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Lynnette Khalfani-Cox: 'There's a Huge Wealth Gap in America'

The author and financial expert discusses the racial wealth and homeownership gap, college debt, and how she paid off her own debt.

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Our guest on the podcast today is Lynnette Khalfani-Cox. She's a personal finance expert, speaker, and author of 15 money-management books, including The New York Times best-seller, Zero Debt: The Ultimate Guide to Financial Freedom. Khalfani-Cox and her husband co-own TheMoneyCoach.net, which offers financial education consulting services, courses, and workshops. Before starting TheMoneyCoach.net, Khalfani-Cox was a Wall Street Journal reporter for CNBC, where she covered business and personal finance news. She spent nearly 10 years at Dow Jones & Company working as a reporter, bureau chief, deputy managing editor, and personal finance editor. She received her undergraduate degree from the University of California at Irvine, and her master's degree in broadcast journalism from the University of Southern California.

Background

Bio

TheMoneyCoach.net

Books by Lynnette Khalfani-Cox

Improving the Racial Wealth Gap

"Here's What the 'Black Tax' Does to so Many Families--Including Mine," by Lynnette Khalfani-Cox, Vox, March 24, 2021.

"How Income and Savings Affect the Racial Wealth Gap," by Steve Wendel, Morningstar.com, Aug. 27, 2021.

"100 Must-Know Statistics about Race, Income, and Wealth," by Christine Benz, Morningstar.com, June 8, 2020.

"Why the Racial Wealth Gap Exists, and What You Can Do About It," by Nicole Dieker, Haven Life, July 10, 2020.

"3 Ways to Close the Racial Wealth Gap After the Pandemic," by Kemberley Washington, Forbes, June 10, 2021.

"A Lesson in Economic Violence," by Lynnette Khalfani-Cox, AskTheMoneyCoach.com.

"Financial Advice During the COVID-19 Pandemic," by Lynnette Khalfani-Cox, aalbc.com, May 30, 2020.

"How to Set Money Boundaries With Your Family," Meena Thiruvengadam, Yahoo News, Sept. 8, 2021.

Ariel-Schwab Black Investor Survey

"A Money Expert Who Bought her Daughter an Apartment for College Said It Worked So Well She's Doing the Same Thing for her Son," by Liz Knueven, Business Insider, Sept. 24, 2019.

"Are You Ready for Homeownership?" by Lynnette Khalfani-Cox, AskTheMoneyCoach.com.

"Are You a Victim of Financial Abuse?" by Lynnette Khalfani-Cox, AARP.

College Funding

"What to Do If You Can No Longer Afford to Pay for College Due to COVID-19," by Lynnette Khalfani-Cox, AskTheMoneyCoach.com.

"Student Debt Sinks Retirees," by Lynnette Khalfani-Cox, AARP, April 18, 2017.

"Seven Ways to Pay Off Your Student Loans," by Lynnette Khalfani-Cox, AskTheMoneyCoach.com.

"Tackling Student Loan Debt," by Lynnette Khalfani-Cox, AARP.

"Are Your Kids Making You Broke?" by Lynnette Khalfani-Cox, AARP, January 2013.

7 Financial Tips for Parents of College Students," by Lynnette Khalfani-Cox, AskTheMoneyCoach.com.

Financial Wellness and Education

"7 Tips for Tackling Your Credit Card Debt, From Someone Who Paid Off $100,000 in 3 Years," by Elizabeth Gravier, CNBC, June 1, 2021.

Transcript

Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance and retirement planning for Morningstar.

Jeff Ptak: And I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Our guest on the podcast today is Lynnette Khalfani-Cox. She's a personal finance expert, speaker, and author of 15 money-management books, including The New York Times best-seller, Zero Debt: The Ultimate Guide to Financial Freedom. Lynnette and her husband co-own TheMoneyCoach.net, which offers financial education consulting services, courses, and workshops. Before starting TheMoneyCoach.net Lynnette was a Wall Street Journal reporter for CNBC, where she covered business and personal finance news. She spent nearly 10 years at Dow Jones & Company working as a reporter, bureau chief, deputy managing editor, and personal finance editor. She received her undergraduate degree from the University of California at Irvine, and her master's degree in broadcast journalism from the University of Southern California. Lynnette, welcome to The Long View.

