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We had a wonderful opportunity to talk with Liz Weston (@lizweston) about saving for retirement, debt, managing credit, and much more. Check out the full-interview: I know you went to the FinCon blogger conference last year, how was that? Liz Weston: Yeah, that was really a great event. There were a lot of opportunities for socializing and networking. It was pretty cool. I met Phil Taylor, who is the organizer, several years earlier. He was a participant in a savings contest that I co-hosted with FNBO bank, and really liked him. I thought it was going to be a small event, and it wasn't at all. They had some great speakers and great information. It was really fun. It sounds like a great event. Liz Weston: Yeah, and it's really a chance for a lot of these bloggers who aren't professional journalists to brush up on their skills and meet some of the companies that they might work with. I found a lot of them were reluctant to call P.R. people and make contacts because they weren't sure their calls were going to get returned. It’s nice for them to meet people at the various companies they can reach out to. You've been writing about money and personal finance since the early 1990s. Has any of your financial advice changed over the years? Liz Weston: Well, we kind of made a joke when I first started this. My editor at The Orange County Register used to always say there are 14 personal finance stories. And we just keep adding new anecdotes and tweaking the advice. Well — not even tweaking the advice — just sort of freshening them up with new anecdotes. I think the problems that people face don't change a lot. Throughout the 1990s and into the 2000s, I think a couple of the big differences were that credit standards got a lot looser. People who sort of counted on lenders to tell them how much they could afford really got themselves into trouble. Another big trend that's been going on is shrinking incomes. We hit a peak in median income around 1999. People are coping with smaller incomes or a less affluent lifestyle than they expected. I was watching your personal finance seminar on YouTube, and you showed some graphs about how incomes are shrinking. Liz Weston: Yeah, I mean it's sort of been a trend more or less since the 1970s, and household incomes didn't lose ground because a lot of women went back to work. But if you even mentioned the fact that the middle class was getting squeezed, it was like a political statement, and it's not. This is just what's happening, and I think it took a while for some of us to figure it out. It's not just people buying too many lattes. They have more significant, more real, and harder-to-fix issues than just overspending. In your book, The 10 Commandments of Money, you have a chapter titled "Saving for Retirement Must Come First" and emphasize the importance of saving for retirement above everything else. Why is that so important? Even before paying off a mortgage? Liz Weston: There is a lot of advice on the web about "Paying off your debt," and that message misses a couple of things: (1) how very expensive retirement is going to be. You're going to have to replace your income (or at least a chunk of it) for a decade, two decades, or even three decades. And that's not something you can do overnight. And (2) people don't understand the power of compounding, which is when you put little bits of money aside over time (and you don't see much growth), and then, all of a sudden, you start to see real growth because your returns earn returns. The problem with putting it off is that you might not get to that sweet spot, where you're really making some money on the money you put aside. Roger Ibbotson, who is the founder of Ibbotson Associates, does a lot of the market research. He did a deep dive into this, and he looked at what people really need to save to have anything approaching a comfortable lifestyle in retirement. Every way he worked the numbers, if you hadn't started by the time you were at least 35, you had a really tough time catching up. He didn't want to say impossible because that's very discouraging, but it's really, really hard to catch up. People think, "Oh, I'll take care of my debt first and then I'll catch up later." Well, life doesn't work like that. As you get into your thirties and forties, your expenses tend to go up, and if you haven't made room for retirement saving, you're unlikely to be able to do it then. And the other thing is if you start early, you have so many more options later in life. You can take time off if you want to, you can retire early if you want to; you have all these choices that you don't have if you put it off. Don't put off retirement saving. No matter how important you think those other goals are, the most important goal has to be saving for retirement. You can do the other things, as well, but don't skimp on your retirement savings. I think that’s a really important message. In your personal finance seminar, you mentioned that you started saving for your retirement in your mid-twenties. If you could go back in time and give yourself advice about saving for retirement, what would you say? Liz Weston: Well, I got a good start through my twenties. I think I was saving about 20 to 22 percent of my income, but I really didn't understand how 401(k)s worked. I would put even more into it now. When I was starting, we had the big