixing Our Schools; Detroit Schools On Edge; Saving For Your Future

Aired June 4, 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: There are two Americas, the one growing and the one left behind. Which one do you live in?

Good morning, everyone. I'm Christine Romans from your job to your home, your savings and your child's education. How do you get to the side that's getting ahead?

Let's start with jobs. The job market for the class of 2011 is better than it's been for several years. Three out of four companies are planning to hire new grads in the coming year. And every one of those jobs is need. These kids have a mountain of student debt to pay. Look at how average student debt has grown in recent years to more than $23,000.

Rick Newman is the chief business correspondent with "U.N. News & World Report." Tamara Draut is vice president of policy and programs with Demos, a public policy center, and the author of "Strapped: Why America's 20 and 30 Somethings Can't Get Ahead."

Now the America you live in just might depend on the choices you're making when you're about 18 years old. Look at this. Look at majors are worth. Engineering, math, computer jobs, look at what kind of earnings you'll get at the very top of many of those fields. You compare that with say education, social work, and the arts.

Tamara, even if 2011 grads were wise enough to choose one of these top paying majors, competition is tough and they're buried under a mountain of student debt.

TAMARA DRAUT, VP OF POLICY AND PROGRAMS, DEMOS: You know, it's really scary. I think everybody is scared right now because it really feels like the American dream is unraveling right before our eyes. So we have a graduate class, 2011, $24,000 in student loan debt. This is the primary thing we tell people to do to get on the other side, the success side, go to college, but even that is no longer a guarantee.

And as you said, those recent college grads are still better off because the reality is, in one generation, young workers have lost considerable ground compared to their moms and dads. Everybody's earning less than their moms and dads did 30 years ago, except people with college degrees.

ROMANS: But doesn't it limit you if you don't have access to the capital to get yourself in school, if for some reason you fall short by a few thousand dollars on the student loans -- DRAUT: Yes.

ROMANS: That might limit your ability to get the degree which you're going to need longer term to be able to get ahead.

DRAUT: It sure does because what we know happens is that the financial challenge of paying for college is the number one reason students drop out. So we've created this debt for diploma system that saddles recent college grads with way too much debt and keeps a lot of really bright students from fulfilling their potential.

ROMANS: You point out the difference between a public college per year cost and a private college per year cost. We know that the president and Congress have put more money and attention on community colleges. Do we need to rethink how much we're spending for that education?

DRAUT: You know, I think we definitely need to invest more in community colleges. They are doing a great job educating first generation college students, lower income students, but they're really under resourced. But the major challenge here is if you look at what states spend on higher ed, it's at a 25-year low. And that's a major reason why tuition keeps skyrocketing.

ROMANS: It's kind of a (INAUDIBLE) though because you hear all these budget cuts. It's not like they're going to be piling money into it.

DRAUT: That's right.

ROMANS: Rick, you know, how do you graduate into a good career?

RICK NEWMAN, CHIEF BUSINESS CORRESPONDENT, "U.S. NEWS & WORLD REPORT": You have to keep in mind, first of all, there are not enough jobs to go around. And, by the way, it's not just for new grads, it's for every age group in almost every profession.

ROMANS: Yes, that's a baseline that something (ph) -- any talk about jobs.

NEWMAN: So just be aware of that. So you have to think to yourself, what do I have to do to get above the level so I'm one of the people who gets a job. The first -- most important thing is, know what kinds of skills are in demand. Just because you spent, you know, $100,000 to get an expensive degree doesn't mean anybody cares. So you have to know what companies want.

And there are a lot of things that they do want. They want analytical skills. They want math and engineering talent. They want you to be able to take what you know about something you studied in a liberal arts school and apply social media skills to that. So you have to develop all of these skills.

You know, look at the job listings. Notice practically all of them involve some kind of technology. Whether it's cloud computing, social media. And that doesn't mean you have to be a programmer or something like that. It means you have to apply these things to many different disciplines that maybe don't have anything to do with technology.

ROMANS: I call it liberal smarts.

NEWMAN: That's a good way to think of it.

ROMANS: If you're a liberal art, you have to figure out how to put your liberal arts smartly into a science and technology growing field.

NEWMAN: And you have to keep learning. This is true for everybody these days because skills get outdated faster than ever mainly because of technology. You just have to keep going.