Lynnette Khalfani-Cox: Thank you for having me.

Benz: We're excited to have you here. You wrote a great article for Vox, where you shared an example about how you realized you needed to help your mom financially. Wondering if you can share that experience with our listeners and talk about the financial obligations that black people often have to their family members, and also how that can impede their ability to get ahead financially themselves.

Khalfani-Cox: What I was trying to do in that Vox piece was to explain how so many folks, and frankly not just black people, but so many individuals who are first in their family to achieve some level of financial success, whether that's because of them being business owners like I am, or maybe being the first in their family to go to college. And to be on a higher career path, let's say in terms of income-earning potential. How those individuals are often called upon to assist family members--parents, siblings, cousins, aunts, uncles--whoever might be in need.

And I sort of used my mom in the example of how, over the years, she was a person who certainly did not have an opportunity to go to college, even though I did. She did not have an opportunity to have a career, let alone become an entrepreneur, and how she does need help. She's now in her 70s, in her late 70s. And how for her all of the things that I've been able to achieve, frankly standing on her shoulders, whether that's homeownership, being an investor, going to college, and now leaving a financial legacy for my own children--those were sort of avenues that were not really possible, frankly, for her. And so, the purpose was to really illustrate the ways in which generational wealth can be impeded sometimes, because people who are the first in their family to achieve economically have this other set of obligations that they are compelled to fulfill.

Benz: I wanted to follow up on your mom really quickly, Lynnette, because she seems like a heroic figure in many ways, and that she raised you and your sisters on really a shoestring. Can you talk a little bit more about her and about your upbringing?

Khalfani-Cox: My parents were both from New York, and they ultimately moved to California when I was very young, when I was like one or two years old. My dad was a shoeshine man from Harlem. My mom was a secretary, a cashier. She always worked multiple jobs. They always had, frankly, financial stress. And that's, in fact, one of the earliest memories I have of my parents is about them arguing honestly about money matters. They ultimately divorced when I was about seven years old, and my mom had to raise five daughters by herself. And it was tough. I remember the lights being disconnected. We squatted at one point, lived in an apartment complex where my mom could no longer afford to pay the rent, and we just sort of lived there. At one point we were even in a shelter for women who had kids and who had no housing. I definitely wasn't born with a silver spoon in my mouth.

But I did have the good fortune of having both very hardworking parents who were aspirational, who told their five daughters you can achieve anything you want to if you work really hard. So, both of my parents really emphasized education to my sisters and to myself, of course. And so, the five of us did go to college; three of us went on to graduate school, and then the same three of us went on to become quite successful business owners. So even though they struggled, they tried and did the best that they could to make sure that their daughters wouldn't have it as hard as they did.

Ptak: In that Vox piece, you referenced feelings of guilt that can accompany financial success for people who come from poor families. How do you help people thread that needle so that they can figure out how much is OK to keep for themselves once they start making money? And how much to help family members in need?

Khalfani-Cox: There's definitely a huge sense of guilt that many people who are first in their family to achieve feel when they have to say no, when they have to establish financial boundaries, and it is sort of threading the needle, because it is a kind of a delicate balancing act. I can tell you, not only from my own personal experiences, but certainly from many, many, many people I've coached through these types of issues, that the overwhelming emotional feeling is, one of dismay, sadness, regret. It's certainly not a positive financial feeling when you have to tell a family member no, either for your own health and safety--your own financial health, that is--and safety and security, or because you feel like you're essentially enabling someone else's financial misbehaviors.

So, what I try to do when I talk people through these issues, is first and foremost, ask them to ask the question, “What would happen if you said no?” And ultimately, really, what it boils down to, for a lot of people, is they're fearful. They are fearful that family members won't love them, won't accept them, will reject them, will be angry at them. They don't want to have that uncomfortable conversation. They don't want to get the past even thrown in their faces. So, if they said no to a family member who, for example, might have helped them in the past, they don't want to hear, "Oh, so you think you're better than us now?" Or "You forgot where you came from?" Or "Don't you remember what I did for you?" Those kinds of things.

