Motley Fool Money - Michelle Singletary on Investing, Retirement, and the Lies We Tell Ourselves About Money

Episode Date: March 4, 2023

Michelle Singletary is a best-selling author and Loeb Award-winning writer. She also pens “The Color of Money,” a nationally syndicated personal finance column which appears in The Washington Post. Robert Brokamp caught up with Singletary to discuss:  - Why people fall for Ponzi schemes - If you should pay off your mortgage before retirement - Why we often lie about spending habits Host: Robert Brokamp Guest: Michelle Singletary Producer: Ricky Mulvey Engineers: Rick Engdahl, Annie Franks Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finalies of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. And they feel as if there's got to be something out there, some secret sauce to jumpstart, to get ahead, to be rich quick. And they just buy into the scam because they want to believe that they can do this quickly.

And they want something exciting and something interesting. Listen, solid investing is boring. I'm Chris Hill, and that's Michelle Singletary, bestselling author, award-winning business writer, and creator of the nationally syndicated column entitled The Color of Money. Our own retirement expert, Robert Brokamp, caught up with Singletary to talk about the lies we tell ourselves about spending, how to find a financial advisor,

and why Ponzi schemes keep roping in. victims. So let's start with your story, right? You weren't born into wealth, but you did have someone in your life who taught you a lot about money. Yeah, so I, at the age of four, went to go live with my grandmother, who we affectionately called Big Mama. And in fact, my siblings joined me. There was five of us in total. I had a sister who was eight. I was four. A sister was three. and twin brothers who were right around two years old. And so my grandmother ended up really rescuing us from foster care before they put us into the system. She said, no, I'll take them all.

And she did. And she was just an amazing money manager. I mean, at the time growing up, I didn't think too much of it because she was so frugal. But looking back, what she was able to do to care for the five of us. on, you know, not much income at all, about $13,000 at the top of her earning history. And my grandfather had a drinking problem so often his money didn't make it home. And she managed to feed us and clothe us. Didn't have a lot.

Didn't get a lot of seconds at meals. But nonetheless, we were well taken care of considering the financial constraints that she had. Yeah, as you mentioned, she didn't earn that much. She was a nurse's aide. And on top, but besides even just raising all of you, she was able to retire and to pay off her home, which is just amazing. Yeah. You know, her goal, when she took us in, whenever we would ask for stuff, she's like, I'm paying my house before I retire. I'm paying my house before I retire. And she did. And she lived 20 years in retirement. And she didn't, she had a small pension, social security, and 20,000. in the bank. And when she passed away about 20 years ago, she had $20,000 in the bank, you know,

because she learned, you know, how to manage with the money that she had. And she passed that on to me. I mean, I must have just absorbed everything that she said because I'm a carbon copy of this woman who grew up during the Depression, who understood the value of a dollar, who hated debt like it was the devil himself. And it's because of her wisdom that I actually came to have this column with the Washington Post. And I'm very fortunate to be able to share the things that she shared with me with so many readers and listeners across the country. Yeah, your first column came out in March of 1997. It was about your grandmother.

And you definitely inherited her distaste for debt. That's certainly a common theme. and your articles. So what do you say to someone that says, well, yeah, there's bad debt, but there's also good debt. Yeah, there is no such thing. I mean, you know, that is such, I hate when I hear that, because then I will challenge people when they say, oh, there's good debt and bad debt. And so traditionally when people say that, what they mean is bad debt, credit card debt, good debt, all your mortgage or the money that you use to borrow to go to college, that's good debt.

But then I'll ask them things like, okay, describe, use some descriptive words for good, right? And it was like, you know, happy, elated, and, you know, so far. And then I said, now, is that how you would explain when you go to make that check to your mortgage company? Do you feel delighted? Do you feel elated? And they go, no, I hate being. So exactly. And so if you look at it that way, you will tend to borrow less.