ROMANS: You said in this (INAUDIBLE) -- I saw (ph) demean (ph) yourself. Please, what generation y kid coming out of school wants to demean themselves?

NEWMAN: Well, there's a lot of research that shows that recent grads over the last few years -- this is no surprise -- a lot of them work in jobs that don't even require a college degree.

ROMANS: Right.

NEWMAN: That's retail jobs, cashiers, clerks, waiters and things like that. You just have to do that. I mean, again, people in their 50s are doing this, working, you know, what they think is below their pay grade, if you will. You have to do that if that's what it takes to start paying back those loans, but you also have to fence off time to develop what you want your career to be. Devote however much -- how many hours a week you can to that. Whether it's 15, 20 hours. Whether it's doing an internship, researching, networking, all these things. Create the time to do that. And yet you have to work really hard. Sorry about that.

ROMANS: Yes, got to work really hard. And you've got to be a little lucky too --

NEWMAN: Sure do.

ROMANS: Because, as you said, there aren't enough jobs to go around.

Rick Newman, "U.S. News & World Report," and Tamara Draut of Demos, thank you so much.

A crisis in housing is an opportunity for investors, but how do you protect your most valuable asset?

(COMMERCIAL BREAK)

ROMANS: It's been called the lost decade in real estate. Almost 10 years of home equity wiped out. By one gauge, home prices are back to 2002 levels. The latest S&P Case-Shiller report this week found home prices in a double dip, down nationally 32.7 percent from the 2006 peak. The home price plunge, once concentrated in the bubble cities, it has spread. In Minneapolis, a 10 percent drop. In Phoenix, over 8 percent. Chicago, 7.6 percent. Washington, D.C., and the northern Virginia Tech corridor, that's a rare bright spot. Prices increasing there. But take a listen to Arizona realtor John Greer about one home on the market in the city of El Mirage.

(BEGIN VIDEO CLIP)

JOHN GREER, ARIZONA REALTOR: This is a short sale property, which means the owner owes more on the property than what the house is worth. What it will sell for. This house, the list price is $70,000. Probably was worth 60 percent, possibly 70 percent more than that during the peak.

(END VIDEO CLIP)

ROMANS: Wow, 60 to 70 percent loss.

Let's bring in Ilyce Glink.

This is not just Arizona. This is across the country. You're seeing short sales, homes in distress selling. That's a big part of the housing market right now?

ILYCE GLINK, AUTHOR, "BUY, CLOSE, MOVE IN!": Well, it's about 61 percent of the housing market according to the realtor's latest numbers. And that is just a way out of whack number. And, of course, home prices have to be going down because if you're looking at median home prices, it's the number that have sold above and below the median price. And when you're selling, loads and loads of foreclosures and short sales over on the low end, you really need a lot of high end home sales to balance it out. We're just not seeing the demand right now.

ROMANS: Greg McBride, in El Mirage, Arizona, where that house is, it's a short sale, it would have been 70 percent more, maybe, a few years ago. It is likely an investor is buying that home, right?

GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM: We're seeing a lot of that. One third of all sales nationally are cash transactions, two-thirds in some of the hardest hit markets. Places like Phoenix. Places like south Florida. The majority of home sales taking place on a cash basis.

ROMANS: Are these sophisticated investors or is this John and Mary Lou who saved up their money and are now buying an investment property for their kid?

MCBRIDE: It's more sophisticated investors.

ROMANS: Yes.

MCBRIDE: I mean it's John and Mary Lou, but John and Mary Lou have got very deep pockets. The people that are willing to put their cash at risk. ROMANS: So was that speculators in a market that was driven up by speculators or is that people sopping up excess supply and that's a good thing for housing prices?

MCBRIDE: I think it's a good thing for prices ultimately. I mean, look, there's a ton of head winds in housing. If there's one good sign, I think this is it, because all that cash, people that are willing -- investors that are willing to put their cash at risk, that tells me that there's a perception of value, particularly in the places where home prices have fallen the most. That's why I don't think home prices are going to drop that next 10, 15 percent, like some people say, despite all the negative signs and all the overhang of inventory.

ROMANS: Meanwhile, interest rates are very, very, very low. So if you're still waiting for a 5 percent more decline in home prices before you buy something, you could see interest rates may be moving the wrong way against you. Tell me about factoring in interest rates in this scenario.