And it's about establishing healthy boundaries and having that conversation with family members to say, "I don't mind helping you out if you are in a crisis, or in a time of need, once, twice, perhaps." Certainly, so many people go through economic shocks, whether it's say a downsizing, a sickness in the family, maybe somebody fell on tough times after a divorce or in the midst of a divorce. That's one thing. The problem area comes in when people come back to the well repeatedly, as I say, and they're constantly asking for money, for loans, for cash, for you to co-sign, and so on. And then I think you do have to make a distinction between saying, "You have to stand on your own two feet, you have to be financially independent. Here's what I can do: I can help you, I can point you in the right direction with resources. I can assist you in learning how to better manage your finances, and so on. But for your sake, your own financial well-being, it's not in your best interest for me to financially enable you." It's not an easy conversation, I'll tell you. And again, it can blow up a little bit there.

But I think that if you approach a family member in candor and in love, and certainly with the right approach, which is to say that “I recognize that I might have helped you in the past, you might have helped me in the past. I'm trying to have healthier behaviors going forward. I'm trying to improve my personal finances, and I want you to do the same. So, let's have a conversation about how that can take place in a sustainable way that doesn't involve me, essentially, being the human ATM machine or the financial backup plan.” Because no adult should have to be somebody else's Plan B. That's not letting the other person grow and financially mature and learn to stand on his or her own two feet.

Benz: Yeah, we want to talk about the racial income and wealth gap. People of color have substantially lower net worths than white people. They're also less likely to have investments in the stock market or inherit wealth, and they're more likely to be poor in retirement. What are the best ways, in your view, to move the needle to improve financial wellness for people of color? I don't know if you want to talk about it from a policy perspective first, and then get into individual things that can happen? However you want to approach it.

Khalfani-Cox: We know that there's a huge wealth gap in America. The typical white household has about 8 times or so the net worth as does the average black family. The latest Federal Reserve figures, I believe, show white net worth is about $188,000, and black net worth is about $24,000. So, we know there's this huge yawning gap, and it's been persistent. This is nothing new. We see it manifested in other ways as well. Of course, the homeownership gap is also in part a driver of the wealth gap. So right now, we have about three fourths of white folks in this country own their own homes, and only about 44% or 45% of black folks in this country own their own homes. So, when you're looking at a 44%, 45% homeownership rate for African Americans, versus roughly 75% for white Americans, that explains, in significant part, part of the reason for the wealth gap.

Now, from a standpoint of what can be done: I do think that one of the positive things that has come out of the racial reckoning that is going on and that is taking place in this country right now in the wake of the killing of George Floyd, Ahmaud Arbery, and so many other black men, etc.--I think that now there's been this growing awareness of social inequality at so many levels. And yes, of course, that includes a conversation about financial inequality. I'm always reluctant to put the onus on the individual to solve a problem that is systemic or structural in nature. Nevertheless, I do, of course, as a money coach, I do try to tell people day in and day out about the individual things that they can do to improve their own personal financial situation. But, frankly, from a systemic standpoint, from a structural standpoint, from a policy standpoint, that is what is most going to move the needle in terms of closing the wealth gap.

So, it's everything from looking at homeownership policy in this country and the ways in which mortgages are provided to folks; it's looking at housing and zoning laws; it's looking at tax credits that are available to various populations; it's doing some of the things that are necessary to help close that homeownership gap. That's one thing from a policy in a structural or systemic standpoint. Then I think we definitely have to look at things from the economic standpoint, starting from college through career. So, we know that certainly African Americans are aspirational. As I mentioned, even my own parents who didn't have the opportunity to go to college, nevertheless, they wanted that pathway for their five daughters. I'm always very proud and hopeful when I see students of all backgrounds, but certainly students of color and African Americans in particular, pushing toward a degree. Because we know that over a lifetime, the difference between a high school diploma and a bachelor's degree is almost a million dollars in earnings power.

