Ep. 042 - The Road to Black Monday, the Worst Day in Wall Street History with Diana Henriques

Ask some Wall Street veterans where they were on October 19, 1987 and they will likely regale you with details of any crisis. My life changed that day in ways that often creep up on me.

Ask some Wall Street veterans where they were on October 19, 1987 and they will likely regale you with details of any crisis. My life changed that day in ways that often creep up on me. Indeed, Black Monday was the single worst day in Wall Street history, with the Dow Jones Industrial Average plunging by more than 22 percent in one session--that’s the equivalent of the blue chip index diving by more than 5,000 points today.

It was a “First Class Catastrophe”, according to our first class guest and storyteller supreme, Diana Henriques, who dropped by the studio to help us retrace the events that led up to that day.

Diana joined us on the podcast earlier this year when her book, The Wizard of Lies: Bernie Madoff and the Death of Trust, was made into an HBO movie. This time around Diana is joining us to discuss her latest book, A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History. As Diana recounts, Black Monday was more than seven years in the making and threatened nearly every U.S. financial institution.

There were missed opportunities, market delusions, and destructive actions that stretched from the “silver crisis” of 1980 to turf battles in Washington and a rivalry between the New York Stock Exchange and the Chicago Mercantile Exchange.

Here’s the crazy thing...you’d think that after Black Monday, lessons would be learned. But in her analysis, Henriques demonstrates how that Monday in the fall of 1987 was the predicate to the financial crisis of 2008. Sadly, investors, regulators, and bankers failed to heed the lessons of 1987, even as the same patterns resurfaced.

This was a fascinating interview for me because I lived through this period. I had just started my career on Wall Street, as the chaos was unfolding. I watched firsthand as my father nearly lost his business. This chat was like going down memory lane and it’ll give you guys a good glimpse of the life I used to live before I started hosting podcasts and radio shows!

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Ep. 041 - The Equifax Data Breach with Credit Expert John Ulzheimer

How many of you were impacted by the recent Equifax data breach? I was, Mark was, and considering 145.5 million other Americans were impacted, I'm going to guess that includes many of you too. Now that the news is out, heads have rolled (CEO Richard Smith has stepped down), Congressional hearings have taken place, where do things stand?

How many of you were impacted by the recent Equifax data breach? I was, Mark was, and considering 145.5 million other Americans were impacted, I’m going to guess that includes many of you too.

Now that the news is out, heads have rolled (CEO Richard Smith has stepped down), Congressional hearings have taken place, where do things stand? More importantly, what should you do? Who should you trust?

In times like these, there’s one go-to person: John Ulzheimer, the foremost authority on anything involving credit scores, credit reports, breaches, etc. John is so good that we did this interview on the phone!

Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 270 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

We’re going to get into all the dos and don’ts with John, but so you also have the vitals to reference, here are the main takeaways:

• Contact one (under Federal law, each is obligated to notify the other two) of the three credit bureaus Equifax (800-766-0008), Experian (888-397-3742) and TransUnion (800-680-7289) to put a free fraud alert on your credit report. You should also contact a fourth, lesser known company Innovis. The alert makes it harder for an identity thief to open more accounts in your name, but experts note that alerts usually just slow down the process of criminals opening accounts in your name, they don’t prevent it.
• If someone has used your information to make purchases or open accounts, file a complaint with the Federal Trade Commission and print your Identity Theft Affidavit. Use that to file a police report and create your Identity Theft Report.
• Place a credit-freeze on your credit file, which generally stops all access to your credit report. Unfortunately, you need to contact all the companies to freeze your file. Here are the links: Equifax; Experian; TransUnion and Innovis. Important note about a freeze: If you need to access credit, you have to unfreeze your records, which can take a few days. Some states charge a fee for placing or removing a credit freeze, but it’s free to place or remove a fraud alert.

I’m not trying to freak you out or make you even more paranoid, but the reality of the situation is not if your information will be compromised, but when.

“Better Off” is sponsored by Betterment.

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Ep. 040 - The Surprising Power of a "Useless" Liberal Arts Education

So often on this podcast, and on my radio show, we field questions from recent grads with insane amounts of student loan debt. Sometimes it's enough debt to wreck a life. There's enough blame to go around, but so often it's a case of students feeling the pressure to go to fancy, high priced colleges to study what seems like an obscure major.

