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Debt Free in 2012; Voting on Jobs; Testing Teachers; How to Retire with $1 Million

Aired January 14, 2012 - 09:30   ET


CHRISTINE ROMANS, HOST: We are two weeks now into the New Year. Are you still on track with your New Year's resolutions?

Good morning, everyone. I'm Christine Romans.

Coming up, the best investment you can make in 2012 is to get out of credit card debt. You can do it. We're going to show you how.

Plus, how you can retire with more than $1 million in the bank.

And how a great teacher affects your child's future paycheck. You might be surprised to know just how much a good teacher is worth.

But first, America's national debt is now about as large as the entire U.S. economy, more than $15 trillion and growing. Politicians are deadlocked over how to fix it, but only you can tackle your own personal debt, and we're going to help you do just that.

Lynette Khalfani-Cox is the founder of Jeff Gardere is a clinical psychologist.

Lynette, are Americans back to their bad old ways? We saw consumer credit on the latter part of the year up again. People are using their plastic. Are they more comfortable or are they living paycheck to paycheck and they need to to survive?

LYNETTE KHALFANI-COX, FOUNDER, ASKTHEMONEYCOACH.COM: I think they are still, by and large, living paycheck to paycheck, but we saw this huge amount of debt, as you just mentioned, in November. American consumers added about $20 billion to their credit cards. I'm waiting to see the December numbers.

I think that people have this sense of frugal fatigue. We've buckled down and hunkered down for so long, and they were just like, oh, it's the holidays. I've deprived myself for so long, I'm going to go out there and spend.

ROMANS: They're either more comfortable - some people are probably a little more comfortable because the economics numbers are getting better, but a lot of people are - their savings rate is going down and they're spending more money and they're using their credit to do it.

Now, I asked people on Twitter this week, I asked what they're doing to stay out of debt, Jeff, and - and one guy said, come, save is my diet. Stop eating and stop spending money. Wow, that's not easy. It's not - it's easy to say it's a money diet, but how do you keep the resolutions, Jeff?

JEFF GARDERE, CLINICAL PSYCHOLOGIST: Well, that's the thing - don't see it as a diet, because if it is a diet, you're depriving yourself. So, even though we do get great advice about just use cash, live within your means, when we're so circumscribed with it, when we're so rigid with it, people do get tired and they say now I do want to break out of this a little bit and treat myself to something.

So I think we have to kind of change up as to how we give that advice and tell people -

ROMANS: You say don't deprive yourself.

GARDERE: In other words - yes. You know, you don't want to use that credit card, but sometimes you can use it. Sometimes you have to use it. But don't feel guilty for using it. And if you fall off that bandwagon and you start using that credit card, with that old advice, now you feel, forget it. I blew the resolution. It's not going to work. So let me go back to the old ways.

ROMANS: Lynette, you think that resolutions last, what? Like 30 days or something?

KHALFANI-COX: Yes. I mean, most people, they have the best of intentions. They start off January 1st, rah, rah, and then, you know, by the end of the month that willpower starts to wane.

I think something that is important to note, like Jeff said, you know, we don't want to make people feel guilty and bad about their choices. We don't want to make them feel emotion like I'm a bad person. And we do have to deal with the reality, which is that people are going to still use the credit cards.

The challenge is do it smart, you know?


KHALFANI-COX: If you've got that holiday debt, you know, one way you can reduce your debt in 2012 is to make sure that you've got the best possible interest rate on your credit cards.

ROMANS: And we know that interest rates overall are rising again.

KHALFANI-COX: That's right. That's why you should be calling up your credit card companies right now and try to negotiate and get your interest rates knocked down. If they won't do it for you, get on a website like, make sure you go and comparison shop. See what's the best deals that are available out there.

Because by lowering your interest rates, of course, you'll be paying fewer dollars in terms of finance charges to the bank. You'll more quickly knock out your debt.

ROMANS: Now, I know - you know, Lynnette is amazing. The reason why she's the Money Coach is because, quite frankly, she dug herself, Jeff, out of $100,000 credit card debt.

GARDERE: That I know. That's legend. That's legend.

ROMANS: I mean, she doesn't just talk the talk, she walks the walk. And - and you did it in a way that has now really allowed you to grow in your future.

KHALFANI-COX: That's right.

ROMANS: So you are the walking proof, Lynette -

KHALFANI-COX: That it can be done.

ROMANS: -- that it can be done.


