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HerMoney Podcast Episode 178: Making Empowered Choices With Cheryl Strauss Einhorn

Kathryn Tuggle  |  September 11, 2019

One of the challenges we face when making decisions is that there can be an overwhelming number of choices — in work, with our finances and in our personal lives. And when we start to second-guess ourselves, it can make us feel disempowered. 

This week, our guest is going to help us break down the entire decision-making process and help us gain the confidence we need when faced with life’s big “what to dos.” Cheryl Strauss Einhorn, well known from her many years on CNBC, is also the creator of the AREA Method, which helps people solve complex problems when making such decisions. She’s also an author, and her most recent book is “Investing in Financial Research: A Decision-Making System for Better Results.”

Cheryl shares her method for decision-making and explains how research is fundamental to the process. She also dives into the concept of risk, and how we can feel more empowered when making choices and navigating the emotional aspects of big decisions. 

Cheryl also tells us about her personal practice to increase daily productivity called “Cheetah Pauses” — and yes, it is based on real cheetahs.

Finally, in this week’s Mailbag, Jean and Kathryn tackle listener questions about helping a parent save for retirement when they’re new to the country, what to do when a child doesn’t qualify for a federal student grant or loan because the parents have too much savings and income, and difficulties getting out of debt after a divorce. Plus, in Thrive, Jean warns of the dangers of dating site fraud, and the scam artists who profit from those looking for love.

This podcast is proudly supported by Fidelity Investments. At Fidelity, we believe planning for retirement can help you feel better about where you stand today—and more prepared for what comes tomorrow. Learn more at Fidelity.com/HerMoney. Fidelity Brokerage Services LLC Member NYSE, SIPC.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Transcript

Jean Chatzky: (00:07)
HerMoney is supported by Fidelity Investments. We want to inspire you to demand more from your money by first knowing what you own and what you owe and what you want from your money. We’ll help you reach your financial goals faster at fidelity.com/demand more. HerMoney comes to you through PRX. Hey everybody, it’s Jean Chatzky. Welcome to HerMoney. So as I was heading over to the studio today, I had just gotten off a call with a AARP. I am gearing up to lead a panel on caregiving for their upcoming summit and we were talking about choices. We were talking about how come when you have so many different options in front of you, it becomes more difficult to make those choices. And I thought, well maybe I’ll get some answers on today’s podcast because one of the biggest things that we face when making decisions about our finances is that there is too much choice. There’s just too much choice every time you turn around. And that can bring on that feeling of second guessing yourself, which can be really disempowering, which is why I am so excited to talk to my guest. She has spent decades studying and writing about making more empowered decisions about work, about your finances, and about life in general. I am with Cheryl Strauss Einhorn, who many of you may know from her years on CNBC. She’s also the author of a couple of books, most recently Investing in Financial Research: A Decision Making System for Better Results. We’re going to get into that system, but Cheryl first, welcome.

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Cheryl Strauss Einhorn: (02:07)
Thank you so much. I’m excited to be here with you today.

Jean Chatzky: (02:09)
It’s nice to have you here. How did you get interested in this field of decision making?

Cheryl Strauss Einhorn: (02:17)
So my background, as you know, is in financial journalism and I spent a decade at the business magazine Barron’s and when I was there I sort of ended up specializing in what you might call the bearish company’s story. Those are the stories that take a skeptical look at a company’s finances or their strategy. And when the stories were published, a lot of times there’d be a very large share price reaction. Sometimes the stock exchange would halt the stock. Several companies went bust, a couple companies were investigated by regulators. One company, a CEO, went to jail for 10 years after the story. And although these stories really do celebrate truth to power, they sat uneasily with me because I recognize there’s a real human toll to those stories. You could be somebody who works at one of these companies and relies on being able to go every morning, or you could be somebody who buys their products and services. One of the companies that I wrote about that was raided by the FBI was the largest maker of diabetic test kits in the United States.

Jean Chatzky: (03:22)
Wow.

Cheryl Strauss Einhorn: (03:22)
So this is a company where people rely upon their product every day. And all of a sudden I was saying “maybe this is an untrustworthy company.”

Jean Chatzky: (03:31)
So you were like the Mike Wallace of Barron’s.

