Want more 'Our Body Politic' Episode 123? Here's the full conversation between guest host and NPR Correspondent Cheryl Corley and Washington Post personal finance expert Michelle Singletary. They talk through the importance of choosing the right financial planner, what Black families need to know about wealth, and why it's never too late to learn financial literacy.
Farai Chideya:
I am Farai Chideya, and this is Our Body Politic Extended Edition. I'm excited to share with you an extended version of our conversation from our show this week between guest host and NPR correspondent Cheryl Corley, plus Washington Post personal finance columnist and author Michelle Singletary. They cover all things personal finance, from how to pick a financial planner to how to deal with the fear that can come from managing your money. Let's dive in. Take it away, Cheryl.
Cheryl Corley:
I'm NPR correspondent Cheryl Corley sitting in for Farai Chideya. Today, I'm talking financial planning with Washington Post personal finance columnist and author Michelle Singletary. Hi Michelle, thanks for joining us.
Michelle Singletary:
Thank you. I'm so glad to be here again.
Cheryl Corley:
We've been talking a lot on the show about home ownership and how crucial owning a home can be to build wealth, especially for Black families. How do you think home ownership fits into planning your personal finances, particularly when it comes to wealth?
Michelle Singletary:
Think of wealth as sort of like a pie and different slices of the pie creates your wealth. One part is real estate, perhaps your home that you live in. One part is retirement, non-retirement investing. I'm a big believer in that. We talk a lot about saving for college and retirement, but you should invest to buy your car or to do home improvements so that you don't have to borrow. When it comes to real estate, especially for African Americans, we are so tied to real estate as the way to create wealth. It's only one part of that pie. I like to look at home ownership this way. It's just where you live. Because how do you reach the equity in that house?
Michelle Singletary:
There's really two ways. You sell, take the profit, or you borrow against the equity, which means debt. When it comes to homes and whether or not you bequeath it to your heirs, you have to look at, are they going to live there? Has the house been kept up? We had this conversation with our daughter recently, "We want to leave the house to one of you, so one of you doesn't have to pay rent or have a mortgage," because all three of them probably aren't going to live here as adults. She looked at me and she's like, "We're going to sell the house." I'm just crying, "What? You don't want my house?"
Michelle Singletary:
She said, "Mommy, we going to sell the house, split it between the three of us, and take that money and then we can buy our own homes and build our own wealth for our families." I'm still feeling some kind of way, but then I thought, she's absolutely right. They can buy their own house and still build wealth. We're not pegging all of their wealth on this house that my husband and I own because it is only a benefit to them if they sell. It's okay to do that. Lots of Black families hold onto family homes that nobody wants to live in because the kids are off in different cities, right?
The houses become dilapidated and they don't have the money to fix it up to sell it. People want to just hold onto it. But how do you get to that wealth if you don't sell it?
Cheryl Corley:
And that's where the emotion comes in about money and housing.
Michelle Singletary:
That's exactly right. If there's someone who wants to live there and maybe they could buy out their siblings, then that makes sense. But if that's not the case, it's okay to sell that house and take that money as long as it's going to be invested in a way that the money can then grow, either by buying another house or putting it in the market and that sort of sense. We can't keep being tied to these properties that may not actually be producing the wealth that you want for your family.
Cheryl Corley:
There is this huge discrepancy when it comes to the wealth gap among whites and people of color, with African Americans being on the low end of that spectrum. What advice you have for people who may have no involvement at all with a financial planner, especially folks who think that financial planning is only for the wealthy? How do you talk about the racial wealth gap and how financial planning helps narrow it and why financial planning is just important for people of color?
Michelle Singletary:
When I talk about the wealth gap, I really follow two tracks. The first track are policy changes. That's things that the individual doesn't have control over, other than who they vote into office. There are various policies that need to be changed or procedures and things in the financial planning world, like more financial planners of color, making sure that redlining dies the death that it needs to die. That when Black homes are appraised, that they're appraised at a value that is commiserated to other similar situated homes. Those are kinds of things we have to work on and try to get laws changed or updated to ensure that there's a fair playing field.