MCBRIDE: Mortgage rates right now are at six month lows. They're really only about a quarter of a percentage point above the record lows that we saw last fall. So affordability is tremendous between the lower home prices and these historically low mortgage rates.

One thing to keep in mind, in a lot of markets around the country, what qualifies as a federal loan, those limits are going to be declining. Somebody's going to move the goal posts on you. So particularly on the refinancing side, but even for some home buyers, keep an eye on that.

ROMANS: Yes.

Oh, and, Ilyce, this numbers -- these mortgage -- this mortgage snapshot we're showing, it's just -- it's tantalizing if you're thinking in a 2003 brain about how cheap your loan would be. You've got to be able to qualify for that loan. And that's part of the problem here.

GLINK: It's really interesting. The numbers that came out this week from the Mortgage Bankers Association tells us that the number of people applying for new loans to buy houses is back to where it was in 1997 or 1998. So our home values have rolled all the way back to 2002, and in some cases earlier, but also the number of people shopping out there has declined.

And so while Greg is exactly right, what, you know, the bright spot here are the investors, we're really looking at only about 16 percent of home sales right now. Far more than normal, but still only 16, 20 percent are investors. There are a fair number of John and Mary Lous out there. I love those names. And we hope more will come to the fray. But, really, I think that that's going to be limited because when you look at the lenders willing to lend on investment property, it's fewer and fewer. ROMANS: All right, Greg McBride, bankrate.com, thank you so much for dropping by today. Also, Ilyce Glink, "Buy, Close, Move In!" is the name of the book. Thanks to both of you.

Here's a math quiz for you. What percentage of high school graduates with a 3.0 grade point average are not ready for college? Prepare to be shocked.

(COMMERCIAL BREAK)

ROMANS: Did you know one third of students entering college need a remedial or a developmental course? A class in the basics of reading, math, English. Covering material that they should have learned in high school. Bill Bennett is a CNN political contributor, former secretary of education for the Reagan administration.

Bill, what is the problem here? Are high schools not aware of what's expected in college or do the curricula just not line up?

BILL BENNETT, CNN CONTRIBUTOR: Dumbing down. Dumbing down of almost everything. Grade school, middle school, high school and college. That's the problem.

When I toured the country, when I was secretary of education, I went to 120 schools. What I found was this. Everybody at every educational level above third or fourth grade believes the fundamental educational work was done at the immediately preceding level. Therefore, they do creative this, revisionist that, special aspect of -- who's doing the basic work. And a lot of the basic work isn't getting done.

When you add to that, Christine, the fact that the SATs have been dumbed down, normed (ph) down, and that higher education has not -- does not have real expectations of competency in order to get into higher education, you've got this problem.

ROMANS: Why don't -- why doesn't higher education have higher expectations? Is it because as long as --

BENNETT: It wants bodies. It wants bodies.

ROMANS: As long as somebody's paying the bills, that's what it's all about?

BENNETT: That's -- pretty much it is for a lot of institutions. Now the very selective institutions could, of course, be very selective and they raise their price.

ROMANS: Right.

BENNETT: But if you are breathing, even we think if you're not, you can probably get into an institution of higher education if you can bring the tuition or the government funded support with you. That's the way it works.

ROMANS: Bill, what really surprised me about this study is that these are not quote/unquote bad students.

BENNETT: Right.

ROMANS: Four out of five of the students taking remedial classes, they graduated from high school with a GPA of 3.0 or above.

BENNETT: Yes, I know. And, see, this is the sad part, because this is the deception. The child is told in his grades that he/she is doing well. Parents say -- are told everything is fine. Then the child, at some points, gets to a real test, maybe of his proficiency in reading or writing at the second year of college, or maybe it waits even until the job market and then he finds out that he really didn't know very much and wasn't being taught very much.

ROMANS: Yes.

BENNETT: That's not fair. That's a waste of $700 million.

ROMANS: OK. So if some public schools can't get kids out the door with the skills they need, are charter schools the answer? Switching gears here. In Detroit, good students are fleeing the public schools. But we found one school, Glazer Elementary, where parents and teachers are fighting off the prospect of becoming a charter school. Poppy Harlow reports.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE (singing): Good evening, Glazer. So glad you're here.

POPPY HARLOW, CNNMONEY.COM (voice-over): A rallying cry from Detroit's Glazer Elementary School. It's one of 26 public schools the city wants to be chartered to help cut the district's $327 million deficit.