Cheryl Strauss Einhorn: (03:34)
So I started to think about, you know, how is it that I could have better confidence and conviction in my own decisions? How did I know that I was marshaling good evidence and sticking with the data? How did I know for myself whether or not my inner voice, my assumptions, my judgments, my mental shortcuts could possibly leading me to a false conclusion? And how did I know that I was telling stories that were both true and should be told? And so I just started to think about is there a way that I could put together a system that acknowledges that I’m a flawed thinker and that sets us up to better confront and control for our assumptions, our judgments, and these mental shortcuts so that we can expand our knowledge to improve our judgment.

Jean Chatzky: (04:20)
When it comes to our money we are all flawed thinkers, right?

Cheryl Strauss Einhorn: (04:24)
Beyond our money. I think in general, we’re a product of our past and so our first impulse is often something that is about protection and defense, which both limits our optionality and makes it harder for us to really understand the context with which we’re operating.

Jean Chatzky: (04:42)
How do we move past these roadblocks? How do we get ourselves, not necessarily to think like men, but to think in a way that will allow us to accomplish our own goals?

Cheryl Strauss Einhorn: (04:56)
At the heart of the AREA Method, which is the name for my decision making system, is this idea that we don’t operate in a vacuum. There are always other stakeholders involved in our decisions, but for too long we’ve thought of decision making as siloed. Something that’s about us. Instead if we turn and vert that idea and think about it as something that is holistic that can really only succeed when we’re thinking about the incentives and motives of the other stakeholders who are involved, then I think that is something that becomes much more comfortable for women, but hopefully much more comfortable for people overall because it is filled with empathy and understanding and checking our ego and having an opportunity to really engage so that everybody can buy in on the final decision.

Jean Chatzky: (05:45)
It sounds a lot like the advice that I’ve heard about good negotiating for a job, for a salary, that you have to, you have to understand the motivation and the stakeholders on the other side of the table.

Cheryl Strauss Einhorn: (05:57)
So I think that’s exactly right. What I would say is the update to the research and pedagogy related to decision making for the AREA Method is that first it recognizes that research is fundamental to decision making. And yet there is no other system out there that talks about what research is. They mostly say explore your options or look into what you think you already know about. And yet what we know is that research is actually an umbrella term for a whole series of tricky steps that need to be thoughtfully and carefully navigated. And so the AREA Method breaks it down. And then second is this idea of the perspective taking and the fact that we really need to not only check and challenge our own cognitive biases, those assumptions and judgments, but we need to better understand where other people are coming from. So it certainly has this element of negotiation in it. And then the third thing that I think is new is it builds strategic stops into the process. How is it that we slow down so that we can chunk our learning and make our work work for us? And what is it importantly that we do during those strategic stops?

Jean Chatzky: (07:06)
I’m going to get into the AREA Method and we’re going to explain it in English and just break it down so it’s sort of at its least complicated essence in just a second. But I do want to ask about this role of risk in your own life. I mean, clearly, the fact that you took a look at the impact that these stories that you were writing for Barron’s had on the people who were working for these companies, whose stock prices you were taking down. It shows perhaps you’re not the biggest risk taker on the planet. And yet you’re married to somebody who, Cheryl’s husband, his name is David Einhorn, Business Insider once called you one of Wall Street’s power couples, but he’s a hedge fund manager and he is a championship poker player. So on the, on the other side of risk, I would put him, you know, way down the road. How does that work in your marriage?

Cheryl Strauss Einhorn: (08:01)
So I actually feel I’m very comfortable with risk. It’s about calculated risk and that’s what the AREA Method is essentially about. The idea is that if you can have a process for complex problem solving, you can take on more challenging things in your life. And that gives you a nice sense of resiliency because what you’re doing is you’re saying, “I think that I have looked at both the upside and I’ve looked at the downside and I’ve thought about how I can mitigate that downside.” And I think that allows you then, hopefully, to be more brave.

Jean Chatzky: (08:40)
That’s what I think it’s all about when it comes to your money, which seems like a really good time to remind everybody that her money is brought to you by Fidelity Investments. You do not do not have to know all the answers when it comes to your financial future. But an important question to ask yourself is what do you want? You know, what do you want from your money? Like I asked those hundreds of women, what are your financial goals? No matter where you are on that financial journey, Fidelity is here to help you reach your goals faster. It all starts with a financial checkup and an understanding of what you own and what you owe and from there the folks at Fidelity will work with you to understand and evaluate your investment options and various ways to grow your savings. You can discuss your goals, see where you stand and get help taking the next steps at fidelity.com/demandmore. We are talking with Cheryl Strauss Einhorn who is the author of Problems Solved in addition to her new book Investing in Financial Research. She’s also a professor at Columbia Business School and creator of the AREA Method. Okay. Take me through it and simple steps.