We have to be doing the things that put people on the path, on the career path that will enable them to be higher earners, so they can in fact, save, invest and do the things that would promote wealth-building. However, I think it's imperative that we address that nasty little four-letter word that's on the other side of those two big aspirational things with regard to the American dream: homeownership and college. And that nasty little word is called debt. Because we find that, unfortunately, for a lot of black households, yes, you'll find families pushing the students and their family toward an undergraduate or graduate degree. But then they come out of college, and they're burdened with massive amounts of student loan debt. I know that I certainly did. I had $40,000 in college loans when I graduated and got my master's degree in journalism from USC in Los Angeles. It took me over a decade to pay it off.

And so, when we think about policy, obviously, there's a big conversation going on right now about whether or not a certain amount of student loan debt should be canceled. I do think that policies like that can have a very strong positive effect for black households, because they're overburdened with college debt. And, by the way, when you start to free up those black households from not having to make student loan payments, and so on, you create more money that can be put into the economy in other ways. So, those are just a couple of things. Entrepreneurship--we need to think about the economics of helping folks to start small businesses, and, in particular, black households. We know that the pandemic, for instance, has been devastating on a huge number of African American small-business owners. So that has to be addressed.

And so, there's a lot. I could go on and on. But, certainly, there's no shortage of, I think, solutions that we should be looking at, and even to the point of reparations. And I know some people might go, “Oh my God, she said the ‘R’ word.” Reparations, yes. I think that, again, if we're having an honest, candid conversation about the debt--yes, I said the word, the "debt"--the debt that America owes African Americans based on essentially almost 400 years of oppression, the legacy of slavery, Jim Crow laws, and the remnants of which still are manifested today. There has to be a redress, there has to be a remedy. We can't just have a conversation about policy and pretend that the reality and the history that got us to this point simply didn't exist.

Ptak: I wanted to go back to one of the factors that you cited, which is levels of homeownership. You've written about how people of color are less likely to own and build wealth in their homes. I guess there's a flip side of that, which is the risk that people might over-invest in their homes, and then in turn, they don't have money left over to invest in the market or address other priorities. How do you, in your conversations with folks that you work with, how do you help ensure that they strike an appropriate balance and make a good choice when it comes to homeownership?

Khalfani-Cox: Well, honestly, I think there's very little risk on that side, when it comes to say the risk of over-improving perhaps, there may be risk of overextending oneself and getting into a house that is unaffordable, buying into a community that is beyond your economic reach given your current level of income, assets, or your level of financial security, that kind of thing. But, honestly, that's a sliver of the population. The real challenge is to get folks to be able to enter the market and to be able to address some of these obstacles to homeownership, whether that's having the sufficient down payment, the right credit score, the proper DTI--or debt-to-income ratio--housing affordability, and other obstacles. That's way, way, way more of a challenge, as opposed to people saying, “I'm sort of a little too heavily invested in real estate or I've sort of overimproved my house.” I happen to be a big believer in real estate as a pathway to wealth-building. My husband and I own eight properties. We also invest significantly in the stock market and in exchange-traded funds and individual stocks and mutual funds, in cryptocurrencies. So, we're diversified. And obviously, again, we're business owners, as well.

I think the bigger conversation is around, how do we move the needle toward getting people to be mortgage ready? How do we make it so that there is affordable housing in this country so that someone who looks at and sees that the average median home price now is up to $390,000? And if they think, “Geez, do I have a 20% down payment? Do I need to put $78,000 down?” Well, maybe not, maybe you could put a 10% down payment in $39,000. Or maybe you can get an FHA loan, and do 3.5% down. But even coming up with, $10,000, $11,000, $12,000, that's a stretch for some people. I think the more salient conversation is around how do we address the obstacles to real estate, homeownership. And using that as a pathway toward wealth-building.

Benz: I was picking through the 2021 Ariel-Schwab Black Investor Survey, which is an amazing resource. And it found that 21% of black Americans work with financial advisors, while the percentage of white Americans who do so was more than twice as high. What's going on there, in your view? Can you discuss one of the reasons why black Americans are less likely to use advisors? Is it just having less wealth?