crash of '87. We bounced back from it fairly quick, but I thought it was something my company had done to me (when my 401(k) dropped). I thought that my company had turned on me somehow. That's how little I knew about investing. Fortunately, I didn't sell everything or cash out. I knew enough not to do that, but I'm glad I got a start in my twenties. If I could have gotten started even earlier with retirement savings, that would have been even better. I'm glad you mentioned 401(k) plans. In your book, Easy Money, you talk about the keys for investing for retirement. When someone asks you, "Liz, I'm in my mid-thirties and I want to save for my retirement, what type of account should I open?" Liz Weston: Well, the first thing is if you have a 401(k), 403(b), any kind of workplace retirement plan, take advantage of it. There are some plans that are truly awful but they're actually fairly rare. Most plans are pretty good. Especially if you work for a big employer, you tend to have a lot of options. What's interesting is that with the big employers, the investment options tend to be cheaper than anything you can buy retail, or than most things you can buy retail. So, the basic advice is if you have a workplace retirement plan, contribute to that. If you get a match, contribute enough to get the full match. Then, once you have a full-company match, look into a Roth IRA. The reason I say that is that the 401(k) money is going to be taxable in retirement, but the Roth IRA money is not. It's nice to have two different buckets to be able to pull from. It's nice to have options when you're in retirement. So, those are the two ways to get started. If people are unsure about what to invest in, most plans these days have some kind of target date maturity fund, or lifestyle fund that basically does the heavy lifting for you. It might not be where you want to keep your money forever, but at least it gets you into the market. It gets you started, and then you can kind of figure out where to go from there. This is great advice. Liz Weston: Well, it's the advice that people would get if they went to a comprehensive, fee-only financial planner (CFP). A certified financial planner — and the comprehensive financial planners — look at your whole situation. People have mortgages to pay, they have debt to pay off, they have goals to save for, but the CFPs know how important it is to get that retirement savings going and to keep it up. That's the other thing: don't stop and don't cash out. You're going to need every penny of that money when you get to retirement. Where do you recommend someone go to find a qualified CFP? Liz Weston: I have been talking to and working with NAPFA planners. That's the National Association of Personal Financial Advisors. I've been doing this almost 20 years, and I've never met a lemon in that group. They're fee-only. They tend to have very high ethical education and experience requirements. The problem with NAPFA is that a lot of its people are so good that they limit themselves to high net worth people only. They might want you to have $250,000.00 to invest with them, and that's not an approach everybody can take or wants to take. So, if you can't afford the NAPFA approach, the other option is the Garrett Planning Network. It's a network of fee-only planners who typically charge by the hour, so it's kind of a dentist or doctor model; you sort of pay as you go for the advice that you need. Not everybody needs a comprehensive personal financial advisor or financial planner, but I'd say everyone needs it when they're approaching retirement. That's the time when you're making a lot of decisions that are really critical, and you really want a second opinion and another set of eyes on your plan. But I think anybody can benefit from a financial planner. I'm not discouraging anyone, it's just that it does cost money. So, if you're just scraping by, it's something to put on the list for down the road. Now, let's switch gears and talk about debt. In Deal With Your Debt, you have a chapter where you write that debt isn't the enemy – which is shocking. What do you mean by that? Liz Weston: The new edition of “Deal with Your Debt” just came out — the first version was written in 2004. So much has changed in the debt and credit world. However, that piece of advice on debt has not. I bring it up because it was a shock to me. The first time I was doing a money makeover, the financial planner I was working with told someone to stop focusing on paying off his student loans quickly and work on other things. I had been raised in a household where debt was a four-letter word, and I just couldn't imagine the concept of having debt and not wanting to get rid of it as soon as possible. Then, I went through the CFP program myself, and I learned how some debts actually can help you get ahead. However, you have to be careful in taking on any debt. Most of us need a mortgage to buy a home. A moderate amount of mortgage debt can help you get ahead. A moderate amount of student loans and federal student loans tend to be very consumer friendly (if you don't overdose on them). If you're a business owner, sometimes you need an infusion of capital or credit to keep going or to expand. So, those are the kinds of debts that can help you. If it's a low-rate debt or fixed-rate debt, you probably have better things to do with your money than to pay that off quickly. Right