Cheryl Strauss Einhorn: (09:55)
So AREA is and an acronym for the steps of my decision making system which is based on perspective taking so that you’re looking at all of the stakeholders involved in your decisions. Think of it broadly, like the opposite of Google. Normally if we want to know something, we type it into Google and what comes up is a series of answers. And we tend to go with the loudest voices, those that come up to the top without any sense of their incentives or motives. And also without a sense of really being able to hear ourselves. And so what AREA says is do the opposite and instead move one perspective at a time. Beginning with the A in AREA, it’s for absolute information, primary source information from up close on the target of your decision. So say you’re trying to help your child with a college decision.

Jean Chatzky: (10:46)
Okay.

Cheryl Strauss Einhorn: (10:46)
So the schools that the child might be looking at, say Johns Hopkins and University of Pittsburgh might be the options. In that case, it’s binary. If you’re thinking about how to expand your business, it would be the different options for that. And so you may have more than two. And then in the next step, R, it’s relative. Think of it like the next concentric circle of information.

Jean Chatzky: (11:11)
Wait, before we move on to the R, once you have your choices, what do you do? You just, you do all the research? So you might, if you’re choosing between different colleges, you might visit the colleges, you might make a list of what you liked and what you didn’t like about those colleges? You might read the books?

Cheryl Strauss Einhorn: (11:28)
So that is exactly right. You want to start from their perspective. So you’d want to start just for instance, going to Johns Hopkins’ website. What do they say about their value proposition? What is it that they are offering to students? And I did this research and it’s part of what I chronicled in my first book, Problem Solved. And so when you visit the Hopkins’ website, what they do is they talk about their August history, all the Nobel prizes that the professors have won and the different types of inventions that have come out of their research labs. And then if you were to visit the Pitt website, you would see instead something that’s really focused on, on the student experience. What are the clubs? What are some of the undergraduate research opportunities? What kind of funding do they get from different organizations? Because they are a public university. And so right away you’re seeing that the value proposition of the two schools is different. You might look at the school Factbook to find out, well what’s the student to teacher ratio? How much money is the average financial aid package? How much debt does the average student graduate with? How many years does it take them to graduate? What are the demographics from the students and so on. And then in our relative, the next concentric circle, those are sources somehow connected to the targets of your decision but not from the target itself. So think of it like secondary or tertiary sources. In the college example, it could be looking at news reports that rank the colleges like US News and World Report. It might be going on College Confidential. What other students say about the experience? It might be going on, Rate My Professor to find out what they have to say about the different professors there and so on. And then the Es are actually what I call the twin engines of creativity. They’re about getting beyond document based sources. One is exploration. That’s about expanding your research breadth to identify good people and ask them great questions. And in that instance, you might be thinking about talking to other students. How’s the experience been there? It might be visiting the undergraduate research office and finding out how easy or difficult is it to do the undergraduate research. It might be finding out, for instance, what do student’s say about how accessible the faculty is to have an opportunity to actually see them during office hours or to get into courses, which is a growing problem on university campuses. And then the next E is exploitation. And that’s about your research depth. It’s turning your lens inward on yourself as a decision maker and using some creative exercises that I learned from other disciplines like investigative journalism or medicine or the intelligence community where you’re looking at your assumptions against the different pieces of evidence that you have so that you can figure out the diagnosticity of the different pieces of evidence. And then the final A, analysis, is about putting it all back together and coming to conviction on your decision.

Jean Chatzky: (14:25)
Where does emotion come in? So I’m that student, I’m walking on campus, I’m taking a tour and I tour both Johns Hopkins and Pitt. And I think, “wow, I mean if I look at these schools by the numbers, maybe, the professors and I don’t know this for sure, but maybe the professors at one get so much better rankings than the other. And yet I feel like myself on this college campus.” Where does that come in?