So often on this podcast, and on my radio show, we field questions from recent grads with insane amounts of student loan debt. Sometimes it’s enough debt to wreck a life.

There’s enough blame to go around, but so often it’s a case of students feeling the pressure to go to fancy, high priced colleges to study what seems like an obscure major. But before you think that I am about to argue that every able-bodied student should be studying for a degree in a STEM (science, technology, engineering, mathematics) field, read on...

Let me pose a question. What is wrong with a well-rounded liberal arts degree? A degree, which I might add, can be earned at countless reasonably priced colleges.

George Anders, our guest this week on Better Off makes a strong case in his recently released book, You Can Do Anything: The Surprising Power of a "Useless" Liberal Arts Education.

You don’t have to be a rocket scientist or know how to write computer code to succeed in today’s work environment.

When you really think about it, it’s amazing how many doors a so called “useless” liberal arts education can open.

As George says, you can be yourself, as an English major, and thrive in sales. You can segue from anthropology into the booming new field of user research; from classics into management consulting, and from philosophy into high-stakes investing. At any stage of your career, you can bring a humanist’s grace to the rapidly evolving high-tech future.

If you’ve got kids starting the college application process, who are resisting calls to declare a STEM major or if you’re thinking about furthering your education by going to grad school, listen to this episode before making any decisions.

“Better Off” is sponsored by Betterment.

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Ep. 037 - MONEY’s 2017-18 Best Colleges For Your Money

It's September and by now, the kids are back to school. Not surprisingly, I used to love this time of year. What can I say...you guys know I'm a total geek. Whether you're sending your little ones off for the first time or your kid is entering the final chapter of high school, the most expensive part of their education is yet to come!

It’s September and by now, the kids are back to school. Not surprisingly, I used to love this time of year. What can I say...you guys know I’m a total geek.

Whether you’re sending your little ones off for the first time or your kid is entering the final chapter of high school, the most expensive part of their education is yet to come!

I know, I’m such a Debbie Downer. But the cost of college is no joke and if handled without forethought, it can wreak havoc on the financial lives of parents or saddle kids with boatloads of debt.

There are thousands of colleges out there. Public, private, in-state, out-of-state, off-campus, on-campus, this major, that major...it goes on and on. It can be extremely overwhelming.

So where does one turn for some help with the process? My favorite place to go is the annual Best Colleges For Your Money list from MONEY.

To help us break down the 2017 rankings, MONEY reporter Kaitlin Mulhere, joins us. Her beat is her education, so she is the ideal person to discuss the topic.

According to Kaitlin, MONEY uses three categories to compile the list:

• Cost: This category takes into account the net price of a degree, student loan debt, student loan repayment and default risk, value-added student loan repayment measures and affordability for low-income students.
• Education Quality: This includes the six-year graduation rate, value-added graduation rate, peer quality, instructor quality and financial troubles facing the school.
• Alumni Success: Includes graduates’ earnings, earnings adjusted by majors, 10-year earnings, estimated market-value of alumni’s average job skills and value-added earnings.

“Better Off” is sponsored by Betterment.

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Should you go into Student Debt to Pay for College?

With the cost of tuition, fees, room and board at public four-year colleges running around $20,000 -- and up to $70,000 for some elite private schools, how can families foot the steep education bill without getting crushed by student debt? Now that college acceptances are in, it's time to figure out how to pay for that coveted degree. Before you agree to the financial award offered, know that if your family finances have changed since you completed your FAFSA forms, due to a job loss, high medical expenses or caring for an elderly parent, you can appeal to get a better package. You will need to gather supporting documentation and be a bit of a squeaky wheel, but it is well worth the time and energy.

If the prospective student has received a better package from an equally ranked school, it is worth inquiring as to whether a match is available. In this case, financial aid officials say that it is better for the student to make the appeal directly, rather than have the parents call.