ROMANS: But you have to change your mind set. And that's what's so difficult, Jeff, to do, is to change your mindset, especially if you do it using retail therapy. Or there's just not room in your budget. You always have to go to the credit card for - for the emergencies.

GARDERE: Well, but this - this is why I like this whole idea of moderation in everything we do, and I'm looking at this from a psychological point of view. Moderation in how you use your credit card instead of just stop using your credit card.

What Lynette did -

ROMANS: Moderation is so un-American. Come on.

GARDERE: But what Lynette did and - and what I really admire, because we've known each other for a couple of years now, it wasn't just about getting out of $100,000 of debt. It was about changing a whole lifestyle, living a more genuine life, living within your means and not lying to other people and not lying to yourself.

I'm not saying that you did that, but that's what -

KHALFANI-COX: I did. I was in denial about it. No question.

GARDERE: And that's what people need to do. They have to look at changing their whole lives, not just about getting out of credit card debt. If you change your life and look at doing that, credit card debt is part of that, getting rid of that.

KHALFANI-COX: You know, I was sharing with your producer that one of the things that I had to do was to sort of psychologically make some tough choices. As a mom, what I - one of the things that I did that actually dug myself into debt is that I had my two older kids in a very expensive private school. They was when they were five and three years old. They're 14 and 12 now.

But I was paying $20,000 a year -

ROMANS: Oh, Lynette - KHALFANI-COX: -- you know, and using that credit card convenience checks, because I was thinking I want to give them the best possible start in life. I have to give them a head start education.

ROMANS: You thought you were doing the right thing.

KHALFANI-COX: I thought - and now my kids are in public school. They're doing just fine. They're still straight A students.

So, a lot of times, sometimes we get ourselves into debt psychologically because we think we're doing the right thing, and it's really the wrong thing in the long term.

ROMANS: All right, Lynette Khalfani-Cox, Jeff Gardere, very nice to see both of you.

GARDERE: Thank you.

ROMANS: And just to wrap things up for you about how you can get out of debt this year and what you need to do, I mean, you can pay down your highest interest rate credit card first. That's a lot of advice, but if you need to pay off one that's a low interest rate because it's the smaller balance just because it can make you feel good, you can do that, too. Whatever it takes to get you to start - start spending - cutting down that debt.

Also, cut your spending. Strive to live on 70 percent of your income. If you can't afford it, put it down. Use a debit card if you need to, or cash to limit spending, and don't activate the overdraft protection.

But you can take advantage of your credit card protections. Keep your credit card balance below 30 percent of your overall limit.

And finally, please, please, please, please, please, check your credit history at Clean up any mistakes right now. Don't just close your eyes. You've got to find out what that credit history looks like. It's really important, folks.

All right, there are two different job markets in America. One's getting better, the other isn't, and how you vote just might depend on which job market you live in. That's next.


ROMANS: The last few years have been brutal for American workers. Look at this. The job losses began way back in 2008 and they really accelerated in the first months of Barack Obama's presidency.

Since then, it's been a weary, slow, painful climb out of a very deep hole, and we're not back up yet, quite frankly. We still have many more jobs to recover before the economy and labor market can start growing again.

Now, economists say the unemployment rate will likely stay in the eight percent range this year. It leaves us with two jobs markets, folks, one where the newly unemployed have the best chance in three years to find a job quickly now. Things getting better for the newly unemployed, but there's another labor market, another job market where the long term unemployed are absolutely shut out here.

Cheri Jacobus is a Republican strategist and a columnist for "The Hill;" and Keith Boykin is a Democratic strategist and former Clinton White House aide. Thanks for joining us, you guys.

Keith, I want to ask you first. If say you get an 8.5 percent unemployment rate and we stay like this throughout the year, can the president win at 8.5 percent?

KEITH BOYKIN, DEMOCRATIC STRATEGIST: We don't know. We're going to find that out, I guess.

I think what's interesting, though, is the trajectory right now is very similar to the trajectory that we had in the first term of the Reagan administration. At this point in Ronald Reagan's first term, unemployment was at 8.3 percent. It's now at 8.5 percent, and it's heading downward. We're not sure that's going to continue with the January numbers, but if it does, that's a positive thing. Of course, the analysts aren't expecting that.

So the real question is, is you had to focus on what happened in his first year. You showed that chart, which I think was an excellent chart, because in the first year almost all the job losses that took place in the - in the Obama administration took place during that Bush recession. Since that time, we had 22 consecutive months in private sector job growth. We've added three point -

ROMANS: That sounds like a White House talking point.

BOYKIN: But it's true, though.