Cheryl Strauss Einhorn: (14:55)
So I think that’s such an important question since the crux of the AREA Method is about this idea of controlling foreign, counteracting your cognitive biases and mental shortcuts. This idea of understanding the feeling that we have our gut and then having an opportunity to check it against evidence. So the student whose journey I chronicled in Problem Solved with this decision. He knew he wanted to be a doctor and he knew he wanted to do some undergraduate research with somebody. And of course Hopkins has a terrific reputation for premed. And so when he visited, he thought this is the place for me, no brainer. And he was very fortunate. He has two working parents and is an only child and the family could afford that option. Somebody else, the financial aid package makes all the difference, and then the calculation and the investigation of the decision looks different. But for this student, when he actually began to look at it, the percentage of students that make it through the very rigorous courses that are the premed courses are very different at the two schools. And Pitt had a much greater success rate of getting those students to actually get into medical school. And not only that, when he went on the Rate My Professor in College Confidential, there were full professors teaching those courses at Pitt. Those professors were not always full professors, hey might’ve been teaching assistants at times, at Hopkins and the professors at Pitt got terrific reports about their accessibility, their ability to communicate the material and much less so at Pitt. Now, this was one person’s research at one moment in time, so you don’t want to extrapolate it out. But when this young student got to the exploitation phase and did some of the creative exercises, this is often a game changer to people ’cause we don’t think about testing ourselves traditionally in complex problem solving. But what he realized was that his question, which he was initially framing as “which college should I go to?” was actually not framed correctly for him because his goal was to go to medical school. And so the actual decision he was making is “which school is going to better help me reach my dream of being a doctor by getting into medical school?”

Jean Chatzky: (17:13)
Interesting.

Cheryl Strauss Einhorn: (17:14)
And so that they are, is I think a terrific example of what you’re asking, which is “what is it that we do with that emotion?” And so by having something that’s perspective taking, you’re pushing yourself out of your own perspective. You’re walking in the shoes of other people so you’re understanding their incentives and motives and it gives you distance on yourself so that those assumptions and judgements, those feelings, can bubble up so that you have an opportunity to check and challenge them with data.

Jean Chatzky: (17:43)
So take this now and apply it to the women who are listening to this podcast who are reluctant investors, who we know we should be putting more money away for retirement. We know we should be putting it in the market on a regular basis. Dollar cost averaging. We’re nervous.

Cheryl Strauss Einhorn: (18:08)
So I think that’s exactly what investing in financial research is supposed to do for people is it basically breaks down, if you’ve got a big financial or investment decision, step-by-step, what are the ways that you want to investigate the opportunity? And very importantly, how is it you identify your personal goals? Because most complex problem solving says, “how am I going to solve this problem?” And what the AREA Method says is “let’s ask a different, and what I hope is a far more empowering question, let’s turn it upside down and identify what your vision of success is.” And by that I mean once you’ve made the decision, what has happened in the outcome for you to personally know that it’s successful for you?

Jean Chatzky: (18:56)
So maybe it’s getting to a point by age 65 that I have enough money to stop working.

Cheryl Strauss Einhorn: (19:04)
And so from there, if that’s your vision of success and that’s how you know that the decision has succeeded for you personally, you then identify what I call your critical concepts, which are the one, two or three things that you need to deeply and creatively investigate to get to your vision of success. So now instead of having something that is open-ended and possibly frustrating and off-putting, you’ve got something that is targeted and focused on what you deem has to happen in the outcome for you to know that it has succeeded for you.

Jean Chatzky: (19:35)
And so in this equation it might be three things like, “how much am I going to need to support myself until I’m a hundred, right, in a in a lump sum that would produce enough income? How much I’m going to spend each year in retirement? How much I need to save on an annual basis to get to those numbers?”

Cheryl Strauss Einhorn: (19:55)
It could be something like that, but it could also be something like, “I want to put my money in something where I only check it once a year. I want to put my money in something where I’m more actively managing it because I enjoy what I’m doing.” Do you see how different these goals could be? Where the outcome, that vision of success could be very similar.

Jean Chatzky: (20:15)
So, although the decision making process is a little bit more, a lot more research heavy and dynamic, the outcome, “I can put all my money in a target date fund” for somebody because a lot of our listeners like me don’t want to be trading, don’t want to be actively managing, we can get there.