Michelle Singletary:
Then the second track is the individual responsibility. While you're waiting for policies to catch up, what can you do on an individual level? You might be coming from behind. We know that African Americans, minorities, women are still paid less even when they have similar backgrounds and work history. We know that there's still issues with redlining and other things that help you build your wealth. We know that Blacks still don't invest in the stock market at the same rate. Oftentimes that's not because they don't want to, but you invest with extra money. But if you're still just getting behind, there isn't any extra money.
Michelle Singletary:
When I talk to individuals, I talk about the things that you can do like doing your best to live below your means. When it comes to your expenses, controlling them. That might mean everybody can't have their own house. It could be that you live in a multi-generational home so that you can share the expenses of home ownership. In fact, Pew Research looked at multi-generational households and found that one of the benefits is that they're less likely to live in poverty. When there is a job loss or some economic downturn, they're able to weather that storm more.
These are the kinds of things that you can do that will lead you to the point where you actually have the money to do advanced financial planning or work with a planner like saving for retirement or having a non-retirement investment account, which I try to get people to do in addition to saving for retirement.
Cheryl Corley:
It's okay if grandma is still around and you don't kick your kid out when they're 21?
Michelle Singletary:
Absolutely, absolutely, especially when so many young adults have student loan debt or they're just starting out. Right now, all three of my 20 something year old children are living with my husband and I, but we as a family decided that they could save so much money by living at home. Fortunately, we have the space and we actually like each other. All of these are wealth building decisions, so that once they launch, they'll stay launched, but they'll also have a nice saving to invest to build their own wealth.
Cheryl Corley:
Michelle, a lot of people say, "Okay, I want to start saving, or I want to learn how to invest. I want to do a lot of things that I just have been too leery to handle myself. I want a financial planner to help me navigate all of these things." How can people find the financial advisor, and what types of things should they really be looking for?
Michelle Singletary:
First thing is ask around. Recommendations is a great way to start. I'm finding that more and more employers are providing financial planning as part of their benefit package. You want to check and see if your employer has that option. If you're searching for a fee only planner, which is a great way to find someone who's going to be working in your interests, you want to try the National Association of Personal Financial Advisors or NAPFA.org. You can search for an advisor in your local area. Those are some of the ways. You should get a couple of recommendations, find a couple of people, and then just interview them and see if they fit you.
Michelle Singletary:
If they come with a pre-planned invest in this, do that, then that's probably not the person for you. You want to make sure that they are looking at your financial situation, measuring your risk tolerance, and that they are always acting in your best interest. You want to find a fiduciary. That's the term you want to ask. Are you a fiduciary? Which means that they have to act in your best interest.
Cheryl Corley:
Can you talk about whether or not it's important for people of color, Black people in particular, to have Black financial planners?
Michelle Singletary:
I think only about 2% of financial planners are actually Black. That number's way too low. They're out there, but they're a little hard to find. Certainly we need more companies to hire people who look like the folks that they're going to represent. Sometimes there's certain cultural things that comes into play when you're doing financial planning. My husband and I have had several financial planners, but the one who changed our financial life was a Black woman. She worked for a firm. She came through a recommendation 20 years ago we worked with her. Since then, we've worked with other planners, but she gave us like a master plan.
Michelle Singletary:
I had kept all the materials from our planning sessions with her. There were multiple sessions. It was a big folder, and she gave us a list of things to do. One of the things, she looked at our retirement plan and we were, both my husband and I, way too conservative. She said, "No, no, no, you've got to take more risks." I'm like, "No, I'm going to lose money." She walked me through with understanding that fear, because culturally I was never taught about investing. My grandmother, big mama, was an amazing money manager. She could save that woman. If she held a penny, Lincoln would scream.
Michelle Singletary:
She didn't trust the stock market. It was too risky for her. You have to understand why. Her grandparents were enslaved individuals and she saw things being done during Jim Crow and periods like that where the banking industry was not trustworthy when it came to being Black. I like to joke that the only bond my grandmother had was the bond adhesive for her dentures. She discouraged me from being in the stock market. But this financial planner, this Black woman, said, "No, you've got to be in the market. Your money has to work for you." She said, "Not only that, you need to set up 529 college savings plans for your children."
Michelle Singletary:
She made sure we readjusted our retirement plans, that they were at an appropriate diversification for our age and how long we were to retirement. I went back and we followed all of her advice. I text her every birthday and I tell her thank you. My husband and I followed all of her advice. And because of that, we sent all three of our children to college debt-free. Because of working with that financial planner, our retirement plans are well situated for our retirement. She pushed us out of our comfort zone. That was the result of a history of our folks being discriminated against and denied things so that we were too scared to take the risk and to invest that would create wealth for our family.