UNIDENTIFIED FEMALE: This is a principal's dream right here at Glazer.

HARLOW: Glazer's principal doesn't want to see that happen.

UNIDENTIFIED FEMALE: I like that butterfly, too. You did a good job.

HARLOW: When we visited, Glazer was set to be chartered or closed, but the district has since ruled if no charter company qualifies, Glazer will stay open. Five of Toletha and Chris Turner's children attend schools up for charter.

HARLOW (on camera): What's your favorite thing about Glazer?

UNIDENTIFIED FEMALE: Math.

CHRIS TURNER, PARENT: It shines in the middle of a troubled neighborhood.

HARLOW (voice-over): The district says Glazer has performed well. But like enrollment across Detroit, attendance has fallen significantly.

ROY ROBERTS, DETROIT PUBLIC SCHOOLS EMERGENCY MANAGER: We've lost over 50 percent of our students. We have got to right size the school system here.

HARLOW: Enter Detroit Public School's new emergency manager, Roy Roberts. The former GM executive is attacking the crisis like a failing business.

ROBERTS: It's looking at the totality of this community and says, how do we put a system in place that makes sense for this community and do the best job of educating young people.

HARLOW: That includes closing yet another 15 schools.

UNIDENTIFIED FEMALE: Parent should have a right to have a choice. And if their children are in a place where they feel safe, where they are learning, where they feel loved, that's one of their -- a school that should stay open.

HARLOW: By chartering schools, the district no longer bears their cost. But charter schools must operate more efficiently with the limited state funds they get.

ROBERTS: We're doing it to put an alternative school in place where students can have a choice.

HARLOW: If their school is chartered, students can choose to attend or go to another nearby public school. A 2010 study commissioned by the Department of Education found charter schools are "neither more or less successful than public schools in improving student achievement." Though in some subjects, charter schools have had a more positive effect in low income students in large, urban areas.

HARLOW (on camera): What about turning Glazer into a charter school?

TOLETHA TURNER, PARENT: It wouldn't be the same because I don't know who would come in and teach them. It just wouldn't be the same.

(END VIDEOTAPE)

HARLOW: And, you know, that's the fear that a lot of parents we spoke to have and also teachers and principals. As far as Glazer, we'll know whether that school will be chartered later this month. We'll also find out then whether those other 25 Detroit Public Schools will be chartered or not.

But bottom line here, Christine, a lot of this does come down to money. You know, that principal told me, I said, is this about money? She said, well, in part, who wants a $30,000 to $40,000 pay cut. And if you look at the numbers, at charter schools, they traditionally pay less. So the teachers don't want a pay cut.

But the man you saw in the piece, Roy Roberts, who's now in charge across the board, has total power to throw out any union contract he wants, take collective bargaining away. So it comes to the point where Detroit can't afford these schools. Charter is an option. It's better than closing schools, many would argue.

ROMANS: Right.

HARLOW: These folks say, our school is performing well, it's just low enrollment that's the problem. We don't want you to change our school.

ROMANS: Bill Bennett, you know, sometimes we hear from people in places like Detroit, especially in Detroit, where they're looking for more options. They're looking for more choices. It's interesting that this family and this particular school, they're saying, no, we don't want another choice. We want this school. We want it the way it is because it's working for us.

BENNETT: Yes, interesting and sensitive report Poppy did there. It's a tough situation. You've got the confluence of a lot of problems. Mr. Roberts has a problem, too. He's got declining enrollment. You remember we used to talk about white flight. Now you've got white flight and black flight from a number of schools. So he's got a problem. He's got to consolidate.

Parents get attached to schools. The parent in the segment is obviously attached to the school. She said, we don't know what's going to come next. It's possible that what comes can be better. And throughout the piece was the theme of parental choice, giving them some choice.

Now, she's going to have fewer options because there are going to be fewer schools. But if there is some choice preserved, which I think is very important, then she'll have some options as to where to send her kids. Very tough situation.

ROMANS: Yes, it sure is. And any story about Detroit and Detroit schools is a story that leaves you with a lump in your throat at the end because parents are really struggling to navigate the different choices that they have.

Poppy Harlow, Bill Bennett, thanks both of you.

BENNETT: You bet.

