Author Archives: Khooppres

Student Loans – The Next Credit Bomb

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While the economy continues to show signs of improvement, the bleak outlook on student loan debt stole headlines last week.  Due to the recession, there were many people (young and old) who seized the opportunity to go back to school in hopes of retooling themselves for the emerging job market.  On the surface, this seems to be great news, but there were some alarming facts reported in the news:

  • An article in Forbes announced that four economists at the New York Fed reported that outstanding student loans now exceed credit card balances and auto loans
  • According to the Federal Reserve Bank of NY, Department of Education, and private sources, outstanding student loans will exceed $1 trillion this year as reported by USA Today
  • The College Board reports that students are borrowing twice as much as they did a decade ago, and total outstanding debt has doubled in the past five years

Given the information above, you might say that borrowing money to go to school is a bad idea.  Although the economy is improving, there are still a significant number of people out of work.  Additionally, as parents attempt to help their children by cosigning, taking out personal loans, or drawing down equity (if available) in their homes, many may be faced with paying those loans back on behalf of their kids in the event that they’re unable to secure employment after graduation. 

After considering all of this, what’s the alternative?  Ultimately, if you want to compete, school may be the only option.  You will likely be faced with applying for loans to pay for your education, but I urge you to make wise choices.  The following three steps may help you avoid getting in over your head:

  1. Assess the salary potential for your new career and pursue jobs in growing industries (e.g., healthcare, technology, and service.)  Try to pursue opportunites that require your presence and cannot be outsourced to other countries.  Additionally, only borrow what’s practical for your new career choice
  2. Seek opportunities to apply for grants and other job training programs.  Explore opportunities to participate in programs at local non-profit agencies (i.e., Urban League, Goodwill, etc.) which offer services at a free or reduced rate.  Review the Workforce Investment Act (WIA) and confirm whether or not you’re eligible for funding under this program.  WIA supersedes the Job Training Partnership Act and offers a comprehensive range of workforce development activities through statewide and local organizations
  3. Avoid dipping into your home’s equity.  Although the economy is showing signs of recovery, we should still be conservative about the financial decisions we make.  If you take out the equity in your home or use your home as collateral, you very well may be jeopardizing your home if you default on the loan

As a result of the recession, we are slowly rebuilding America, and many families have found themselves in similar situations.  We are all defining new norms and learning how to do more with less.  Our ancestors experienced similar times and they survived.  We will also survive, but it will require us to continue to make sacrifices and become more intentional in our spending.  

In closing, because most student loans are deferred as long as you’re a student, it can become very easy to forget how much debt you’re accumulating.  Each time you apply for new debt, take an opportunity to review your outstanding debt, and if you don’t remember anything else about this post, please GRADUATE – you don’t want the debt without the degree!  An article in the Wall Street Journal reported that a college graduate earns $800K to $1M more than a high school graduate over their lifetime.  Another important fact to remember is most student loan debt cannot be discharged in bankruptcy.  In essence, nothing but death can keep you from being required to pay back student loans!

Self-Made Millionaires: Ms. Mellody Hobson

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Although Black History month is now over, I wanted to take an opportunity to complete my series on African-American Self-Made Millionaires.  For my regular readers, I apologize for my delay in completing the series, but I had a delivery date that I couldn’t miss.  On February 25, my husband and I welcomed a new baby boy into our family.  Things are going well and we are adjusting to having a baby in the house!

As I thought about how I’d like to close this series, I decided to highlight someone that has dedicated their life to helping others pursue their financial goals.  For this reason, this week I’ve chosen to feature Ms. Mellody Hobson.  Mellody Hobson is President of Ariel Investments, a Chicago investment firm which is also one of the largest African-American owned money management and mutual fund companies in the United States.  In addition to serving as Chairwoman of the Board of Trustees for Ariel Mutual Funds, she also serves on the Board of Directors for Starbucks Corporation, Dreamworks Animation, and The Estee Lauder Companies.  I am only ‘scratching the surface’ on Ms. Hobson’s accomplishments, but based on the information above, I’m sure you’ll agree that she has quite an impressive resume.

As I reviewed Ariel Investment’s website, along with other informative news articles about Ms. Hobson, I became intrigued by her story.  While her biography is impressive, I’ve decided to highlight some of Ms. Hobson’s financial advice.  An article on B. Couleur features advice that Ms. Hobson gave to parents during a 2008 interview.  Although the interview occurred several years ago, the advice is still relevant.  If you’re a parent, consider the following:

  • Give children stock instead of toys or money for Christmas.  This tip was also highlighted in our December post, Financial Gift Ideas for Teens
  • Start a ‘family 401K’ by matching every dollar your child saves with a dollar of your own
  • Divide allowances into short term expenses, long term expenses and money for charity.  This concept is similar to the Money Savvy Piggy Bank  highlighted in the post,  Financial Gift Ideas for Young Children

In addition to the advice given above, during a segment on Good Morning America, Ms. Hobson highlighted Three Things You Should Never Carry in Your Wallet.  Her comments included the following:

  • Do not store receipts in your wallet.  She mentioned that receipts not only clutter your wallet, but they can also contain key information that identity thieves can use against you.  If you struggle in this area, consider carrying a smaller wallet; it will force you to only carry the essentials
  • Do not carry your social security card in your wallet.  I have to admit that I was guilty of not adhering to this piece of advice.  However, it makes a lot of sense.  An identity thief has ‘hit the jackpot’ if they are able to obtain this small piece of paper.  She also mentions that you should never carry a list of pins and passwords in your wallet
  • Do not carry expired credit cards or membership cards in your wallet.  She stresses that just because they’re expired doesn’t mean that thieves won’t try to use them.  Additionally, the cards may provide personal information that shouldn’t be in the hands of others

In addition to highlighting those items we should never carry in our wallet, Ms. Hobson mentions that the following items should be in our wallet:

  • You should carry a credit card, but just one.  Carrying additional credit cards may cause you to overextend yourself.  If you have more than one card, don’t close the accounts because this may have a negative impact on your credit rating, but practice restraint by carrying only one
  • Carry some cash for incidentals.  During this segment, Ms. Hobson mentioned studies have shown that people spend 12-18 percent more on purchases when they use credit cards vs. cash

Ms. Hobson has definitely succeeded in spite of the odds.  A recent study performed by Insight Center for Community Economic Development reported that the average African-American woman has a net worth of $5.  Given this statistic it is clear that we have a lot of work to do, but if we take an opportunity to learn from individuals like Ms. Hobson, we can achieve the financial success we desire.  Most people don’t become wealthy overnight; it takes patience and perseverance.  Ariel Investments was founded on this principle and it is still a part of the company’s ‘fabric’ today – hence the firm’s logo, “slow and steady wins the race.”   To learn more about Ms. Hobson or Ariel Investments, please visit http://www.arielinvestments.com.

Self-Made Millionaires: Whitney Houston

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On Saturday, February 11, the world was shocked by the announcement of the untimely death of Whitney Houston.  As I planned this series, I had no intention of featuring entertainers, but due to the number of lives Whitney has impacted over the years, it seemed fitting to include her.  I’m sure that many of us, especially women, have found ourselves in the mirror, shower, or car attempting to ‘belt out’ one of her love ballads.  And, in our mind, our rendition of the song was just as good as hers.  We were fooling ourselves!

While I’m sure that we’ve all taken a trip down ‘memory lane’ and reminisced over our favorite Whitney songs, the intent of this Post is to highlight a few unpopular truths about money and fame.  In last week’s Post, I referenced Dr. Farrah Gray’s belief that as we seek success, we should first focus on being rich from within.  He also believes in the notion that money doesn’t change you; it simply magnifies who you already are.  I believe there’s truth in both statements, but as I thought about Whitney’s life, as well as other entertainers and sports figures, I contemplated the following question:  “What if you don’t know who you are?”

I’m sure that most people have developed their own opinion about what led to Whitney’s demise, but I urge you to be careful in how you judge her life.  What if all of your successes and failures were out in the open for the world to see?  Additionally, take a moment to think back to a time when you were ‘young and dumb.’  I’m sure you can think of at least one ‘skeleton’ that you would not want to share with others.

In our society, we assume that just because someone has a gift or talent, they are mentally prepared and mature enough to deal with the pitfalls that can be a part of stardom.  Additionally, many of us were raised to not disclose personal matters or things that occur in our home life.  The harsh reality is every single one of us has had to deal with some level of family or personal drama.  Although alcoholism and drug addiction are both a form of disease, many people begin to use them as a way of escape.  No one plans to become an addict.  I’m not a psychiatrist, but I wonder if our community was more open to seeking counseling and addressing mental health issues, would we see a decrease in the number of African Americans impacted by alcohol and drug abuse?

In the African American community, we are taught to ‘take our burdens to the Lord and leave them there.’  Growing up in the South, this was actually a song that we sung as we knelt at the altar every Sunday.  What happens when the burdens and pressures of life are so overwhelming that leaving them at the altar no longer works?  When I think about Whitney Houston, Michael Jackson, and others, I’m sure they lived a lonely existence most of the time.  Can you imagine wondering if people are ‘with’ you because of your fame?  What if you never had the ability to be vulnerable or ‘naked’ with someone because you were afraid of what they would think or share with others?  Let me be clear, I am not excusing anyone of their choices or decisions, but I cannot and will not try to compare my existence and ability to mature in a safe and private environment with someone that was catapulted into fame as a young teen.

As I prepare to close, it is my utmost desire to see more African Americans pursuing their dreams and increasing the wealth in our communities, but we must not forget the importance of preparation.  In addition to strengthening our natural talents and gifts, it is essential that we are mentally prepared to face the challenges that come along with the ‘next level.’  I recall someone using the phrase, ‘new levels, new devils,’ and I thought they were simply being negative.  There’s a lot of truth in this phrase and if you choose to ignore the possibility, you just might find yourself blind sighted.  Although Whitney is no longer with us, her life embodied one of my favorite songs, One Moment in Time.  As we celebrate her life and her contribution to the ‘fabric’ of our nation, we can all strive to seek our own moment in time.

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