now we've got mortgage rates and a lot of loan rates at just phenomenal lows. If they're not the lowest since the 1950s, they're pretty close, and we're likely to see some inflation come back when the economy recovers, so that 2.875 percent mortgage, or the 3 percent mortgage, or whatever, is going to seem like incredibly cheap money. So, I understand the desire to be debt-free. But you don't want to do that at the expense of other goals, like saving for retirement. We recently did a poll asking bloggers and personal financial writers about their favorite money-saving app. When you wrote Easy Money, you mentioned you liked Microsoft Money and Quicken. And you've also referenced that you like Mint.com. You refer to these types of programs as your control panel. Why are these tools helpful for you? Liz Weston: Well, for one thing, you can keep track of a lot of accounts at once. And one of the things you need to be on the alert for is somebody using your account or bogus purchases that might show up. I was a long-time Quicken user, and really liked that program. It put everything in one place so I could look at our spending pattern and see where we might need to cut back — and Mint does that for you. Obviously, it's owned by the same people that make Quicken. Mint.com makes categorization really easy. It automatically categorizes transactions, and you can change it if you want. The bottom line is it really helps you monitor and keep track of your finances without having to bounce around to a lot of different websites. Experian has its own campaign dedicated to helping others live credit smart. I was wondering if you could share a tip to help others manage their credit. Liz Weston: Don't carry credit card debt. Don't think that it's normal. Don't think that it's required, because it's really not. Fewer than half of U.S. households have any credit card debt, and it actually dropped pretty dramatically during the recession. It went from I think 46 percent down to I want to around 39.6 percent. This idea that we all have $15,000.00 of credit card debt is just baloney. What those figures come from is taking the amount of outstanding credit card debt and dividing it by the number of households that have at least one credit card, and it completely ignores the fact that a lot of that debt is being paid off every month. If you want to manage your credit well, get in the habit of paying off your credit card balances. And use your credit accounts regularly, but lightly. You don't want to be maxing out any cards. Again, if you're in the habit of paying off your cards in full, it's going to be easier to do that. It keeps your utilization rate down, and it's going to keep you from getting into real financial trouble. Who are some of the personal finance writers you like to read? Liz Weston: Oh, this is going to be hard because it's going to be like the Academy Awards. I'm going to forget people that I should mention. One of my favorite bloggers is actually a good friend of mine, Donna Freedman. She has a blog called, Surviving and Thriving. Donna grew up poor, but she squeaked by on small amounts of money. She's a talented writer and makes me laugh. So, I'm always checking in with her. WiseBread.com is constantly surprising me and they have a lot of good stuff. Credit.com is another site I check in with regularly – not just because they give good consumer advice, but they're also breaking news all the time. CreditCards.com has some real newsy stuff on their site, and I still check in with Get Rich Slowly and The Simple Dollar, which have been around for a while. Learn more about Liz Weston by following her @LizWeston and subscribe to her blog.
Ronald Reagan once said, “Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.” A truth that still holds true. In the current economic climate, however, small-business owners have found themselves under increased pressure to maintain profitability and grow their business. Since its founding in 1953, the U.S. Small Business Administration has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. Today, we announced that we joined forces with the SBA to help small businesses in some of their key programs. The collaboration provides all Historically Underutilized Business Zone (HUBZone) firms and small businesses considered to be socially and economically disadvantaged under the SBAs 8(a) business development program with full access to Experian’s BusinessIQ Express. BusinessIQ Express is an online tool that improves cash flow by providing small businesses with the resources they need to better manage their business relationships quickly and easily. It does this in three key ways: Evaluate — BusinessIQ Express users can evaluate prospects, customers, suppliers and partners on their likelihood to pay or deliver on time. Monitor — Users can easily monitor their business relationships with alerts and notifications of key changes, allowing them to take appropriate account actions and maintain beneficial relationships. Collect — The tool offers small-business users unique options that may have been never before easily accessible to them to help collect on outstanding debts and avoid future losses. Providing these firms with access to BusinessIQ Express helps alleviate some of the economic pressures they could be facing by providing comprehensive, actionable information so they can make more strategic business decisions.
