'Money Train' Boards Prospective Homebuyer

Financial expert Alvin Hall starts listener Randy Jones on his quest to purchase a home for his family as part of the summer financial series Money Train.

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MICHEL MARTIN, host:

It's time once again to climb aboard the Money Train. It's our special summer financial empowerment series, where we help listeners get advice on debt management, starting a small business or buying a home. Today, we start the train off with home ownership. Our conductor is personal finance guru, Alvin Hall. He joins us from our New York bureau, as always. Alvin, welcome.

ALVIN HALL: Hello. How are you today?

MARTIN: Great. And also with us is our Money Train finalist, who wants to buy a first home, Randy Jones. Randy joins us by phone from his office at WRVS in Elizabeth City, North Carolina. Randy, welcome back to you.

Mr. RANDY JONES: Well, thank you for having me again.

MARTIN: Alvin, what are the top issues that prevent people from being financially prepared to buy a first home?

HALL: Mostly, it's having accumulated a lot of consumer debt, and therefore having ruined or damage their credit rating and cannot get the best mortgage possible. Also, I think that many people forget that in order to get the best mortgage, you need to save up a substantial amount of money. Five percent is okay, but 10 percent is better, 15 percent is better. So the more you can put down on the house, the better.

MARTIN: Well, now you often talk about, you know, accumulating debt and ruining your credit in the same sentence, but is it always that way? I mean, is it - by definition, if you have a lot of consumer debt - are you necessarily in financial trouble?

HALL: Not necessarily, if your incomes can support it. But what happens with most people is that they start accumulating debt. And then they say, oh, well I'll only make the minimum payments. And that goes on for a while and then there's more debt, and then soon they're skipping payments. So you find it's a long but sure slope downward when they get on that track. Only those people who pay off their debts every month or make as much of a payment as they can can restore their credit rating and maintain it.

MARTIN: Okay. All right, well, that's good advice. So Randy, Alvin has asked you for four things as your first assignment: a list of your total debt, the income for you and your wife after taxes, your credit rating score and a list of discretionary spending. How has it been for you getting all this together? Was it hard?

Mr. JONES: It has been hard. Matter of fact, we are, you know, working on this, and it's been a little bit tedious, but, you know, it's refreshing in a sense, because I even found out I had some bills I forgot about, which I'm not forgetting about and just set up on automatic draft. So to actually see the whole financial landscape laid out in front of me was quite depressing, as well as exhilarating in both senses of the word.

MARTIN: Alvin, Randy's response in how he's feeling, the reaction he and his wife are feeling as they're doing this, is that typical?

HALL: Extremely typical, especially the part where he did not know the full range of his debt, because people tend to be ostriches about things like this. They put their head in the sands, and they get by one day at a time. The only way he could possibly make his dream happen is to know the full range of his financial situation, what's going on in every compartment, where his money going. Without that picture, he would never be able to achieve his dream. So it's he's very typical.

MARTIN: But, you know, it's interesting. It sounds, Randy, let me see if I'm getting this right. It sounds to me like you weren't in denial, because it seems to me that - what I heard from you is that you had a system set up to pay these bills, but you'd forgotten about it. So it was that you, you were paying them, but you really didn't know where all your money was going. Does that sound right?

Mr. JONES: Yeah, that is true. I mean, it's, you know, I mean, like Alvin said, when you finally, you know, get your head out the sand and see that it's a bigger picture than just making it a day-to-day then, you know, I guess, it's almost like being addicted to some form of drug or alcohol. You know, you must first admit that you have a problem, and we do have that. So I think that is the first thing that I'm doing today is admit that, you know, I do have a problem and I want some help.

MARTIN: So Alvin, two things. What - do you have any advice or words of, I don't know, comfort for Randy? And what's his next assignment?

Mr. HALL: Well, I think that the words of comfort can only be one thing. He's doing everything right in admitting that he was in denial about that, because it's only by recognizing that you have that problem with your personality that you can start to monitor it and correct it in the future.

As for moving forward, what I want Randy to do is to sit down with his wife and have an honest discussion between the two of them about how they are going to work together on the same page to achieve a goal. Because when you're married, you are in a financial partnership. And he must make sure that they're both on the same page, want the same goal, and can look at the numbers in the same way.

MARTIN: And Randy, can I ask you? I don't know how old your children are.

Mr. JONES: My children, I have a daughter that's eight, and my twins are 3.

MARTIN: Well, the 3-year-old, obviously, this doesn't really apply to them. But what about the 8-year-old? Alvin, do you have any opinion about how much children should be included in this kinds of discussions?

Mr. HALL: Yes, I do. I think at this age a child, wouldn't understand huge financial problems. But what they can do is understand choice. If you're buying something for your child every week, maybe you want to reduce that to every two weeks and help her learn to prioritize her wants and desires rather than trying to satisfy them each time they pop up.

MARTIN: And do you think a child at 8 should have an allowance, Alvin?

Mr. HALL: Yes. I think a child at 8 can have an allowance, because at that point, money is like accumulating dolls or accumulating marbles, right? They understand accumulation, and they understand when they get to a certain number and they can use that number, but they won't understand much more complex issues than that.

MARTIN: Okay. And what's Randy's next assignment?

Mr. HALL: To sit down and talk to his wife about their financial situation, to make sure that they are both on the same page. And then I wan him to start organizing his debts from the highest interest one to the lowest interest one, because once we have the debts ordered according to interest rates, we can then develop a plan to start paying them off systematically.

And the third point we're going to work on is getting his FICO score up, so that he will be eligible for a better mortgage loan.

MARTIN: Now, I'm not going to put Randy on the spot, but I'm going to ask Alvin, what if it emerges that when Randy and his wife have that difficult conversation that they're not on the same page? What do you recommend then?

Mr. HALL: Then they sit down, they make a list of all the areas in which they have differences. And then deal with them one at a time. Try to discuss them without being accusatory, saying this is your fault. Watch the language that you use, and then reach a compromise. But then, they must agree to stick to the compromise. So approach all the problem areas one at a time. Never try to solve all of them. It's like trying to stop smoking, stop drinking, stop overeating all at the same time. You going to have a disaster if you try to do it all at once.

MARTIN: Alvin Hall is the conductor of our Money Train financial series. He joined us from our New York bureau. Randy Jones is a passenger on the homeownership train. He joined us by phone from his office at member station WRVS in Elizabeth City, North Carolina. You can post comments on our Web site at nrp.org/tellmemore. Gentlemen, thank you both for joining us.

Mr. JONES: Thank you.

Mr. HALL: Thank you, Michel.

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