Khalfani-Cox: It's absolutely not about simply having less wealth. It's mostly about trust. This is an industrywide dilemma that needs to be addressed. It's definitely the case that more white households have a financial advisor than do black households. But it's not simply a function of a white household saying, “We have more wealth, more money at our disposal; let's get some expert guidance.” The distrust of the financial-services industry, again, is part of the legacy of this country's history in financial dealings with African Americans, whether it was redlining or insurance. I'll call them scams. Whether it was not being able to get certain mortgages, whether it was federal law that prohibited black people from being able to have government-insured or government-subsidized mortgages.

There's a real history here, where black people had been exploited, taken advantage of, or when they did have access to financial products and services, it was at punitive levels; it was the cost of credit was 2 and 3 times; it was insurance that was provided, but at much higher premiums; or it was financial institutions in a given community, which were almost predatory in nature.

Part of the obstacle, part of the challenge--and we see this across the economic spectrum, not just for low-income, or even moderate-income black households, even as you go higher up the economic food chain, so to speak--you see that there is a distrust of Wall Street, of financial-services providers, there is a sense that, “Is this stockbroker just trying to sell me something just to get a commission?” And, again, I'm not saying that this is exclusive to black America, because certainly in general, in various pockets of society, there is distrust of the financial-services industry. So, we've got a lot of work to do on that front. Whether it's credit unions or banks or insurance companies or fintech firms. I believe they all have a role to play in making sure that their products and services are equitable, inclusive, fair, and accessible and affordable to all.

Ptak: Do you think that a key to engendering trust is having someone across the table from you, so to speak, that can relate to your experience? There’s a growing number, for instance, of black and Hispanic certified financial planners, but there's still just a tiny share of CFPs, less than 3%. So, do you think that there are steps that the financial-services industry should take, the planning profession in particular, should take to become more inclusive? And do you think that would engender the trust that's so absent right now?

Khalfani-Cox: I do think that would be a great step forward. I think it would be extremely helpful to increase representation of African Americans, and other people of color within the financial-services industry, as a way to help build trust. And, as you mentioned, the 3% rate for, say black CFPs, overall, in the financial-services industry professionals, financial advisors, it's under 10%. It's about 9% overall. But, guess what, that's the same number that has been since 30 years ago. There was a federal study done literally 30 years ago, that found the exact same number about 9%. And so sometimes the industry thinks that it's making strides and moves and steps. And I don't want to come across as not being aware of the positive steps that have been taken and the progress that has been made on certain fronts.

However, if we take a 30,000-foot view, if we look at the big picture, we see that we have not moved the needle. I mentioned the college-to-career pathway--part of it is about the financial-services industry, making sure that they are doing the right level of recruitment, training, retention, promotion, and providing supports for black professionals within the industry. So I can tell you, again, unequivocally that if you're say, a bank, a financial-services institution, and you have 300 people in a given department, and you have three of them, five of them, for example, are African American, you have to think about the environment in which those people live and operate and go to work every day, whether that's remote or in person. And are you providing the right structure, are you providing the right environment to nurture them to make them happy, fulfilled career professionals, to want to stay there?

It's not fun all the time being the only one. I can tell you that. So, somebody like me, I was actually honestly quite blessed. I told you I grew up in Los Angeles after my family moved to Southern California from New York. And I was raised in the ‘70s, in an era of busing, where essentially the Los Angeles Unified School District took all of us black and Latino kids and bussed us, put us on school buses out to very wealthy, predominantly white neighborhoods. I went to Canyon Elementary in Brentwood. I went to Paul Revere Junior High School in Brentwood. I went to Pacific Palisades High School. And then later in my 11th and 12th grade years, I had to beg my mother to let me come back to go to finish high school in my own neighborhood at Susan Miller Dorsey High School in Los Angeles, in the central part of Los Angeles.

But I'm sharing that to say that throughout my elementary, junior high--what we call now middle school--and then high school life, I was blessed and had the good fortune to always be around all different people. And because it was a system of busing, I was never the only one. I was in classrooms where it was pretty much like 25% black, 25% Asian, 25% Latino, and 25% white. We all mixed and mingled, got along well, and you learn, you thrive, you grow, you understand different perspectives by having all of those different viewpoints and levels of representation at the academic level and certainly at a career level.