Who doesn’t like low monthly payments? Unless you are lucky enough to buy a car outright, most consumers would agree that when making any large purchase, one of the goals is to keep the monthly payments as low and affordable as possible. Whether it is providing a large down payment, extending loan terms or securing the lowest interest rates, keeping costs down is a number one priority (at least in my household). As it turns out, Experian Automotive’s recently released State of Automotive Finance report showed that very thing. The report found that the average loan terms for a new vehicle jumped to an all-time high of 65 months, the average interest rate for new and used vehicle loans dropped and the average monthly payments dropped versus the same time period in Q4 2011. The report also showed that the average loan amount for a new vehicle was $26,691 in Q4 2012, up $272 from Q4 2011, while the average used vehicle loan was $17,629 in Q4 2012, up $239 from Q4 2011. However, while consumers are taking out larger loans, lower interest rates and longer loan terms for new vehicles helped bring down the average monthly payments. For example, the average interest rate for a new vehicle loan in Q4 2012 dropped to 4.36 percent, from 4.52 percent in Q4 2011, while the average interest rate for a used vehicle loan dropped to 8.48 percent, from 8.67 percent in Q4 2011. Additionally, the average monthly payment for a new vehicle dropped from $468 in Q4 2011 to $460 in Q4 2012. More consumers also were able to obtain financing in Q4, as average credit scores for both new and used vehicles dropped. For new vehicle loans, the average consumer credit score was 755 in Q4 2012, down six points from Q4 2011. For used vehicle loans, the average consumer credit score dropped to 665 in Q4 2012, down five points from Q4 2011 For more information on this report and other automotive-related insights, please visit ExperianAutomotive.com. Photo: Shutterstock
Today, we stand at the forefront of a digital revolution that is reshaping the financial services industry. And, against this backdrop, financial institutions are at vastly different levels of maturity; the world’s biggest banks are managing large-scale infrastructure migrations and making significant investments in AI while regional banks and credit unions are putting plans in place for modernization strategies, and fintechs are purpose-built and cloud native. To explore this more, I recently had the privilege of attending the annual Reuters NEXT live event in New York City. The event gathers globally recognized leaders across business, finance, technology, and government to tackle some of today’s most pressing issues. On the World Stage, I joined Del Irani, a talented anchor and broadcast journalist, to discuss the future of lending and the pivotal role of data and AI in building a more inclusive financial system. Improving financial access Our discussion highlighted the lack of access to traditional financial systems, and the impact it has on nearly 100 million people in North America alone. Globally, the problem affects over one billion people. These people, who are credit invisible, unscoreable, or have subprime credit scores, are unable to secure everyday financial products that many of us take for granted. What many don’t realize is, this is not a fringe subset of the population. Most of us, myself included, know someone who has faced the challenges of financial exclusion. Everyday Americans, including young people who are just starting out, new immigrants and people from diverse communities, often lack access to mainstream financial products. We discussed how traditional lending has a limited view of a consumer. Like looking through a keyhole, the lender’s understanding of the person in view is often incomplete and obstructed. However, with expanded data, technology, and advanced analytics, there is an opportunity to better understand the whole person, and as a result have a more inclusive financial system. At Experian, we have a unique ability to connect the power of traditional credit with alternative data, bringing a more holistic understanding of consumers and their behaviors. We are dedicated to leveraging our rich history in data and our expertise in technology to create the future of credit and ultimately bring financial power to everyone. The future of lending After spending two days with over 700 industry leaders from around the world, one thing is abundantly clear: much like the early days of the internet, today, we are at the cutting-edge of a technical revolution. Reflecting on my time at Reuters NEXT, I am particularly excited by the collective commitment to drive innovative, and smarter ways of working. We are only beginning to scratch the surface of how data and technology can transform financial services, and Experian is positioned to play a significant role. As we look to the future, I am excited about the ways we will create new opportunities for businesses and consumers alike.
We believe that financial literacy leads to empowerment. That is why Experian supports initiatives and partners with community organizations to deliver financial education. We also develop products and services that give more control to consumers over their credit profile and financial health. As part of advancing our mission of Financial Power to All®, we are proud to announce we are helping more than 5,000 Hispanic individuals nationwide by relieving $10 million dollars of consumer debt. To provide families with this boost, we joined forces with ForgiveCo, a Public Benefit Corporation (PBC), to administer the acquisition and cancellation of qualifying consumer debt for the selected recipients. Beneficiaries will also receive a one-year premium Experian membership for free that offers access to their Experian credit report in English and Spanish[i], FICO® Score[ii], bilingual educational content, and other financial resources. We hope this effort helps raise awareness of the importance of financial literacy for everyone, and that Experian has resources to help individuals reach their financial dreams. To amplify the message, we collaborated with multi-platinum, award-winning singer and songwriter Prince Royce and you can see his video here. In fact, we have been making a concerted effort the last several years to evolve our educational resources and products to better support all underserved communities. Some of our other activities include the creation of the B.A.L.L. for Life initiative that connects African American and Hispanic youth with financial education, supporting scholarships for Asian Americans through the Ascend organization, providing custom resources for Out & Equal and Born This Way Foundation for the LGBTQ+ community, supporting the NextGen Innovation Lab for Disability:IN, and sponsoring credit counseling for the military community with Operation HOPE. For resources in Spanish, Experian offers a credit e-book and consumers can access a full suite of articles at the Ask Experian blog here. [i] Only Experian credit reports are available in Spanish. All other services associated with an Experian membership are available in English only. English fluency is required for full access to Experian’s products. [ii] Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.
