By: Sierra Lewter
Allen Cheaves, CEO of Extra Credit Financial Solutions, a financial planning company in Washington, D.C., is shown being interviewed by (left to right) UHMP student Janiya Battle, intern Sierra Lewter and student Isabel Fajardo.
Growing up around people who have a poor understanding of how to handle money makes it hard for young people to become financially literate, and break the cycle of poverty that affects millions of families across generations.
“Many times parents don’t want to talk about money,” said Sandra Block, a personal finance reporter at Kiplinger Personal Finance Magazine. That leads to kids not “getting a good grounding.”
Allen Cheaves agrees. He is CEO of Extra Credit Financial Solutions, a financial planning company in Washington, D.C., but he grew up in Ward 7, a poorer part of town. “In my neighborhood, money wasn’t discussed in terms of planning,” he said. “It was
discussed in terms of what I have.”
“The Joneses who everyone wants to keep up with? Well, everyone needs to realize the Joneses are broke, too!” he laughed.
What makes it more difficult for young people to understand money is the lack of financial literacy classes in schools, said Block. Virginia is one of only five states that require personal finance classes in high school. “We don’t have a good education system in this country for personal finance,” said Block. She thinks that schools could add finance lessons to math classes or offer finance classes as extra credit.
“If you don’t have somebody teaching you the basics, the only information you are getting is from people who want to sell you things” said Block. This one-sided information causes consumers to not see the full picture and leads to decisions that hurt them in the long run, she said Riva Stinson is one of the lucky ones. She learned about finance by watching her parents. The personal finance reporter at Kiplinger remembers many times when hermother talked about her method of “sticking to her budget,” she said. Her mom’squestion, “Can you pay that off?” now rings in her head whenever she starts to buy something. “You learn how you don’t want to manage money, and you go seek the answers on your own,” she said.
Having a positive role model, though, can set someone up better because they will be more open to getting help and not feel as if “they have to carry the world,” she said.
Here are some tips from Block and Cheaves on how to make better financial decisions.
Don’t confuse having less with being less. Cheaves highlights the importance of not getting caught up with material items. He discussed how many times people look towards social media and TV as standards on where we should be or what we should have. Cheaves advised those to not look to others for confirmation of their value because those who are “truly rich don’t show it.” “If you have five or six cars in your driveway then that money is not in your bank account,” he said. Chaveas’ words served as a reminder that smart spending is the best method to maximize your funds.
Pay yourself first. Cheaves recalled the time he was a young man living in the District and cutting grass to get some extra cash. He started ‘paying himself first’ by putting $2 of his $20 payment into a savings account before touching his money. He carried this practice on for years, waiting on the rainy day to come along. It finally poured when a college scholarship of his that he was relying on was delayed. Cheaves used the money that he had been saving since he was a kid to pay for school. “It was the hardest check that I ever had to write,” said Cheaves. But, at least he had the savings to help insure his future.
Don’t use your credit card to spend more money than you have. Block talked about how a major issue younger people face today is credit cards. “It was much harder to get a credit card when I got out of college and now they will give one to anyone,” she said. Many times, younger people get credit cards and run up so much debt that they can only afford to pay the minimum balance, she said. She talked about how this is something that “credit card companies love.” By paying only the minimum balance, consumers get trapped into paying the companies for a long time because interest rates add up and cause the total amount owed to keep increasing.
Go with what is free first! Block said that she always picks the free option first. “Many people don’t realize that the library offers so many free options,” she said. Local libraries offer free movies and TV shows to stream, as well as audiobooks. Spottily and other streaming apps also have free services with ads, which Block acknowledged that they “maybe annoying” but in the long run, they will save you plenty of money. “If you do need to subscribe to something,
then look for family deals,” she advised. Often times, you get more service for more people for only a small increase in price.
Shop at consignment shops. Cheaves came to his interview with UHMP in a very nice casual outfit. It wasn’t until midway through the discussion that he took his finger and moved it from the top of his head to the bottom of his toes and told everyone that every little thing he had on, he had gotten from a consignment shop. Cheaves went onto describe how at every class he hosts or interview he does, he wears an outfit he got from a consignment shop or thrift
store. He even recalled when he got an $800 pair of shoes for $40. He wants to show his audiences that you can get great clothes and still be stylish without breaking the bank. “Why should I pay $800, when I can pay $40?”
Be weary of subscriptions like Netflix or Spotify: They are ongoing bills that can hurt you financially in the long run. “A lot of times people lose track of what they are spending because everything is so seamless,” said Block. Many people are signed up for different services that they don’t even use on a month-to-month basis. She advised consumers to not sign up for long services without making sure that they will be able to pay for it. For example,
signing up for two years of cable may not be the best idea if you don’t have a steady income of money that will last two years.
Keep track of your expenses. Cheaves pulled out his wallet and showed everyone the growing pile of white receipts inside. He said those receipts are a daily reminder to himself on how much he has spent. The stack of receipts typically causes him to second guess before he makes a purchase and to decide if he really needs it. Cheaves discussed how it served as a highlight to many people who “blur lines between needs and wants.” This simple trick of keeping track of daily spending can help people save much more.
When you get out of college, live like you are still a student. Block advised graduates to keep expenses low for the first couple of years after college. This will give them a better chance to pay off their loans, she said. Having a roommate, not going out as much, and only getting what you need, are all examples of how you can keep expenses low. Block’s best advice is to “do everything you can to make at least the minimum payment every month. Because what gets borrowers in trouble is not the actual loan, it’s how much it increases if you don’t make payments on it.” Block then advises students to increase the amount put forth towards student loans as they start to earn more money. If you get to a place where you really can’t pay then there are government programs that reduce loans, described Block. She said a lot of people don’t take advantage of these programs because they are difficult processes. But they will save you a lot in the long run.
Secure credit cards are great for building credit. Most young people don’t have access to credit because they’ve never gotten credit! Block described secure credit cards as “a possibility, just to build credit.” She talked about how these cards aren’t “great for emergencies, but they are easy to get.” A cash deposit you make when you open the account backs a secured credit card. You can use the “credit” card up to the amount you deposited. The reason why these cards are easier to get is because of the deposit. If the borrower fails to pay, then the issuer will take the funds from your deposit. By paying on time, you establish that you’re a safe bet for a real credit card. If handled properly, these cards will greatly help those with bad or no credit. 10. Save money regularly and automatically.
The biggest tip both Block and Cheaves stressed is saving money regularly, and automatically by having a bank shift some amount to a savings account every month.
“No matter how big or small the amount, start putting money aside,” emphasized Block. “What holds up so many people from saving is that they think they can’t do it.”
Cheaves discussed how becoming a better saver is difficult, but not impossible. “Money is 90% behavior,” he described. Cheaves’ advice for those who want to know the first step to being better with money: “You have to want to not be in a difficult situation.”