You should also know that the financial offers are only good for the first year of borrowing--families have to apply annually for aid. That means that your award could drop in the subsequent three years, which is why you should ask the college how much its costs could change. You can research whether a reduction is likely by using the Education Department’s College Navigator,  which highlights what percentage of first-year students at each school, earns scholarships compared with the entire undergraduate student body.

The biggest problem that families have is that there is no uniform standard for how colleges detail true net cost of earning a degree. That puts the onus on families to parse through the likely four-year total cost of attendance (tuition, fees, room, board, books, travel), the amount of financial aid available and the money that will be accessed through loans and work-study.

Once you have nailed down the costs, then it’s time to decide whether or not you will borrow money to finance the degree. Students should explore federal loan options before private ones, because most private loans have variable interest rates that can rise substantially in the future and only federal loans are eligible for different kinds of loan repayment options.

Colleges also often include federal parent PLUS loans in the aid package, but those come with a hefty loan origination fee of nearly 4.3 percent. Parents should check out the private sector too and remember that parental borrowers have to start making monthly payments immediately. Finally, education experts suggest that students only borrow a total of what they can earn in their first full year of employment and parents should be careful not to blow up their own retirement plans to finance education.

Because so many parents are trying to juggle competing financial goals, many grandparents have gotten into the act. While a grandparent’s assets are not included when colleges determine eligibility for financial aid, if a 529 plan is established in the grandparent’s name for the benefit of the grandchild, it can negatively impact the student’s financial aid award.

The reason is that when money is withdrawn to make a payment on behalf of the beneficiary of the plan, students must disclose those amounts as income, which can reduce a student’s aid eligibility significantly. In order not to diminish the ability to receive aid, grandparents should consider gifting the money to the parents, who can then deposit the gift into their own 529 accounts. Experts note that it makes sense to wait until after the aid has been determined before making the gift.

Class of 2015: Most Indebted Ever

The graduating class of 2015 may be partying like it’s 1999! A study earlier this year from Michigan State University found that employers have been recruiting new college graduates at levels not seen since the go-go years of the technology boom and Y2K (remember that?). With economy and the job market picking up steam, hiring of college graduates this year was expected to be up by 16 percent from a year ago, though the National Association of Colleges and Employers puts the increase at 9.6 percent. Either way, the market for recent grads is improving and more than half of employers are offering signing bonuses, the highest percentage in five years.

Of course it is easier to get a job with a degree. The national unemployment rate stands at 5.4 percent and is 4.8 percent for recent college graduates and 2.7 percent for all college graduates. With that degree comes increased earnings potential: the Federal Reserve Bank of San Francisco found that the average U.S. college graduate is likely to earn at least $800,000 more than the average high school graduate over her working years.

All of this good news about college comes with an asterisk: the ability to land a good job out of college often depends on a graduate’s major. According to a report by the Georgetown University Center on Education and the Workforce, “Recent college graduates who major in arts, psychology, and social work earn $31,000 per year, only $1,000 more than the average high school educated worker. By comparison, recent graduates who majored in engineering earn $57,000 per year, almost twice as much as the average high school graduate.”

For families that are spending tens and even hundreds of thousands of dollars, the Georgetown report begs the question: What if my child is not interested in the STEM (Science, Technology, Engineering and Mathematics) majors? While you can’t force college students to study what you believe is most prudent for them; if they are likely to head into a liberal arts field with a lower earning potential, you need to steer them into a cheaper undergraduate education (community and public schools or private colleges that offer loads of grants) and to keep a lid on total borrowing.

Many families can only get their kids through college by assuming loans. That’s why total outstanding student debt (federal and private) reached nearly $1.2 trillion at the end of the first quarter of 2015. The class of 2015 is only going to add to that staggering sum: its graduates are the most indebted ever. The average graduate with a student-loan owes just over $35,000, according to Edvisors. Adjusted for inflation, that’s more than double the amount borrowers had two decades ago. Unless these graduates are about to land one of those plum STEM jobs, they could be paying off their loans for decades. (The average student repays her college debt within 20 years of graduation.)

Students and their families need to strike a balance between the increasing necessity of completing a college education (earlier research from Georgetown predicted that the share of jobs requiring post-secondary education will likely increase to 64 percent by 2020, a big jump from 50 percent in the 1970s) and the decision to assume tens of thousands of dollars of loans to earn that coveted degree.