Cheryl Strauss Einhorn: (20:36)
Absolutely. The whole idea is that we all grew up to be decision makers and yet somehow there’s no established system for complex problem solving. We don’t teach in our schools in a formal way and we don’t teach it in our homes. But if we could ever master a system for complex problem solving, then we not only can get closer to our goals, we can get closer to our dreams. And so what I say to people is that there’s two kinds of learning, right? There’s knowledge and there’s skill. And what I like about the AREA Method and complex problem solving is it’s a skill. I can teach it to you and it can become yours and you can then use it however you want.

Jean Chatzky: (21:16)
Cheryl, before we wrap, I just want to ask you about cheetah pauses. You wrote a column for fortune magazine and talked about how you start your day. Can you explain what these cheetah pauses are and how they help you run your busy life?

Cheryl Strauss Einhorn: (21:33)
I’m so glad you asked because we talked a little while ago about what the updates are to the research and pedagogy and decision making. And I talked about how I built in these strategic stops. And so everywhere that I suggest a strategic stop, I have what I call a cheetah sheet and I call those stops cheetah pauses. So why the cheetah? The cheetah’s hunting skill is not its ability to accelerate like a race car. It’s actually that it decelerates up to nine miles an hour in a single stride. And that’s far more powerful than accelerating like a race car because now you’re talking about agility, flexibility and maneuverability and those are all the things that you need in a quality, research and decision making process. So everywhere that I tell you to take a cheetah pause, these cheetah sheets give you tips and techniques where you can either know where do you want to look for information, what kind of questions do you want to ask of your data or what kind of an analysis do you want to do now? And so the books are set up almost like workbooks in the sense where long after you’ve read it the first time, you can always just look at the table of contents, find the cheetah sheets that you want to use and then you can be agile and flexible in the process that you are going through to solve your complex problem.

Jean Chatzky: (22:52)
How do you use these, though, in your life? You gave an example of using them to get a lot done in your day that I thought was fascinating.

Cheryl Strauss Einhorn: (22:59)
Oh. So one of the things that I like to do is before I get up from my desk at the end of the day is I like to make the do list for the new day and I’ll look at the tasks that I have. And then I also just generally think about how I can understand what kind of thinking do I need for these tasks? Do I need quiet working time? And then I can figure out how to allocate the different chunks of the day and I have it all organized. And then what happens is it gestates overnight for us, right? We don’t even know that we’re really thinking a little bit more because we’ve organized it. So then you know you can go about the rest of your evening, go to sleep. In the morning I like to get up and go for an early morning jog and then I already have made that do list. I’ve thought about it. Do I need to reorganize things based on my energy level or based on other things that come up so that I really know what I need to do? Which time spots to put it into? And I’ve taken that strategic stop to really make sure that the day can be successful for the goals that I have in mind.

Jean Chatzky: (24:06)
It is fascinating. The book is called Investing in Financial Research. Cheryl Strauss Einhorn, thanks so much for being here.

Cheryl Strauss Einhorn: (24:14)
Thank you for having me today.

Jean Chatzky: (24:15)
And we will be right back with Kathryn and your mailbag. Kathryn Tuggle, the editor in chief of HerMoney has joined me in the studio, hi Kathryn.

Kathryn Tuggle: (24:28)
Hi.

Jean Chatzky: (24:28)
How are you?

Kathryn Tuggle: (24:29)
Great. How are you?

Jean Chatzky: (24:30)
I am really good. I was actually fascinated by that conversation, although I think it’s the very first time we’ve had the word pedagogy in a podcast.

Kathryn Tuggle: (24:39)
We need it more often.

Jean Chatzky: (24:40)
We’ve had it twice. We had it twice in this one. You know, as we think about making decisions, how do you make decisions?

Kathryn Tuggle: (24:47)
It’s such a good question. I love a good list. Pen and paper. Pros and cons.

Jean Chatzky: (24:53)
I did this program, the Debt Diet for Oprah years ago as you know, and then I worked with a company called Pro Change Behavior System to turn it into a resource that could be provided through employee benefits providers, companies could offer their employees away like a smoking cessation program and what I remember as we were talking about making the decision to spend less and save more, to come up with money to pay down your debt, was this fascinating legal pad exercise. And the research shows that if you list your pros and cons on a legal pad and I’m with you, I do that all the time. If you list your pros and cons on a legal pad, once you get to the point where you have more pros than cons, you’re ready to take action. You have to get to that point or you’re likely to fail.

Kathryn Tuggle: (25:46)
Does it factor in the fact that some of the cons might be weighted heavier than the pros?