You know, and that is my goal to get people to see debt as the weight that it is, even when it is done so for to purchase your house or go to school or buy a car, that if you look at it as a burden, and I want you to look at it as a burden, then you will borrow less. You'll pay it off sooner. Studies definitely show that debt brings down happiness. It brings it down more than savings, increase happiness. and your grandmother was certainly right to try to be debt-free by the time you retire. I think it's underappreciated the fact that when you have debt when you go into retirement,

that means your expenses are higher, which means you have to take out more money from your traditional IRA. You have to sell more assets, which increases your taxes, right? I mean, if your mortgage, your car payment and everything has you spending $10,000 to $30,000 more a year, you take that out of your accounts. you've increased your taxes by thousands of dollars, but then when you have to pay your tax bill the following year, you have to take that out of your account. So it's sort of like this domino effect of taxes

just by having higher expenses in retirement. That's exactly right. And, you know, there's this huge debate all the time about whether or not you should pay off your mortgage before you retire. And, you know, and I understand the theory behind it. Because, listen, I have a master's degree in business from one of the top universities in the country,

Johns Hopkins University. So I get it right. Like I'm not this episode. But when you look at how much we spend percentage wise for our housing expenses, anywhere from 30 to some people, 50%, even in retirement, if you don't have that debt, you're able to stretch those dollars just to what you said. And so the argument is, well, you should just leave it in the market and it's going to earn more than the interest that you're paying on that mortgage. But it just, it's not a guarantee. And right now we're in a situation where we see that in 2022, depending on how you were invested, you know, you lost about probably 20% at least on paper of your value.

So that's a loss. So that idea that you're always going to have a return in the market is just not true. And so I try to get people to reduce their expenses as they get into retirement and then in retirement, and you can make those dollars stretch a lot longer. Yeah, as I often say, retirement, the other word you would use is financial independence, but you're certainly not financially independent if you owe someone money. That's right. These days, there's a lot of talk about whether the U.S. is headed for a recession.

But for the way you manage your money, the answer is always yes. Always yes. Your latest book you wrote, quote, I manage my finances as if I'm in a perpetual recession. It's not about being fearful. I'm planning for what I know by now is inevitable. When it comes to your finance, you have to hope for the best, but plan for the worst. So explain the rationale behind that. Yeah. So, you know, I wrote that book, What to Do With Your Money when crisis hits right in the middle of the pandemic. As, you know, I started writing it in 2020. And then it came out in 2021 and then the paperback last spring. And so what I want to get people to do is to remember that. that it's not a matter of if there is going to be an economic downturn, but when. It is cyclical. And so you've got to be in the posture of having your money available and plan, knowing that

it's going to be a downturn. Now, some downturns may hurt you worse than others. The Great Recession, lots of people lost their job, lost their homes. And there was a little bit of a little bit of thing blurb in 2020 when the pandemic but we recover quickly in the markets. And so I just like to know that I'm always living below my means. And that way, I've built in some cushion. So my husband and I have never lived up to what we earn. We are like crazy savers. So we probably have always lived on maybe 50 or 60 percent of our income, saving the rest. And I think that's just a prudent thing to do. Do you know? the hardest time for me to get people to save is when they actually have money. It's easy when you don't have any money, right? So if you're doing well and you've got a good job, they don't want to save because they just think that paycheck is going to keep coming.

The good times are going to keep rolling. And they don't anticipate the time where the good time stop. And maybe it's not you, but it's people in your family. So you're doing okay, but you have no cushion to help anybody else. And so that's what I mean by living in a recession, living not in fear, but then anticipation that something could happen and you want to build in a really good cushion. Yeah, it's basically not planning for the best case scenario because you don't know what's going to happen.

It could be your job. It could be something happens to your house. You need a roof or something like that. It could be a health issue, something like 25% to 35% of people retire sooner than they thought they would because of health issues, which means they may not have saved as much, plus because they're retiring sooner now, they have to spread that smaller nest egg over a longer time frame. So I'm in line with you here. I'm known as the awfulizer here at the Motley Fool. And the way I put it is be a short-term pessimist and long-term optimist, because you don't know

what's going to happen in the short-term, have that emergency fund, make sure your job is safe, live below your means. The optimism part comes really to the investing. that eventually, no matter what happens, everything recovers and being in the market is the best place to be. That's right. No, I was going to say that the history does show that, you know, historically. Now, there are obviously periods where it didn't recover as fast as we wanted. But the average recession lasts, what, about 18 months, two years at the worst, right? You know, taking out that huge, you know, the great depression.