ROMANS: It doesn't matter if you're 16 or 60, this applies to you. Retire with the right amount of money no matter what your age. How to retire rich, next.

(COMMERCIAL BREAK)

ROMANS: Retirement is essentially a simple concept. You save, your money grows, you retire comfortably. End of story. Well, that was before our financial and job's crisis. According to the AARP, one in four Americans age 50 or older said they had exhausted all of their savings during the recession. Ryan Mack of Optimum Capital Management is back with us. Ryan, most people don't know how much money they need to retire, but they know it's not enough. It's probably not enough.

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: Well, definitely. At the end of the day, we actually have to put out a road map. A lot of people think that retirement is all about vineyards and retiring on the beach and what not, but they actually have not actually taken the time to figure out how much it's going to actually take to get them there. So it's time for us to start getting a little more aggressive and figuring out exactly what we have to do to start putting our money aside and what sort of things we have -- and tools we have to use to get there.

ROMANS: It's not about a vineyard and a beach.

MACK: Right.

ROMANS: It's about having enough money to pay your out of pocket health care costs.

MACK: Exactly.

ROMANS: It's about being able to whether, you know, a downturn in the housing market or being able to pay for your rent. The first step to rebuild then for these people who aren't ready.

MACK: Right. Well, (INAUDIBLE), you know, cnnmoney.com actually has a great site. It's figuring out what your goals are. Again, it's not about vineyards and the beach. It's about actually figuring out, what is your finish line. How much is it going to take for you to get there. And they have a great calculator to use in order to figure out exactly what it's going to take to get there. And it will give you a good little sense of guideline of how long it's going to take to get there.

ROMANS: So they establish a goal, identify your resources --

MACK: Yes.

ROMANS: Learn the system.

MACK: Yes, and essentially I want you to identify those resources that you have. How much are you going to get from Social Security? How much are you going to get from pension? How much are you going to get from you 401(k), your 403B that's going to compensate that.

And I want to also tell you exactly how much you might be cost -- a little bit left over. And then learn the system. What is a Roth IRA? What is the traditional Roth IRA? Are you eligible, income eligible for those type of things? Should you get the help of a qualified, certified financial planner to assist you in getting you on the right track to figure out how aggressive you should be in your retirement savings.

ROMANS: If you're over 50, you don't have an awful lot of time to recover. In that same survey from the AARP found that 31 percent of people said they've experienced a financial loss from their home.

MACK: Right.

ROMANS: Which is something they were hoping to help them retire on. What's your advice for people who are 50 and over?

MACK: Well, essentially, right now, see, we've been living off of this sugar high society where back in 2003 we were essentially supersizing our -- the things that we were buying, but were not supersizing our income.

ROMANS: Right.

MACK: So if we're looking at things, you might not need a three- bedroom apartment. Can you deal with a two bedroom apartment? You essentially say, can I live without that gym membership and just workout at home? Can I cut off my cable and use my Internet and watch television shows over the Internet on my computer? What sort of things can we do to downsize and get us back to the fiscal responsible days where we weren't living outside of the -- above our means.

$51 billion was actually used in 2006, pre-recession, people charged to purchase fast food.

ROMANS: Right.

MACK: So we don't have to take out loans to buy a Big Mac. We can just essentially use and stay within our means and be a little bit more responsible.

ROMANS: Sounds so sensible now. But in the bubble vision, it was happening.

MACK: Right.

ROMANS: A lot of that was happening.

Ryan Mack, Optimum Capital Management.

MACK: Thank you.

ROMANS: As always, you know, three minutes, I always feel a little richer in a lot of ways when you're around for a few minutes.

MACK: Thank you.

ROMANS: Thanks, Ryan.

One final note. Speaking of feeling a little richer for knowing someone. It's time for us to say good-bye to our producer, Ben Tinker (ph). He's off to Atlanta to work with Sanjay Gupta and CNN's health unit. Ben will be missed around here. He helped put the show on the air every weekend and his invaluable expertise and talents will surely be missed. At least that's exactly what he wrote for me to say in the teleprompter here. Seriously though, Ben, good luck. And, Sanjay, some day I will forgive you for stealing him, but it will take me many, many years.

That's it for us. Send us an e-mail to yourbottomline@cnn.com. You can find me on Facebook and Twitter at Christine Romans.

Back now to "CNN SATURDAY" for other stories making news right now.