Jean Chatzky: (25:51)
It didn’t in this particular exercise, but I think it does in the way that she gets at problem solving. It’s so much more robust and intricate than just take out your legal pad and make a decision.

Kathryn Tuggle: (26:05)
It’s true. It’s true. I really like what she said about decision making not being siloed, which is always tough for me because when you start to consider other people and other things outside of your orbit, then that can feel really paralyzing, right?

Jean Chatzky: (26:21)
Yeah.

Kathryn Tuggle: (26:22)
But if you’re making a very siloed decision, that’s when you get into problems with it being very ego-driven.

Jean Chatzky: (26:27)
Yeah, no, absolutely. I was so blown away by her story of having trouble writing at Barron’s because she started thinking about all the people that she was impacting at the companies who had the jobs when she would write a negative story that might take down the stock price and, you know, if you follow the dominoes, result in layoffs, result in closures of businesses. I mean, as a journalist I wrote plenty of negative stories about companies. At Smart Money we did it all the time. We wrote about things that were not good for your wallet and I must not be a very good person because I don’t really, I just remember thinking about the good of the consumer. I didn’t think about, “Oh my gosh, am I putting people out of work?” I, I’m feeling really guilty.

Kathryn Tuggle: (27:18)
I don’t think you’ve put anybody out of work.

Jean Chatzky: (27:20)
Oh I’m not sure about that. I did it for a very long time. I am not sure about that.

Kathryn Tuggle: (27:26)
But the other way to look at is that the truth is going to get out there.

Jean Chatzky: (27:30)
You would hope so. And you know, and that’s the job, right? The job is to report the truth. And consumers, by the way, deserve that fair shake and investors deserve that fair shake. And so the flip side of the employees are all the people who are investing money in these companies who don’t happen to work there and are going to lose their money when the dominoes eventually do fall.

Kathryn Tuggle: (27:53)
And if you’re breaking a story very early, in a way, maybe you’re doing some people a favor ’cause they’ll see the writing on the wall and go ahead and get on out.

Jean Chatzky: (28:02)
Maybe. Maybe that’s the make Jean feel better argument.

Kathryn Tuggle: (28:03)
That’s my positive takeaway.

Jean Chatzky: (28:08)
I know you pulled some questions from the mailbag. What do we have?

Kathryn Tuggle: (28:11)
I did. We have some good ones this week? Our first one comes to us from Kim in Columbus, Ohio. She writes, I discovered your podcast in April and have finished all of the episodes.

Jean Chatzky: (28:22)
Oh my gosh.

Kathryn Tuggle: (28:22)
So thank you Kim for bingeing episodes. I’ve absolutely loved listening to HerMoney and the beneficial advice you give. Thanks to your podcast you have encouraged me to save more and be purposeful on how I spend my money. I actually have a question today on behalf of my mother. My mother is a widow and has only lived in the US for six years. She moved from Albania and did not work outside of the home until about three years ago. I’m happy to say she’s fully embracing her new life here. She’s 55 and earns $20,000 a year. I’ve enrolled her in her work 401(k) in which she has accumulated about $10,000. She has another $10,000 in savings, but based on her age, she only has about 10 to 12 working years left. Do you have any advice on what I can do to make sure she accumulates as much money as possible before she retires? She doesn’t speak much English and I manage her money I’ve considered buying her a small apartment or condo, putting her savings in a high interest account, but I’m not quite sure what the best plan is.

Jean Chatzky: (29:18)
So a 10 year time horizon is a really long term time horizon and retirement begins when you retire but it doesn’t end. So when you look at her actual time horizon at this point, she’s got the 10 years until retirement and then she’s got all the years in retirement so we could be at a period of 30, 40 years. I mean hopefully she’s a good strong Albanian stock and she lives a really long time. And so a high interest rate savings account for that long term time horizon, in my opinion, isn’t taking enough risk. Money you need in the short term, Absolutely. That goes into a high yield savings account. But money that is for the longer term, what you should be encouraging your mom to do is to put as much as she possibly can into the 401(k), supplement that if she can do more with a contribution to a health savings account or an IRA and just keep plowing that money in and away. As far as the purchase of an apartment, I think owning a home in retirement so that you don’t have to worry about paying a mortgage if you can do it with a relatively short term mortgage, maybe a 15 year loan, because rates are so low right now. Sounds to me like it might be a good idea, but what’s clear is that your mom has some ground to make up and that’s okay. As long as she gets on a path to save regularly, to look at her goals and to continually evaluate, I think she’ll be fine and she’s really, really lucky to have you to help her.

