It's Not Always About the 'Bling'

Money coach Alvin Hall gives listeners advice on how to live within their means and avoid "spending up."

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MICHEL MARTIN, host:

And now, it's time for our money coach, where we check in with personal finance guru Alvin Hall. We have been talking about trying to change financial habits on this program, but many people still have problems freeing themselves from debt, saving money, living within their means. Why is that so hard? Alvin Hall's going to try to tell us. He joins us now from our London bureau. Welcome, Alvin.

Mr. ALVIN HALL (Financial Expert): Hello, Michelle. How are you today?

MARTIN: Well, I'm fine. And I - you're living the high life in London.

(Soundbite of laughter)

MARTIN: But you're not - but I'm sure you're not shopping.

Mr. HALL: That's right. I'm not shopping, because the pound is just too strong against the dollar.

MARTIN: Okay. Now, Alvin, what are your core principles? If I had called it that. Is it just people? Some people have a hard time facing reality around money. Why is that?

Mr. HALL: A lot of people want to use money to represent their status in life, and hence, they tend to focus on the gross amount that they're earning. For example, somebody who earns $100,000 a year, they think they're entitled to $100,000-lifestyle, although in reality, on an after tax basis, that's not the money they're earning. So often, what they're doing is buying into a lifestyle that they have yet to achieve.

MARTIN: But people - I guess people when they start, you know, having an allowance as children if they get those, if they get that first job, they know that. I mean, kids who - kids mowing lawns don't have credit cards. So when do you think that sort of distant-from-reality phenomenon kicks in? Do you think it's the best first credit card?

Mr. HALL: I think it's what the first credit card. It's the first time you can go out and buy something that would normally have taken you maybe six months to save for and you can get it now. And you buy into the instant gratification, and that starts people down that road of spending and overspending.

MARTIN: And so, how do you think - I mean, what is it that - why is it that some people can't keep that in check and some people can? Have you noticed any sort of differences? Are there any attributes that you look for, like the people who come to you and need help or just the people who can keep it under control? Because we're all inundated with this stuff. I mean, my gosh. I must tell you, there's a - those in my mailbox, at least once or twice a week, some pitch for some credit card that I didn't ask for and don't want. I mean, we're all awash in this.

Mr. HALL: Yes, but just because something comes through the mail, Michel, do you have to really take it? Do you have to accept that offer?

MARTIN: Oh, no. It goes straight to the shredder.

Mr. HALL: Yeah. I like to ask people if they sent sex through the mail, would you take that out? Right, and that's true. It's the same emotion that's driving it. Many people, I think when it comes to money, want money to be magical. They want it to solve problems, to make them happy. They think by acquiring things, they can acquire happiness. And so they - it's that coalescence of those two forces, the easiness with which they can get that credit card, and then the thing that they can do with that credit card to make them happy in that moment.

MARTIN: And do you think that the kind of excitement around new products is part of it? Like, for example, when you see a new product like the iPhone, do you just go uh-oh?

Mr. HALL: You read my mind. I was just dealing with a friend recently who wants to go out and buy the iPhone. And I was actually having an argument with him about why he could not afford the iPhone. So I sat down and showed him that the cost of the iPhone, with the minimum plan, comes out to be about $1,500 a year. When he compared that to his paycheck, I said, that's one of your paychecks every two weeks. Are you willing to spend one of your paychecks just for the joy of a phone when you have rent to pay?

And when he saw that, he said, you know, I never thought of it that way. And so it pulled him back from that edge. But most people don't have that reality check, and that's part of why we're doing the series - to give people the skills to give themselves that reality check.

MARTIN: What is your biggest fear about the way Americans handle their money? Notwithstanding the fact that you're, you know, across the ocean, giving your expertise to these hopefully deserving people in London. But what's your biggest fear about the way Americans think about money right now?

Mr. HALL: They think that money will always be there, magically. Something will always come along to save them. In reality, the only person who can save you is yourself. You need to have that financial cushion in the bank. In all of our lives, something goes wrong. You're not being negative if you think that. You're being realistic. You need to have some money in the bank to be able to save yourself. Money does not come out of nowhere.

MARTIN: It seems, in a way, that that attitude fights some of the things that Americans like about themselves, which is their…

Mr. HALL: Yes.

MARTIN: …sense of optimism and faith in the future.

Mr. HALL: Yes. I think you can have faith in the future and you can move forward, but all of us need a safety net. We need something so that if, you know, all of a sudden our job is eliminated or we get sick or there's an accident, so we can't pick ourselves up. So we can save ourselves. That's not being, I think, negative or denying any optimism that is inherited in the American spirit. It's just, look. Get things realistically.

MARTIN: Talk to me about some - first of all - how you - sort of a self-assessment that you can do to decide whether your emotions are getting in the way of your financial management, and what are some tips that you can employ to get that under control? Mr. HALL: I tell everybody: You should check yourself at least once every two years by keeping a financial diary to see what emotions are driving your spending. I do this myself. And I always do this in the month of August, because if I'm going to go off the rails, it's always in August for some reason.

And I keep track of how I'm spending my money. And often, what you discover is that while you master one demon, another demon will take over. For one thing, keep a diary. Try to stop spending for 30 days. This is a big challenge for people. See if all of a sudden you become addicted to using that credit card, writing those checks. Give yourself a 30-day hiatus from all spending and see if you miss it.

MARTIN: I'm sorry. I think the mortgage company might have a problem with that.

Mr. HALL: No. No. That's - no. You cover your essential bills, but it's all of the ancillary expenses. So you still have to buy food. You have to pay your mortgage, pay your utilities. But all of the other spending that you do - going out, you know, to fast food places, going out to buy a magazine - just drop it for 30 days and see if you can then reinstitute a plan where you know where your money is going…

MARTIN: Okay.

Mr. HALL: …rather than frittering it away.

MARTIN: All right. All right, Alvin. We're still looking for those Money Train passes. Thanks so much for your advice, as always.

Mr. HALL: Thank you. I enjoyed it.

MARTIN: Alvin Hall is our financial expert and money coach. And the Money Train is still accepting passengers. If you're looking to buy your first home, planning to start a business, need to write a will, or you're just trying to get out of debt, our Money Coach is conducting our summer financial fitness series, "The Money Train: How to Get (and Keep) Your Finances on Track." He's walking with them step-by-step through their the major financial challenges. You can find out more about our Summer Financial Empowerment Series and about Alvin at our Web site, npr.org/tellmemore. Alvin, thanks again.

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