But the fact that a matter is, you know, you got to. to know that the most important thing with money is inflation, right? Because that's like 2022, the word for 2020 was inflation. And so you've got to make sure that your money is growing to keep pace with inflation so that you can buy the things that you need later in life. Not only do you write books and articles about money, but you actually work with people on their finances. You and your husband teach classes at your church and you work with prison inmates who will soon be released. So one of those experiences taught you, especially when it comes to convincing people to change their, you know, shall we say suboptimal attitudes and habits when

it comes to money. Yeah. It has working with individuals has informed my reporting and writing just amazingly so. Because it's not until you sit, down with real people and you spend a considerable amount of time with them looking at their budget, helping them either save or get out of debt or just build towards goals. Because a lot of financial advice is theoretical. And we know that behavioral economics says that, yeah, on paper, certain things work. Yeah, of course it does. The math adds up.

But when you add in behavioral issues, you add people's backstory, you know, life, it doesn't work on paper. And so I feel like I'm a better writer, a better person giving financial advice because I see everything. I see people's like, I don't have no money to save. And they absolutely have money to save. And I'm talking people making, you know, minimum wage to people making high six-figure salaries. And it informs me so I can give better advice. Like, for example, we've always heard when you have credit card debt, pay off the one with the highest interest rate, right? Like on paper, it makes complete sense.

But behaviorally, if you stack the debt starting with the smallest balance, we know that people love quick wins. We are a microwave generation. And so if they can get rid of that debt quickly, the smaller ones, it gives them a sense of accomplishment that makes them race towards debt forgiveness quicker. So they don't actually end up spending more in interest rates doing that method. And I've seen this in the field in practice that people got rid of, you know, $200,000 debt, $700,000 of debt. And next thing you know, it's all gone within a short period of time. And so I can give that advice so because I've seen it.

in the field and how it actually works. And working in the prisons, you know, we are a punishment society. And rightfully, so many people are there because they did some pretty bad stuff. But the fact that the matter is they are going to be released. Do we want them released informed, educated, and have some things going for them so they don't go back to prison? And so my husband and I go into the institutions. and we teach them how to handle their money because we sort of think people in prison,

they don't have any money issues, you know, that is just not true. Many of them have, you know, jobs or people are sending them money. Their kids are calling them. Their wives are calling them. They have interaction with people. And I think it's, you know, important to teach them to recognize what they did wrong and then change that habit and teach them how to handle the money. So when they do get a job and hopefully they will, that they'll be able to handle

better and they won't resort to some of the things they got them in the first place. A lot of the individuals, particularly the men who are in prison or in because they sold drugs. And they sold drugs because they wanted stuff or many of them started selling drugs when they were, you know, small kids or teenagers to help their family or they wanted sneakers or things like that. If we can address those issues and get them to see that you don't need certain things. clothes, shoes, cars, to have self-worth, then they won't go back and do some of the things that got them in prison in the first place. Such admirable work.

And you touched on the behavior of finance part of it. One of the things I enjoyed reading from you was that you said when you work with someone, you want them to bring in a year's worth of statements because you know they're lying about their money. Oh, yeah. They lie to you. Right. And they lie to themselves primarily.

And you've written also about, you know, how one of the reasons why you are, what some people would say harsh, is that you don't want to co-sign on to any bad ideas because anyone who wants to spend something on that vacation or something like that. They're just looking for that little window of approval saying, yes, I can do this. So when someone sits down with you and they go over their expenses for a year, does that help? I mean, does that, like, do you, do you see the aha moments where people are like, oh, my goodness, gracious, I had no idea how I was spending this much? All the time. It is, I actually, it's one of my favorite things to do, how people bring in their credit cards statements and their bank statements for a year. And we go through because they lie to themselves. They, it's not like the lie that you're thinking.

They think they don't spend as much as they do. And so let me give you an example. I was working with this woman in about, her late 30s and good, good income, no savings, not even saving towards retirement. And she couldn't figure out what was going on. And so she said, but I really don't eat out that much. I really don't shop that much. I go to Salvation Army and I buy consignment clothes and things like that. So I said, okay, let's just look at your bank statements. So I'm looking through. And what she was not recognizing is that she did eat out a lot, but it wasn't a whole bunch at every time. It was like $5 here and $7 here.

she did go to Salvation Army and buy a $2 shirt. But it was a $2 shirt and a $20, you know, X. And so when you added it all up, she had like $700 to $1,000 in expenses that she didn't even know was on her books. And we used that to build her savings and put towards retirement. And so it's a wake-up call. Lots of people don't realize how much they eat out and how that adds up. And so having them, and I get the statements, hard copies, right?

because sometimes you can't really see it on the computer. It doesn't resonate. I get them, get hard copies and get a bunch of highlighters, different colors. And we're just highlighting stuff, you know, and I'll say, well, okay, you went to ATM and you took out $20. Well, what did you use that $25? They don't have any clue. I said, okay, so then, you know, what about this?