I live now in the Greater Houston area, and I moved right before the pandemic. In 2019, my husband and I moved from New Jersey, Northern New Jersey, which is where we lived, to the Houston area. For my three kids--I have, she's now 24, and I have a 21-year old, and the youngest is 15--they were raised in a predominantly white neighborhood, about 97% white, in a small town called Mountainside, New Jersey. And my kids, for them it was mostly never an issue until fairly recently. And my youngest daughter, the 15-year old, let us know, like basically, we're out of black people.

And part of the reason for us moving, in addition to me wanting to be in a warmer climate and get out of the snow and the cold--and this might just be like way too much information--but part of the reason was, yeah, we wanted to find a place with lower cost of living, no state income taxes, thriving entrepreneurial culture for our business, and yes, greater diversity. My daughter's thriving here now--the 15-year old she loves it. And I see even the difference in her and in her circle of friends, which has widened now, and I’m mindful of how that's going to carry out as she starts to age and go off to college and then into career. It really shouldn't be the case that a child like my daughter, who was for almost her entire elementary, middle school, now she's in high school--certainly for my older two kids, their entire lives, they were the only one in the room.

And so, we have to start to think about the ramifications of that. From a societal standpoint, even from a business standpoint, because there's literally data that shows diverse teams do better. They have better economic outcomes, because you have a wider talent pool contributing thoughts, ideas, perspectives that you otherwise wouldn't have. So, I know I went off on some tangent there. And I don't even know how we went there.

Benz: No, that was great. Lynnette, I wanted to follow up on the comment you made when I asked you about: is asset size an impediment to black people having financial advisors? You were unequivocal that no, it's trust. Assets, though, are an impediment to someone getting a good advisor. So how do you counsel people to think about that? Because I think sometimes there is a tendency, if people don't have a lot of assets, they end up hooking up with someone who is commission-based and maybe conflicted in their advice. How do you approach that?

Khalfani-Cox: Yes, I'm glad you took me back to the second half of this question. Yes, I do believe that trust is the predominant factor. But it is absolutely the case that asset size plays a role as well in explaining why so few African Americans have financial advisors. What I tell people is that, just like everything else about financial planning and wealth building, it's not about today, and only what you have today. It's about future you and about where you'd like to go. So, people will tell me, “What do I need a prenup for?” And I'm saying because you're planning for the future, just in case. This is the same reason you have insurance on your automobile or homeowner's insurance. It's a risk-protection or risk-mitigation tool. It's just simply being smart.

So that financial advisor is there to help you to set goals or to at least to be able to articulate and define your goals and then to help you to reach those goals. But it doesn't mean that you have to have a six-figure income or have necessarily a six-figure pot of money that you're ready to invest. I think you can definitely go through fee-only associations and find good planners and advisors that will work with you. And, honestly, for many of them, it's extremely affordable. It's the price that people are going to spend on eating out a couple times over a couple of months, but it's well worth it.

I just try to get them to see that the advisor's role is to make for a better future you or for a stronger, more stable you, even though you might feel like “I have so little, what is this for?” It's the same conversation I have with people if we talk about estate planning or making sure that you have a will or a trust if necessary. And it's not necessarily that you think, “Oh my gosh, I have all these assets, and what am I going to do with it?” It's to make sure that as you build and grow, and as you become more financially secure, you're putting in place all the pieces, all the things, taking the steps necessary to protect what you've worked so hard for. And sometimes you need that third party. Frankly, I think you should have a team. I tell people it's best to have a team of advisors, whether that's an accountant, a banker, a financial advisor, or some will have a broker or money manager, and so on--those different perspectives. Again, the data is clear that people who actually have financial advisors do better and have better financial outcomes.

Ptak: I wanted to go back to something you touched upon earlier, which is college funding and debt. You've written several books about paying for college. Higher education in the U.S. is so expensive, and people can get into a lot of debt to cover it, as you alluded to, and yet, investing in higher education is practically a must for advancing in a career and accumulating wealth, which is something else you touched on. So how do you go about advising families on how to rightsize their educational spend, so they're not putting themselves in financial jeopardy to pay for education?