ROMANS: I hear that from the White House every time there's a jobs report.

BOYKIN: It's 3.2 million jobs have been added. I think that the White House has failed to articulate that to the public, so people understand.

ROMANS: Right.

BOYKIN: Yes, you know, Romney's out there saying, yes we've lost all these jobs, but almost all those jobs were lost during the first year of the administration.

ROMANS: But Cheri, if you don't have a job today, you're just saying I don't have a job today. And - and as the Republican candidates get to the South, as they go to South Carolina and Florida, those places have unemployment rates much higher than the rest of the country.

You look at the - you look at the rest of the country, for example Iowa and New Hampshire, five percent range unemployment rate. Florida has 10 percent; the Carolinas, 10 percent, too. How will Mitt Romney and his business background play the people who are hurting for jobs? CHERI JACOBUS, REPUBLICAN STRATEGIST: Well, it depends how he communicates it. I think right now when you look at the polls, especially in Florida, and they have that high unemployment, high foreclosure rate and obviously a high Latino vote, that Barack Obama got 57 percent in 2008.

Now, he only has a 46 percent approval rating among Hispanics in Florida. That's an 11 percent drop. That's very, very bad for him. And unemployment and jobs is obviously a big issue because the Hispanic community sends a lot - it'd be two points higher in unemployment than the rest of us.

So that's going to be a big issue, and if he can't do better with the employment numbers, then he's got a real problem in that minority community.

ROMANS: This has been something that's has been just really intractable and difficult, for blacks, it's almost 16 percent. Cheri, you mentioned for Hispanics it's 11 percent right now. That is far higher than the rest of the population.

For many - for many African-Americans in this country and Hispanics, but mostly from African-Americans, quite frankly, they were in a recession way before this recession. So do they not turn out to vote if they feel unhappy about what's happened or do they vote - what happens?

BOYKIN: Yes. I mean, I don't think the African-American vote is going to abandon Barack Obama because of the unemployment rate. I think that people are unhappy in part because of the - of the unemployment numbers, but they also don't necessarily blame him for that.

I mean, if you look at where the economy is right now, African- Americans have typically been disproportionately affected by unemployment, but - but the African-American community, like the Latino community, is more likely to support Obama because they understand there's been obstructions to policies that prevented the African-American community from benefiting.

And here's the other thing, Chris, I think you have to look at the government jobs. We lost 280,000 government jobs last year. Many of those jobs were African-Americans. We're disproportionately affected by this.

So, at the same time, Republicans are criticizing the - the job losses, they're actually contributing to those job losses by cutting government - government funding.

ROMANS: So do you think that the Republican message of cut, cut, cut, cut, cut is something that's not going to play with people who happen to be federal workers who -

JACOBUS: I think what - I think what you have with all voters, and this is going to - I don't think that the Republicans are going to suddenly get the African-American vote, but there can be some nibbling around the edges when people start looking at, OK, we want - we have job creators. We have these job creators out there who's saying that we need some policies to change; you know, we need different tax rates; you know, we need to make job creation easier, make it more fertile ground.

And all it takes is a small percentage of people of all colors, of all races and ethnicities, to understand that and to - and, you know, maybe they like this president personally, but they just say, you know, whatever he's doing isn't working. He was supposed to lower unemployment to - to six percent with the stimulus package. It was supposed to create all these jobs. (INAUDIBLE) jobs that did happen -

ROMANS: Eight percent. He said -


JACOBUS: He said it wouldn't go higher than eight percent.

ROMANS: Right.

JACOBUS: He said it would go to six percent.

BOYKIN: We never said that.

JACOBUS: So none of - so now of this -

BOYKIN: That was before -


JACOBUS: But none of this happened, and then he -

ROMANS: Well, look, I mean, nobody knew. I mean, this has all been so hard to predict.


JACOBUS: -- 1,000 jobs. And so -


JACOBUS: -- things add up.

BOYKIN: But here - here's the problem with what Cheri is saying. I mean, it's all focused on the supply side, and I think Obama and the Democrats are rightly focused on the demand side.

The wealthy in this country, the corporations, have benefited enormously from this economy over the past 10 years or so. The stock market, even in the Obama administration, the Dow Jones investor average was 7949 in his first whole day in office. It's now well over 12,000.

Corporate profits are at record highs. The corporate tax rates, by the way, Cheri, are no higher than they were under the Reagan administration. We have the lowest tax structure that we've had in decades.

Even the marginal income tax rate, it's the same tax rate we had during - when I was working for the Clinton administration.