Kathryn Tuggle: (31:03)
Absolutely lucky. Great. The next question is from an anonymous listener. She writes, hello. I am a longtime fan of yours, Jean and I can proudly say I have read all of your books.

Jean Chatzky: (31:14)
Oh my goodness. Thank you again.

Kathryn Tuggle: (31:17)
I have a few questions regarding college, savings, and FAFSA, and retirement. My husband and I will be 59 and 55 when our oldest child heads off to college and 65 and 61 when our youngest graduates college. We believe one of the greatest gifts we can give our children is to graduate college without an enormous amount of debt and we have squirreled away money since the day they were born. Recently we filled out our eldest child’s FAFSA and we were very disheartened to find that our savings and income would exclude him from receiving any federal student grant or subsidized loans should he want to go to a non-state school. My oldest’s dream schools only provide scholarships that are 100% need-based. They do not offer any aid based on merit, talent or other criteria. So my question is, is the only option for him direct plus loans? The current interest rate is around 7% which is pretty terrible. Or are there any types of accounts where I can move the available money so that they would be excluded from the FAFSA but still accessible to us to use pre-retirement in case of emergency, like a job loss? Right now the funds are in cash and in brokerage accounts. Overall I’m looking for any resources that we can use to investigate other ways to fund college when we don’t qualify for grants or subsidized loans and prefer not to take out money at retirement. Thank you. Signed, feeling penalized for prioritizing and planning.

Jean Chatzky: (32:35)
Oh boy. Oh boy. Oh boy. So I feel badly that feeling punished or penalized for doing all this amazing planning. I mean, the nice thing and the silver lining and the thing that I would encourage you to focus on is the fact that no matter where this money comes from, and we’ll talk about some solutions in just a second, your child is not going to have to borrow nearly as much as they might have otherwise and that is a really, really good thing. You talked about subsidized direct loans. Your child should be eligible for non-subsidized Stafford loans. Everybody is allowed to borrow a certain amount of non-subsidized Stafford loans. I believe the limit for this year is $5,500 and that money can be borrowed again and again and again, so there’ll be able to get that sort of aid each year no matter what school they go to. The interest rate on a non subsidized Stafford loan is lower than the interest rate on a plus loan. So I would start there and then if you have additional need for additional funds, do yourself a favor and take a look at the private market. Interest rates right now are really low overall. We talked about that in the answer to the last question when we got to mortgages and what that means is that private student loans are available, if your credit is really good, at lower rates than those plus loans, too, and that might be a better way for your child to borrow. Go on a website called magnifymoney.com. They list all the student lenders and you’ll be able to take a look at where the different loans are shaking out. Now just understand when we talk about federal loans, there are some repayment provisions that are really beneficial. You can get into income based repayment plans. You can get into graduated repayment plans. You can apply for public service loan forgiveness if your child goes into a helping profession. There are a lot of options on the back end that don’t exist with private loans, but private loans also don’t have origination fees that plus loans do and so from that perspective you get a break and if you’ve got good credit, because private loans are credit-based, you may find that you get a significantly better deal. So I would just steer you in that direction and point you also to a website called edvisors. Edvisors. When anybody on my team, including me has a question about paying for college, we call a guy named Mark Kantrowitz because Mark Kantrowitz is just brilliant on this stuff and Mark Kantrowitz runs edvisors. And so he’s written extensively on all of these topics and I would just have a look at his website.

Kathryn Tuggle: (35:41)
Fantastic. Mark has a genius.

Jean Chatzky: (35:43)
He is a genius. He’s a genius who talks really fast. So you’re lucky that you have us to parse all of this information for you, but he is, yeah, he is a genius. He’s been doing it a long, long time and we love you, Mark.

Kathryn Tuggle: (35:56)
We love you, Mark.

Jean Chatzky: (35:57)
All right. Kathryn, do we have one more?

Kathryn Tuggle: (35:59)
We do. Our last question is also from an anonymous listener who says she’s tired of getting by and wants to get ahead.

Jean Chatzky: (36:05)
Ooh, I love that she writes.