And it's like, what is this service? There was a service. They didn't use for, you know, six months to a year. And so it is a wake-up call to them about the unconscious spending that we do all the time. And as a part of the ministry in my church, I actually created this thing called a 21-day financial fast,

which is one of my books. And so, although it's biblically basic, it can apply to anybody. So basically, for 21 days, you can't spend on anything that's not a necessity. And you can't use your credit or debit card. Lord, have mercy.

These people hollering because they can't, you know, they can't go out to eat, they can't go to the lunch, they can't go to the movies. But what it does is it shuts, everything down. And when they reboot, they see how much they spend and not even think about it. You talked about people in prison. And you wrote a few articles relatively recently about a guy by the

name of Eddie Alexander who recently pled guilty to a Ponzi scheme involving cryptocurrencies and foreign currencies. And this is in keeping with, you know, a regular topic in your articles, which is basically what's the latest fraud and how to protect yourself? And over the years, you've had chance to talk to some of the victims of various scams. So what have you learned about how to spot scams and also why do people fall for them? So there's so much to unpack there. Yeah, that scam that I wrote about is a mini FX. It was a platform in which people, and it was mostly targeted to the Haitian community. It's quite sad. So it was a Ponzi scheme. So, you know, basically with the Ponzi scheme is people who get in early get paid by other people behind them.

So it's just investor money paying investor money. The money wasn't invested in anything. I talked to the receiver for this case. And they believed him up until he pled guilty. I wrote a column about this. I interviewed them. I'm looking at the documents. I can see that he has not invested your money.

He's paying you with other people's money. And they totally believed it. And I think what happens is we send the message, we meaning the financial media and financial experts that you've got to invest, you've got to save, you've got to build your money. And they hear that. And they feel as if there's got to be something out there, some secret sauce to jumpstart, to get ahead, to be rich quick. And they just buy into the scam because they want to believe that that, They can do this quickly and they want something exciting and something interesting.

Listen, solid investing is boring and it should be. And if you adopt that principle, people coming to you with all these different, you know, ways to make money. Like, I used to do sessions for the new rookies and the NFL. And, you know, people pitched at restaurants and, you know, all kinds of different ways to make money. money and they want that because they're in an exciting field. They're on the field and there's all this action. And I come in here talking about, you know, diversification and index funds and they're just like, who is she? I don't know what she's talking about. But restaurants, the margins on restaurant, the profit margin is so tiny. And that's if you are successful. And I was trying to tell them,

listen, a low-cost index fund can return you twice as much as all that stuff that people are trying to sell you. But they want to believe that there's something else, that the rich people have some secret way that they've become rich that now they're going to be susceptible to. And also the frauders, the scammers use affinity. They call affinity fraud. So they gain the trust of someone within their spear. And no one's done their due diligence. But if my pastor vouches for this person, well, my pastor wouldn't introduce me to anything that is illegal, immoral, or a fraud. But if your pastor hasn't done his due diligence or her due diligence, she absolutely would. And so that's how people end up believing these. And, you know, I don't subscribe to blaming the victims. And were some of them greedy and unrealistic and didn't do the homework? Of course. But that does not give anybody the right to defraud them. You shouldn't be defrauded because you didn't check something out. Should you? Should you? Yes. And I just don't believe that, you know, you can't cheat, honest man. I think that phrase does not do justice to the many, many victims of financial scams. And what it does is keep people from reporting them. And the fewer people who report them, the more these scams go on for a long time before the frosters are caught.

Right. And they're hesitant to report them because they're embarrassed. They're embarrassed. They tell them, I can't believe I fell for this. I don't want anyone to know about it. That's right. And that's very unfortunate. It said any crime, you know, we should not, you know, I don't even want to use this example because it's so extreme. But women who are sexually assaulted, well, she shouldn't have been at the bar or her skirt was too short. I mean, that is, you want to just choke somebody when they say. that. Are you kidding me? You don't have a right to victimize anybody. If she was buck-necked, you have no right to invade her body. And it's the same thing with financial crimes. They have no right to victimize people who are most of the time they're just trying to get ahead. And rightfully or wrongfully didn't do what they're supposed to do to check things out. But most people who are victims, they just want to have money to retire.