ROMANS: All right, guys -


JACOBUS: -- is how am I doing right now, if I'm hurting, they're looking at who -


BOYKIN: They're saying the rich are doing well, why aren't we doing well? Let's have some policies that benefit the middle class, not just the upper class.

ROMANS: And this is the job debate that will play out for the next - what? How many - how many weeks do we have?

BOYKIN: Who knows? Who knows? Far too many.

ROMANS: Cheri Jacobus and Keith Boykin, thanks so much for joining me. We'll talk to you again very soon. You'll continue to update us on how jobs and whether you have one is going to be playing on the campaign trail this year.

All right, a landmark new study says a great teacher determines how much money you'll earn later in life. That's next on YOUR BOTTOM LINE.


ROMANS: A landmark new study from economists at Harvard and Columbia found that one good teacher can result in higher earnings, a lower chance of getting pregnant young, and a better future. Their conclusion, kids with higher test scores are kids with better teachers.

Just one year with a teacher ranked in the top five percent can mean $50,000 of additional earnings over the course of that student's career. Imagine what four years, eight years, 12 years with a good teacher could do.

Randy Weingarten is the president of the American Federation of Teachers, and Justin Snider is a former teacher and a contributing editor at "The Hechinger Report." Thanks for joining, both of you.

This - this Harvard/Columbia study is fascinating, and one of the study's authors told "The New York Times", quote, "The message is to fire people sooner rather than later."

Randi, we don't - it sounds extreme. Randi, we - we don't get do- overs with kids. Can we form to keep - can we afford to keep underperforming students in the school? Is this study telling us that we have to do a better job of finding out - finding those underperforming teachers, rather, not students, teachers, and - and moving them to a different career?

RANDI WEINGARTEN, PRESIDENT, AMERICAN FEDERATION OF TEACHERS: Well, look, I felt that the economists, the economists should do the economy and let the teachers actually do teaching. So I thought it was a very unfortunate thing to say because if you actually did that, we'd lose all of our new teachers, because the people that actually get really much better over two or three years are new teachers.

ROMANS: You don't come in as the teacher you're going to be the first year that you're a teacher.

WEINGARTEN: Never. And so it was - so I thought that that was a very unfortunate thing to say -

ROMANS: The report. But do you - do you agree with the report?

WEINGARTEN: Of course - look, of course if you have - you know, if you have good performance in schools, if kids do well in school, it gives them confidence to do well in the future.

The real issue is - and - and we've been saying this for the last couple of years - you have to have a good performance system. We have to all be about high performance and some of the work that we've tried to do with evaluation, with revamping it, we're basically taking it away from strictly being a principal's responsibility and let's do it together, to focus on continuous improvement.

We will ensure then that teachers are getting better. And if teachers can't do their jobs and if you try to help them and they still can't do it, then we have to usher them out of the profession.

ROMANS: But do you - do you agree that testing teachers, standardized testing is a way to find good students, and those students are doing better because of their teacher. That a standardized testing (INAUDIBLE), you'd like to see a different way to do it?

WEINGARTEN: No. And, frankly, testing has a role, data has a role, but the same day that that Harvard study came out, the Gates, big Gates study, came out that said you can't just use tests. You have to use multiple measures.

And so what happens is you have to think - what you - what we need to do is we need to think about what is a teacher teaching and what is a student learning? And so, tests play a piece of that but basically so do student portfolios, so do teacher practice, so does a whole bunch of - of other things.

ROMANS: Yes. Justin, I want to ask you, "The Los Angeles Times" used the results of standardized tests to rate the city teachers there and they posted those ratings online. How much weight should parents give to standardized testing? I mean, Randi's saying there needs to be a whole portfolio of things to judge a teacher. Standardized tests aren't enough?

JUSTIN SNIDER, CONTRIBUTING EDITOR, THE HECHINGER REPORT: I don't think so. I think it could be a component, maybe 20, 25 percent. I think the states that are considering 50 percent as part of the evaluation system, that's a bit scary, because there is volatility in those scores. And so a teacher who has students performing highly one year might have student with lower performance the next year.

And the things is that parents looking for information, oftentimes this data is not coming out until after the year is over, and so the students are moving on. And I would prefer, if I had children in a school, that my students or my children were in a classroom with a teacher who I knew went the extra mile and cared and gave extra time, and that's not necessarily going to show up in standardized tests.

ROMANS: But you can't - you can't choose your teacher. That's the thing here.

SNIDER: That's another thing.