Khalfani-Cox: One of the big things that I advise families and, of course, this means the students and the parents, is to think about the right-fit institution, and not just a brand-name institution. So many times people are willing to go into debt because it's their "dream college." And I can tell you, certainly, with my own kids I never let them use that language. I never let them think that it was, UCLA or bust, MIT or bust, or Duke or bust, or whatever somebody's "dream school" might be. I talked to them about finding the right fit for them based on academics, based on financials, and based on the college's own resources and what they would want to provide that would help them to advance into their career. So, I do think a lot of times families go into debt, because they're trying to get the name, they want to be able to wear that T-shirt and have little bragging rights, and so on. But that's not a reason that you should put yourself in financial jeopardy.

Benz: So, how about parents going into debt themselves, tapping home equity, or taking out parent PLUS loans, or tapping their retirement accounts? Should that always be marked with a skull and crossbones; never do it? Or are there some instances where maybe you should think about it?

Khalfani-Cox: I wouldn't give 100% no and say never do it. But I do think that it's a large and growing problem. I happen to be a money expert also for AARP. And I've done a lot of research into this area. And, unfortunately, we're finding larger numbers than ever of folks who are 50 and older who have student loan debt. And most of it is because they co-signed for their kids, but sometimes it's, what I call, second-act debt. Someone might have said I always wanted to try this, or I wanted to study this. So, they might have gone back to school for a graduate degree or left a certain job. Or got downsized from a job and then decided to go pursue some other career path for which they felt they needed more background in terms of education.

But I don't think that parents should put their retirement in jeopardy in order to pay for their kids’ college education. The fact of the matter is, worst-case scenario, as a final, as a last resort, the student can borrow for college; you can't borrow for your retirement. I think that families need to be looking at all of the options that are at their disposal before they turn to loans, and what are those options? It's scholarships, grants, paid internships for the student, work study, and the family's own resources. Once you tap all of those five things, then you should start thinking about, where are there gaps; what's still necessary to be able to pay for college expenses; and now what loans might need to be taken on?

Ptak: There's currently a pause on federal student loan repayments until the end of this year. What should people with loans be doing to improve their financial positions in the interim, in your opinion, or does it completely depend on their circumstances and whether they're employed?

Khalfani-Cox: I do think it depends in large part on their financial situation. In general, what I'm telling people is keep paying, try to get ahead if you can, because the payments that you're making right now will help you to knock out those debts a little bit faster. And the interest rates are set to zero. So, it'll help them to be rid of the obligation sooner rather than later. However, clearly, if you're unemployed, or if you're struggling to make ends meet, then you probably need to take advantage of the pause in payments at the federal student loan level. And, we have tens of millions of Americans who owe--we're almost up to $2 trillion in student loan debt. And so, this is a massive problem, but it is one that's nuanced and different people have different circumstances.

Certainly, I think one other option that people should make sure that they're aware of, is to know all of the federal student loan repayment options. Because there's a graduated-loan repayment, income-based, and income-sensitive repayments, and so on. And so, you should make sure that you're aware of all of the different types of loan repayments, because really, essentially, when you graduate, they stick everybody in the standard loan repayment program. And that's the one that you pay off your loans in 10 years. But, of course, it's the highest-monthly payments per month, and not everybody can swing that. So that's the reason why so many people say "No, I'll do one of the graduated or extended loan repayment programs." They might stretch it out 15 years, some 20, some even 25, in order to make the monthly payments lower.

I caution people to just make sure that you're not adding all that extra cumulative interest over time, and certainly don't do what I did initially and put your loans on autopilot. I just had them sitting there. And I was just pretty much making minimum payments for a while. And then I looked around and said, "Why am I still paying on these loans? I need to get to more aggressively paying some of this stuff down."

Benz: Want to talk a little bit about financial education, which we've discussed at length on the podcast with other guests. Your company, TheMoneyCoach.net, is dedicated to financial education. So, when you think about this, what really works and helps improve people's outcomes with respect to making them financially well and financially knowledgeable?