Kathryn Tuggle: (36:07)
I am recently divorced and came out of it with some cash to pay off a couple of debts and live, but essentially I’ve started from scratch. Income wise, I’m self employed and make around $100,000 but I’m still living paycheck to paycheck. I use You Need a Budget for budgeting, which has helped get clarity on what I need to do, which is kill my credit cards. I have debt. $50,000 in student loans and $20,000 in credit card debt and back taxes. I contribute a very little bit into retirement every month and have about $28,000 worth of stocks from a former employer. My credit score is around 660 now. I’m just not sure what to do next. I was planning on selling some of my stocks, but the stock is on the rise and I have serious FOMO when it comes to selling more of it for debt. I know there are options like debt management companies or a personal loan for debt consolidation, but is that the right option? I’m always working to increase my income and lower expenses, but at some point there’s only so many hours to work or things to cut.

Jean Chatzky: (37:04)
Okay. Couple of things need to happen here and let me just say that you are on the right track as far as all of them. We have, as many of you guys know, a private Facebook group for the HerMoney community. If you’re not on it, you should be, but our HerMoney Facebook group members are obsessed with You Need a Budget. We have got to get the people who started and run You Need a Budget on the show because they are just so clear that this is the best budgeting tool out there, so you’re on the right track with that. I’d say take a look at those debts and see if you can lower the interest rates on the student loans. If you haven’t refinanced your student loans, even with a credit score of 660, you may be able to lower the interest rate a little bit. If not, the thing to do is to breathe for six months and work on that credit score. What’s going to happen, as long as you are paying your bills on time every single time and you’re paying debt down rather than accruing new debt, that credit score is going to start to rise and once it pops into the 700S and especially over 720 you’re going to see that your opportunities to refinance, not just your student loans, but your credit card debt are going to skyrocket. At that point You refinance those loans, you reduce the interest rates as much as possible, and then you start heavying up on the money that you’re putting into your retirement. It’s just a little bit of a slog that you’re going to get there. As far as your stocks, I wouldn’t necessarily sell them if you don’t have to. I would think about putting them, moving them, into an IRA so that they’ll be available to you for retirement. You could do that by just moving some money into a Roth IRA every single year. That’s a pretty easy thing to do. And as far as those expenses goes, Kathryn and I like old school. If you haven’t gone through the old school exercise of tracking your expenses using pencil and paper, it’s eye opening. It is great to use budgeting tools, but just writing down everything that you spend for a solid month will open your eyes in ways that you don’t expect. And will give you some insight into where you can cut your expenses further. So that’s what I would say to do. I think you’re doing all the right things. They’re just not happening fast enough for you, but they will eventually happen and I hope that you will keep us posted. And thanks so much for writing. We appreciate it. How do we keep these letters coming?

Kathryn Tuggle: (39:59)
Mailbag@hermoney.com.

Jean Chatzky: (40:01)
All right, keep them coming everybody. Lastly in Thrive today, your online lover might just be a big fat liar. The FBI, I love this story, although a lot of people are getting taken advantage of, so I shouldn’t love it quite so much, but the FBI has officially issued a cyber alert due to organized criminals who have driven dating site fraud up by a whopping 70%. Last year Americans were swindled out of $362 million. What does this mean? It means that fraudsters are getting really good at manipulating your heartstrings to swindle people out of their money and they may be only one right swipe away from trying to make you the next mark. So what do you do? Well, one telltale sign of these scam artists is that they are always unwilling to meet in person. That is a huge red flag. They may tell you they’re in the military or living overseas or stuck caring for some sick relative. It is 2019 people. Go get on a plane or a train or in a car and make that meeting happen. Another indication that your love interest might not be who they say they are is that their requests for money usually start right about the same time that they first say “I love you.” Always do your due diligence when you’re looking for love online. Start with just trusty old Google and do a quick reverse image search to check out their photo. Thanks so much for joining me today on HerMoney. Thank you to Cheryl Strauss Einhorn for the great conversation. I don’t know about you, but I’m feeling totally empowered in my decision making. If you like what you hear, please subscribe to our show at Apple Podcasts. Leave us a review because we love hearing what you think. We also want to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Track Tribe and our show comes to you through PRX. Join us next week we’ll be back with Megan Schleck. She is the CEO and cofounder of investing platform Coin. Megan will be talking about the importance of investing in what you’re passionate about and what it’s like to be a female founder and CEO in the male dominated worlds of finance and tech. Thanks so much. We’ll talk soon.


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