They want to have money to take kids to college. They want to pay off their mortgage. You know, and I feel like we should not attack victims in these cases. That's very good points. And you mentioned some things like index funds and things like that, diversification. You learned a lot about spending from your grandmother, but not so much about investing. She wasn't comfortable with editing beyond a pastbook savings account. And as I understand it, you didn't become comfortable with investing until you began working with a financial planner.

And I think many of you would be surprised that someone like you would need to work with a professional. But I know that many personal finance experts, myself included, and I have the certified financial planner designation, often work with an advisor or an insurance agent or accountant attorney because, you know, you can't be an expert in everything. And this stuff can get complex. So talk a bit about working with a financial planner. Do you think everyone should do it? And if so, how do you find one that's capable and ethical? Yeah, I, you know, my grandmother was a great saver.

She didn't understand how to grow her money. My grandmother didn't even trust CDs, like certificate of deposits, which is a bank deposit account, right? I mean, it's like you put money and you get your money back and press some interest. The only bond she believed in was the bond of his he said for her dentures. And she and I understand, right, because there was a piece. period where African Americans were not allowed to invest. You know, we had, there was redlining. And so the traditional ways to build wealth were not accessible to us the way it was for the majority population. And so she feared banks. She feared anything that she didn't understand.

And what she understood is I put my savings in there. They gave me my savings back with a little bit of money. And it took me a long time to shake that fear of the market myself. I was an extremely conservative investor when I started in my late 20s when my company opened up a 401k plan. I had them all in bonds through my 20s, most of my 30s. I could just kick my younger self. And then I had the fortunate, my husband, I had fortunate, we were fortunate enough to meet a financial planner, African American woman who just changed our investing life. and she looked at how we were both investing for retirement. She's like, what is wrong with y'all?

And she talked about diversification and she got us, you know, so much out of bonds and, you know, more inequities. And she talked about, you know, the 529 plan for our kids college fund. And she just redid everything and really pushed us to invest. And I'm so grateful because we are so well situated for our retirement. we put all three of our children through college debt-free, one of them, a master's program, debt-free. And that was because of the work with the planner. Now, now we're much more sophisticated.

We don't necessarily need a planner now, but we bring one in every once in a while to basically break our plan. It's really funny. It's like, okay, look at this and see if you can break it, see where the holes are. And it's kind of cool when they go, nope, can't find no holes. And so how do you find a planner? Recommendations from people who work with somebody. You know, you want to interview at least three people.

And then there are many associations that you can tap. They have a network of advisors. Most of the time I say fee only. And if you're not going to use a fee only, you better darn well know what they are getting paid. So you ask them, how are you paid? and when you sit down with the advisor, they ought to be listening to you more than they're talking. What are your hopes and dreams?

What are your financial goals? What are you afraid of? How risky do you want to be? If they're like, you should do this, this, this, and that in the first meaning, that is not a good planner. They should be listening to the holistic picture of what you are financially. Like, for example, you know, my husband and I tied that we give 10% of our gross income to our local. church as part of our charitable giving. And, you know, a lot of planners were like, what? You should be putting that money in the market. Now, see, no, that is not our value. So someone is trying to push us to

not do that. That is not the planner for us. And, you know, also, we hate debt. So we met with a planner who's so cute. So we were thinking about maybe, you know, we wanted a second home, like in a warm place or something like that, but we want to pay cash for it. He's like, well, I don't know. do you want to pay cash? And he was teasing me because he knew how I felt about debt. He's like, I'm just joking. I know you're not going to buy anything. And I love that about him that he already knew that don't be trying to propose nothing

to have anything with debt with me. And so you want to look at it for a planet where it's going to be a symbiotic, um, not symbiotic relationship where they're listening to you. They understand your risk tolerance. And they build a plan based on you and not what they need to sell. Great advice. Some of the networks that we often mention here, the Motley Fool are Napfa, the Garrett Planning Network, and the XY Planning Network.

So if you liked Michelle's advice, those are some places where you can find a fee-only financial plan. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.