Cheryl Corley:
Because fear is a big thing, especially if you're an older adult who hasn't been, I guess, financially literate, right? What about someone who is older, past working age, not blessed with any transfer of wealth from parents or anything like that, hasn't saved much, or paid little attention to their work retirement account if they have one, is it just too late for them? Do they just depend on social security? Or what exactly?
Michelle Singletary:
I never like to say it's too late for people to put themselves in a better position. Never. Because what is the alternative? If you wake up and you think, "I didn't do all the things that they say I should do, or maybe I couldn't afford it," then you have to have an honest conversation with yourself and you have a different retirement. Maybe you wanted to retire in your late fifties or early sixties, but you have to work a little longer if you can. Multi-generational households, that comes into play. Maybe you can't live on your own or you welcome your adult children back, or you move in with them, or you delay taking social security so you can build up that benefit.
We can take it at 62, social security. But every year you wait, the benefit increases. After your full retirement age, it increases about 8% per year until 70 when it maxes out. These are all kinds of strategies that you can use to make your money stretch.
Cheryl Corley:
How do you encourage the spectrum and talk about young people who may be intimidated again by financial lingo, know nothing to little about stocks or bonds or mutual funds, just really aren't financially literate? How do you get them to overcome that fear and to pay attention?
Michelle Singletary:
You just have to have a drum beat of this is what you have to look forward to. Now, listen, I'm not going to lie, this is a hard argument for young adults, right? But trying to sell this idea that you put a significant amount of your money away for something that you're going to need, what is it, like five decades from now, it's a hard sell. But if you invest now while you're young, you can be a millionaire by the time you retire. You don't have to invest in speculative things like cryptocurrency or try to find the next Microsoft individual stock. Putting money in your twenties and thirties on a regular basis, it's called dollar cost averaging.
Michelle Singletary:
You select a certain amount of money you're going to put in on a regular basis, say every month, and you just put it in the market regularly. It doesn't matter what the market's doing, up or down. Over time, historically, the stock market returns a solid eight to 10%. That's a great way to grow your wealth. The sooner you start, the less you have to save every month, the more you'll have when it comes time to retire.
Cheryl Corley:
You previously did this 10 part series called Sincerely, Michelle that got really personal about misconceptions concerning race and inequality. In one installment, you talked about the hidden bias in credit scores. There's such heavy emphasis placed on good credit. Can you talk about what is good credit and some of the ways that racial bias is built into credit?
Michelle Singletary:
When we talk about good credit, we're really talking about the systems that score you based on how you use debt. The most widely used is your FICO score, and your FICO score is derived by information in your credit report. Within your credit report, say you've got some credit cards, say you have a car loan, or maybe you've got a mortgage, all that information is fed into this database. FICO takes that information and applies it to different factors. Paying your bills on time and having debt, but not having a lot of debt increases your credit score and you have good credit. The better your credit score, the lower cost of borrowing.
Michelle Singletary:
Your credit score is only one part of the lending decision. They look at your income and some other things, but it's a huge factor. The higher your credit score, typically the lower your borrowing cost. Now, what's happening with credit scores, the way it's baked in, is that it looks at debt that you've used. Well, if you're African American in the US, we only have home ownership of maybe about 40%. We're less likely to have a mortgage that feeds into that system. We're more likely to be renting. Well, rents aren't calculated in the FICO scores. But if you're most likely to rent and mortgage is a big factor in the credit score, you can see why our scores might be lower.
Cheryl Corley:
When people talk about money and how to handle it, there are so many emotions that go into it. There's pride, of course. There's anxiety, a lot of anxiety when we talk about money, and worry. How does a financial planner help a person through that?
Michelle Singletary:
The beauty of a financial planner is they can take a step back and look at the big picture. That's what happened with us when we looked at planners. Because when you don't come from money and you save, you're so scared of putting any of that money at risk. You don't understand that over time, putting that money in the market or diversifying it in a well-diversified portfolio can increase your wealth. The planner can say, "Listen, I understand that you're fearful of this, but let me show you what the market does historically. Let me show you how your money can work for you," and can take some of the emotion out of it.