One way to keep debt levels in check is to only assume a total student debt load that matches what you think you (or your prospective graduate) will earn in the first year of work. If you’re going to be an engineer or software designer, you can borrow a total of $50,000 to $60,000, twice the amount of an art history or education major. It may not seem fair, but to navigate the current labor market effectively, without draining current and future resources, this rule of thumb may keep the scales balanced.

College is Worth It!

Attending college is costly, but according to new research, not going to college is even more costly. Pew Research Center found that Millennials with a college degree earn more than those who stopped their formal educations during or after high school. Between 1965 and 2013, median annual earnings, among college-educated full-time workers aged 25-32 rose to $45,500. Meanwhile, their high-school-educated peers lost more than $3,000, with earnings falling to $28,000 over that time period. In other words, a college degree is worth more and a high school degree alone is worth a lot less. That differential adds up over time: According to Priceonomics blog, a college degree offers a 30-year wage premium of over $200,000 in extra income ($6,667 a year) compared to a high school graduate’s salary.

For Millennials, like the broader population, going to college may help you get or keep a job.  The unemployment rate for high school grads is 12.2 percent, while for those with a degree, it is two-thirds lower, at 3.8 percent. Those with two years of college fall in between at 8.1 percent.

I know what you’re thinking: “What about the escalating costs of education and those ballooning student loans?” In the survey, 66 percent of Millennials said they had borrowed to pay for school, compared to 43 percent of boomers. That explains why outstanding student loans have soared to over a trillion dollars. One way to keep debt levels in check is to only assume a total student debt load that matches what you think you will earn in your first year of work. If you’re going to be an engineer, you can borrow more than say, an art history major.

The good news is that the College Board has reported that the rate of tuition increases at U.S. colleges and universities has slowed down in recent years, it is still a huge burden for American families.  The average annual tab for public colleges is $8,893, though after subtracting grants and financial aid, the net cost is $3,120. Private universities total $30,094, with a net cost of $12,460. Tack on room and board, and the price tag increases by another $10,000 or so.

Because the value of a college diploma is so great, families are increasingly seeking the help of older generations to foot the bill. But, how the extended family helps can have a big impact on a student’s financial aid chances. That’s why it’s important to understand some of the rules surrounding college savings and financial aid.

On the positive side, a grandparent’s assets are not included when colleges determine eligibility for financial aid. My favorite education-funding vehicle is the 529 plan, which allows for tax-advantaged investing for college. Contributions within the account grow tax-free and are not taxed upon withdrawal, provided they are used for qualified higher education costs.

Another benefit of 529 plans is that they can be a terrific estate planning tool, because wealthy grandparents can remove assets from their estates either using the annual gift tax exclusion of $14,000 or by making a lump sum that is far larger. The nice part is that the donor can maintain control over the investments and the ultimate use of the money.

However, there is a big downside to using a 529 plan that is in the grandparent’s name. When money is withdrawn to make a payment on behalf of the beneficiary of the plan, students must disclose those amounts as income. For every dollar of income, a student’s aid eligibility may be reduced by as much as 50 cents. In order not to diminish the ability to receive aid, there are a few work-around solutions.

1. Wait to use money in the 529 until the student’s senior year: Tapping the account for the last year of school shouldn't affect eligibility, because the year in which the income will be reported (as income for the previous year) will also be the year in which the student graduates.

2.Trasnfer ownership of account: A few years before the first aid application is due, grandparents could transfer ownership of the account to a parent of the beneficiary. Assets in a parent-controlled account get assessed for financial aid purposes, but disbursements do not appear on the income statement of either the parent or the student. Fair warning on this idea: some states, like New York, do not allow changes in account ownership unless there’s a court order or the owner dies.

3.If the 529 plan ownership seems too complicated, grandparents might considering gifting the money to the parents, who can then deposit the gift into their own 529 accounts that have been established for the kids. It makes sense to wait until after the aid has been determined before making the gift. Alternatively, extended family members may choose to wait until the student has graduated and then help with college loan repayment.

It takes a family, a village and just about everyone else to fund an education, but the investment is worth it!