Amid some of the financial challenges that underserved communities experience, members across the financial services community remain committed to championing initiatives and programs that drive greater financial inclusion. In fact, collaboration has led to the inclusion of non-debt related payment information on consumers’ credit profiles, as well as digital services that make it easier to manage money. These efforts have helped to broaden access to fair and affordable financial resources for more individuals. While significant progress has been made, there is still more work to do. However, some of the misconceptions and myths about the financial services community are hindering further advancement. Debunking these myths will accelerate progress by building trust between the financial services community and consumers. Person withdrawing money from ATM contactless Myth #1: “Financial institutions have no interest in underserved consumers or credit invisibles.” The truth is, banks and credit unions want to say “yes” to more prospective borrowers, including individuals and families from underserved communities. Beyond being the right thing to do, it’s an opportunity to potentially build lifelong relationships with a relatively untapped market. A show of good faith to communities who have largely been ignored by the financial system could lead to customer loyalty that may extend to their family and friends. That’s why participants across the financial ecosystem have been proponents of including expanded data sources—such as on-time telecom, utility and video streaming service payments—on to consumer credit reports, as well as exploring other Fair Credit Reporting Act (FCRA)-regulated data sources, including payment data on short-term small dollar loans and expanded public records data. Making this data more accessible to lenders provides a more comprehensive view of a consumer’s ability and willingness to repay outstanding debt—an actionable solution to extending credit to consumers without lenders taking on additional risk. Myth #2: “There is a lack of trustworthy financial education resources.” The financial services community and affiliated organizations recognize that empowering people with financial knowledge and skillset are critical to consumers’ financial success. In fact, banks and credit unions are partnering with nonprofits and non-governmental organizations to better understand the unique challenges and opportunities within specific communities and provide relevant tools and resources. For example, Experian’s B.A.L.L. for Life (Be A Legacy Leader) program, launched in partnership with the National Urban League, serves as a catalyst for engaging with Black communities and low-income youth through live events and digital financial education. Subject matter experts, professional athletes, celebrities, and other influencers share their experiences and expertise, covering topics such as banking, credit, financial management and investing. In addition, to help people improve their financial management, Experian partners with the National Foundation for Credit Counseling (NFCC). The NFCC connects consumers with certified financial counselors to help them address various pain points, including debt management, homeownership, student loans or small business cash flow issues. Myth #3: “Underserved communities have few opportunities to build credit and enter the mainstream financial system.” People from underserved communities, as well as younger consumers and recent immigrants are often excluded from the mainstream financial system because they lack an extensive credit history. Historically, it’s created a vicious cycle; in order to get credit, you have to have credit. Fortunately, there has been a sea change in innovative solutions to address the specific needs of these populations. These include new credit scoring models and microfinancing which provide financial services to individuals who may have been excluded from traditional banking systems. In addition, by incorporating expanded data sources, such as telecom, utility and residential rental payments onto credit reports, lenders have more visibility into consumers who may have been excluded by traditional credit scoring methods.These programs help individuals and families from underserved communities establish and build a credit history that could enable loans, or the ability to rent an apartment or open their dream business. An example is Experian Boost®, a free feature that allows Experian members to contribute their history of making utility, cellphone, insurance, residential rent and video streaming service payments directly into their Experian credit profile. By incorporating nontraditional credit data like paying utility bills on time, online banking transactions, rental payments and verified income data, more people can establish a credit profile that can potentially qualify them for a loan. More Inclusion, Fewer Myths It’s encouraging that community organizations and banks are beginning to see the economic and social benefits of aligning on financial literacy and inclusion. As more initiatives come online, underserved populations will be able to establish a better financial foundation. Then, we can declare the myths to be history.