Michelle Singletary:
When I was afraid to be in the market, and my husband and I were only invested in bonds, which are safer than stocks, our planner showed us the history. She said, "What are you so scared of?" I told her, "I don't want to lose my principal." She said, "But look at your life." We don't carry credit card debt from month to month. We are great savers. We live below our means. She walked us through the other parts of our life where we are doing the right things. She said, "You can afford to take risk on this side." She listened, right? She listened. I didn't initially do some of the things that she said, but she just kept talking to us and saying, "Let me show you the way."
Michelle Singletary:
I think that's what planners do. A good financial planner will hold your hand through some of these decisions. She was absolutely right on so many points. I'm so grateful that we hired her, and she was able to walk me through these fears that I had inherited from my grandmother.
Cheryl Corley:
One of the things that always interests me is what many Black people participate in and people of color, well, many people, is the lottery, right? Thinking that the way that you can get to financial wealth and to bridge the gap is to win the lottery. It can be very enticing. But what I wanted to ask you is say a person does win the lottery or they have a big financial windfall, what should they do with that money?
Michelle Singletary:
Yeah, that lottery thing, especially since we hype it up when the pots get really big and people dream of hitting it big, but that is I've looked at lottery winners and many of them end up broke after these huge pots. Because if you can't handle money well with a little bit, you're not going to handle it well with big pots. The first thing I tell people when they get a windfall, and most of the time people aren't winning a lottery, but they might get a windfall because somebody has passed away and left them some money, or they won a lawsuit, maybe they paid too much taxes and they got a huge refund from the IRS, the first thing you do is pause.
I know that sounds kind of simple, but oftentimes you just need to take a step back and figure out, okay, I've got this windfall. What's the best use of this money? I say spend a couple of months not doing anything so that you don't make a rash decision. And then you start with, okay, am I carrying debt? Do I have a savings cushion? You start to put your money in different areas to protect yourself. I like to tell people I'm a pot person, but not that kind of pot. Pot some money, right? You want to look at, do I have a good emergency fund? Do I have what I call a life happens fund? That's money that you put aside if your car breaks down and you want to put money in that.
Michelle Singletary:
And then you start looking at making sure that you're not carrying any debt. And then maybe you need to boost your retirement. By the time you use that money for the different pots, you'll find that it isn't as much as you think it is. But if you put them in the different pots, you have now secured yourself financially. Don't tell anybody because there'll be a lot of pressure for you to give to folks. While I'm a big believer in giving, you want to make sure that you secure yourself first. You should be giving out of your abundance, not money that you need.
Cheryl Corley:
We're in a really tenuous time right now, global economics unstable with the war in Ukraine and here at home the presidential race is gearing up. Just a lot of things happening. World of events can really lead to market fluctuations. What do you tell people when they're looking at trying to plan for the next two to five years?
Michelle Singletary:
I'm not going to say don't panic, because that's just useless advice. We hear Dow is up, Dow is down, way down, and you panic and rightfully so. Most folks, we have regular jobs, regular income. There's not a lot of cushion. When people is like, "Don't panic. This is what the market does," you just want to slap. Of course, I'm going to panic. I panic. I was like, "Ah!" I say go ahead and scream, but then don't act on that panic. You really can't look at how the market is operating on a day-to-day or week-to-week or even month-to-month period. The market does what it does, which is up and down, sideways.
Michelle Singletary:
But if you're a long-term investor, which most people should be, those who are saving to send their kids to college, if you start when the kid is a little person, that's 20 years. Most people are trying to save for retirement. If you start in your twenties and thirties, that's like 40 years. That's a long time. We know historically over time, and I have to say that because past performance is not indicative of future results, but we know the way the market has performed for decades is that over time you get a positive return that keeps pace with inflation and then some.
If you know that, then you don't make decisions based on what's happening this week or this day in the stock market. When the market is very volatile, just don't look at your retirement account.
Cheryl Corley:
Don't panic. Words of wisdom. Michelle, it's always such a pleasure to talk to you. Thank you so much.
Michelle Singletary:
You're so welcome.
Farai Chideya:
And that was Our Body Politics guest host, NPR Correspondent Cheryl Corley, plus Washington Post personal finance columnist and author, Michelle Singletary. This was your Our Body Politic Extended Edition. I'm Farai Chideya. Thank you.