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Khalfani-Cox: I think the stuff that works for folks are the incremental successes, the small wins, the things that they can do, either daily or more habitually and see that it gets results. Because when you start to affect people's pocketbooks and wallets in a way that they notice it, and when they start to see whether that's “My credit score improved, or; my savings rate went up, or; I did start contributing just 1% to my 401(k); I took my raise or my bonus and I invested that, and now I'm doing 2% or 3%.” When they start to see the impact of it, it's inspiring to them. And it propels them on to further action.

And when I think about what works, it's not necessarily giving them all of the big, big picture. Certainly, you can lay that out and hold that out for them. But when it gets down to the nitty gritty, you have to give them the day-to-day stuff, or the steps to take in between. And I think that works well. I think automation, frankly, works well, because everybody's so busy. Everybody is so overwhelmed, especially given the last 18-plus months. We have careers, and kids, and family obligations, and a lot going on. And I think that for the average person--money geeks like me, I love to talk money, and I could just do it all day long and whatnot--but the average person really doesn't want to talk about it all day long. And they'd much rather have something and be like, “Yes, I checked this off of my financial checklist; done!"

Some things, whether it's automating savings, whether it's using roundups to be able to say, "Look, I actually did save some money just by rounding up my purchases." Or using debt-payoff apps and tools like that--the things that take the decision-making out of the equation and take the mental load off of the consumer, saver, investor. I think that works as well.

Ptak: What do you think about the just-in-time approach to financial education, where people get some financial education at the point of purchase, whether they're taking out a car loan or investing in a 401(k)? And if you do like it, what are some practical ways to execute it?

Khalfani-Cox: Regardless of whether or not I like it, or even the industry likes it, the fact is, most people will seek out. They may not be intentionally saying, “Let me get some financial education around X topic.” But in reality, in practice, most people actually do seek out financial education, resources, tools, help, products and services when they need it. For example, we know that there's a huge interest in improving your credit score, for example, when someone is about to purchase a house and they know that they need to apply for a mortgage. Ditto for people who are having life changes or big events in their lives. The person who's just had a baby is going to say, "Maybe I should think about some life insurance," or "Maybe I should make a will." Or the person who's getting married, is thinking, "I never really thought about cleaning up my debts before, but probably time for me to get rid of these student loans before I have to tell my partner about it," or whatever.

Human nature means that most folks actually practice the just-in-time kind of concept when it comes to getting their financial education, or whatever, at that time. And that's because, like I said, there's so many different demands on people's time and their attention that for some people, it's kind of a necessity this way. In an ideal world, no, I would love to see that we make financial education part of everyone's lifelong learning. I would like to see, starting with the 2- and 3-year old, when that kid starts asking you about a coin, for example, and they start playing with money. And then you tell them this coin is representative of something. And, if a 2-, 3-, or 4-year-old thought that a nickel was worth more than a dime, just because the nickel is bigger than the dime and you start to explain and say "No, actually this is like five pennies," and you give them five pennies to show and say, "This dime is actually like 10 pennies." And again, you do what's age appropriate.

But if it's a 5-year-old who goes into the store with you and asks for a toy, I think you should start having that conversation about spending choices. And about how, as a family, you choose to spend your money. Because at the end of the day for anything that you can do, anything whatsoever with regard to money, it really just boils down to four things: you can save, you can spend, you can invest, or you can donate. That's it, that's the only four things you can do. And so, if we were to apply that thematically over a lifetime, we would be infusing people with little bits of information a little bit at a time. We really shouldn't just turn our kids loose when they're 18 and send them off to college and go, "OK, now here you make your way in the world."

No, we've, we've taught them to look both ways before they cross the street. We taught them how to, hopefully, make up their bed once in a while. And how to, be aware of stranger danger and everything else; you don't just turn them loose. By the same token, I think that you really do people a bit of a disservice if you only wait until literally that last moment, because then the person is either cramming or subject to only getting the information that's within their purview, which may be limited in scope. So, I hope that answered that question.

Benz: It does. Lynnette this has been such an illuminating conversation. We've loved having you as our guest. Thank you so much for being here.

Khalfani-Cox: You're welcome. My pleasure.

Ptak: Thanks again.

Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)