ROMANS: I mean, the other thing is even if you know how the school ranks or how the teacher ranks, you can't choose your teacher. And that's a question, Randi, how do you make sure that the teacher in the classroom is one of those teachers who's going to make your kid be the one who succeeds in life?

WEINGARTEN: Well, let's look at what happens in countries that outperform us. They have a whole different view of this. What they do is they create a climate, which is, in some ways -


ROMANS: -- performing teachers.

WEINGARTEN: Actually, they actually focus on creating climate so that there's high performance and real respect and dignity. And so what we're saying -

ROMANS: And it's a sought after profession, and not everyone is accepted into - into education schools.

WEINGARTEN: Take what Justin just said about test scores. This sounds easy, but it's so totally wrong in that teachers don't get to decide who their kids are in school.

ROMANS: And that's the other thing.

WEINGARTEN: And you want to make sure that a teacher is working as hard, if not harder, with a kid who needs the extra mile.

ROMANS: Randi Weingarten, Justin Snider, thank you so much.

All right, how to retire with more than $1 million in the bank? You can do it. We're going to show you how, next.


ROMANS: All right, take a look at this, 25 percent of middle class Americans say they're going to need to work till least 80 to live comfortably in retirement. The economy, your choice of funds, your annual income all play a role in how much money you'll have when the day comes, but not - none of them are as important as the amount you actually put away. You have to be socking the money away. And you don't have to make a lot of money and you don't have to be an investing whiz to get it right.

Donna Rosato is an investing whiz and a senior writer, actually, at "Money" magazine. Nice to see you.


ROMANS: We talked about this being a bad environment for savers - interest rates historically low, the S&P 500 is returning basically nothing in 2011. But when it comes to your 401(k), isn't it the amount you save the number one factor, and how long you've been saving, in determining how big that nest egg is going to be?

ROSATO: That's right. The most important factor, the most important lever you have and control you have over your 401(k), your retirement savings, is saving money. It's the thing you have control over.

So you don't have to be an investment whiz in - and that's not the thing that has the biggest influence, nor is it the actual return, although you don't want to be in just treasury bonds or money markets. It's - it's how much you sock away, and the earlier you can do it, the better it will be for you.

ROMANS: You know, you and I both profiled lots of people who don't make a lot of money you've been able to sock a lot of money away. And we give you an example of what we're talking about here. I mean, this - this graphic we're going the show you makes the case for saving early and often.

Look at the difference a few percentage points of savings can make over a 30-year period. That's just remarkable. Now, that's assuming an eight percent return, which you might not get.

ROSATO: That's right. Return is important. You don't want to earn zero over that time, because you have to deal with inflation. But even historically you'll see that over time, if you have that 30-year time period, you're going to be able to ride out those big downturns and those years where the market is flat.

But one of the things, if you don't have a lot of money, I think people, particularly in their 20s, they have a lot of student loan debt, they don't have as much money or even jobs to put money aside. You don't have to save as much in your 20s if you're just saving something, you know?

ROMANS: Just save something, you say.

ROSATO: Just save something.

All right, so if you have one - if you put away one percent a year, say when you're starting at 25, and you can build that up, you don't feel it when it's just one percent. And then you can build up to - by the time you're in your 30s, maybe you can do five, six percent, seven percent.

ROMANS: So - so a lot of people think that they're too strapped, they're living paycheck to paycheck. They can't even find that one percent. And - and I'm going to be honest with you, when we talk about saving for retirement, a lot of people will - will send me messages on Twitter and on Facebook and they'll say, "Christine, we are nowhere near being able to invest. We're just trying to survive right now."

But then you're always going to be behind, right? You have to - there are plenty of people who are living paycheck to paycheck who are able to put a little bit away. Is that right?

ROSATO: That's right. You know, we have many readers at "Money" magazine, they don't make a lot of money, so I'm - some of the wealthiest people I know are on very modest incomes.

But it's - it's about a choice, you know? And it's sort of a behavior that you have to learn.

ROMANS: All right, Donna Rosato of "Money," thank you so much.

That's wrapping things up for us today. The conversation continues online. We want to know how you are saving for retirement. What's your opinion on teacher effectiveness and how you rate what is a good teacher?

We want to hear from you. Find us on Facebook and Twitter. Our handle is CNNBottomLine. My handle is @ChristineRomans.

And if you want to know more about the topics that we've been covering here, you can check out my new book with Ali Velshi. It's called "How to Speak Money." It's a guide to handling all of these issues in your life.

Back now to CNN SATURDAY for the latest headlines. Have a great weekend, everybody.