TONIGHT

• Home
• Video
• Podcasts/RSS 
• Local Showtimes
• Past Shows
• Blogs
• About the Show
• Tell Tavis
• Features
• Mobile

RELATED LINKS

• BusinessWeek online
• Article by Mr. Ellis

E-mail a friend

Tavis: I'm glad to have you on the program. Let me start with this economy before I get more specifically into advice for college grads or any of the rest of us, for that matter. Is it just me, or is this economy giving us a number of mixed signals here?

Jim: No, I think you're completely right there. I mean, we have been told that the economy is strengthening, and indeed it is in the aggregate. The big problem is that for a lot of people, they're not seeing the benefit. A lot of the upturn in the economy is actually going toward corporate earnings right now, as opposed to going to workers, which means that there really isn't any increase in the typical person's earnings, and there doesn't seem to be a lot of opportunity for them to actually change jobs. And so therefore, to the typical person, the economy doesn't seem like it's really in a recovery.

Tavis: How's the unemployment rate doing these days? Up, down, still falling?

Jim: Unemployment rate is actually doing OK. The problem is that it's a little deceptive, because so many workers over the last 3 years have become what are called discouraged workers. They've stopped looking. And so the unemployment rate is actually a little high--in truth, it's higher than it actually shows on paper, simply because more than a million workers have just stopped looking for work. So what's going to happen is, when the job market does really pick up, a lot of people who've stopped looking in the last year or two are gonna flood back in. So that's gonna make it very difficult for the unemployment rate to actually come down.

Tavis: I'm not jumping up and down just yet, but it appears that the stock market may be slowly gaining some strength.

Jim: Yeah. I mean, the stock market saw early on that corporate earnings were gonna come back, and a lot of that was simply because corporations really did a very good job of getting their costs down. A lot of those costs were employee costs. They let go of a lot of people, and they found ways to shift a lot of work offshore to places like India or China. Work could be done cheaper. Now that the economy's come back and they've made a lot in profits, a lot of companies are now willing to maybe increase employment here in the United States or to raise wages for the employees that they have here. The big question is whether that's going to happen quick enough before the economy starts to slow down.

Tavis: I'm getting real close, Jim, to starting to walk to work, or at the very least riding my bike to work because these fuel costs continue to keep going up. What do you make of these rising fuel costs, even still?

Jim: I mean, it's, unfortunately, almost like a new tax on workers. I mean, basically, in a society like ours, you cannot live without a car. You cannot live without gasoline. And also, broader fuel prices affect everything we do, because power prices are directly affected by the price of oil. So therefore, higher fuel costs mean that the economy's going to have this drag on it. There's nothing we can do about it, and there tends to be very little that the typical person can actually do to hold their own fuel costs down. I mean, we have to go to work. It's an extremely mobile culture, and a lot of people are actually using their automobile, which is their big use of fuel. They're using their automobile to get to and from work, and we can't tell people not to do that. So there's a really small number of things you can do.

Tavis: There's not a whole lot we can do, to your point, to keep fuel costs down, because we have to be where we need to be to make a living and to make our lives move. Before I get specifically to some advice for college grads in '04 to get them started on their road to personal wealth, let me ask you on the spot here--now, I know I'm putting you on the spot, but you do this every week. Give me a few things that you've been writing about of late or talking about of late that Americans can do who are still feeling pinched and crunched by this economy, even though we can't specifically keep those fuel costs down. What can we do to make our dollar stretch a little farther?

Jim: Well, the first thing to do is to look for ways to lower the recurring costs the typical person has. I mean, a lot of people sort of forget that there are a lot of things that they do have control over. I mean, sometimes the cost of their housing can be more or less, depending on where they choose to live, but a lot of times, those sort of unseen utility costs that you have--those things like cell phone expenses, things like your monthly cable bill, your high-speed internet services. Those, believe it or not, actually for a lot of people, are coming in at $150, $200 a month. Those are pretty well discretionary costs that can be trimmed either by shopping around for other vendors who offer the same service, maybe slightly cheaper, or saying that, 'Maybe I don't need to see as many movies on demand this month.' It seems like a fairly small set of costs, but you'd be surprised. Pulling down, you know, $20, $30 a month means that you're probably able to go out to eat maybe about 6, 7 times more per year. So, therefore, it really does matter in the aggregate.

Tavis: All right. Let me get to these college graduates, because this is the graduation season. Before I get to specific advice for them for what they ought to be doing right now to get on their own personal 'Road to Wealth,' let me start by asking some of the most common mistakes that college graduates make the minute they get out. They've got this piece of paper, they get their first job--and I actually should back up, because many of them, unfortunately--I know I did--have already made that first big mistake, and that was getting that credit card they shouldn't have gotten a couple of years ago. So some of them are already coming out with credit card debt, but let's talk about some of the most common mistakes that college graduates make the minute they get that piece of paper.

Jim: Well, the first mistake, as you mentioned, is already usually made for many students before they graduate, and that is accumulating credit card debt. What happens is that a lot of credit card companies realize that these are people who have a lot of earnings potential. It's not there now, but it will be in the future, and they want to snare them as customers early on. So what they do is they make it fairly easy for students to get credit cards, and they tend to amass debt by the time they get out of school. That's a bad thing, because they already have, you know, sort of a nut to pay each month before a lot of them even have an income to back it up. That's number one.

Number two is that a lot of them have not been able to get into the routine of actually managing their own lives--not only managing their own finances, but their own lives. When you're in school, your schedule is set for you by your classes that you're taking, and many students are actually still living in student housing. They're not used to actually running their own lives, and so, therefore, a lot of them come out thinking that they don't have to take control. It seems a little silly for a lot of us who are parents, and we have been doing this for 20, 30 years, but a lot of college-age kids have been able to rely on people like me. I have 3 college-age children, and I sort of know that they don't understand until they're faced with it.

Then the third thing that happens is suddenly they have to go out into the world and look for housing. That's usually not been something they've had to worry about, because they've either lived with a parent, lived on a campus, or had a parent to help them look for housing in a student community. Now they've gotta get out there and suddenly recognize that not only are they looking for a good place to live, but they're looking for a place to live that actually fits in financially with the amount of money that they're going to be making. That's a big mistake that happens with most students is that they tend to spend too much on housing without recognizing that they have to have a lot of money left over for all those other things they have to buy, plus savings.

Tavis: I gotta hurry up and end this conversation, Jim, 'cause if you got 3 college-age kids, you gotta get back to work. So I can't talk to you but for a few more minutes here, but in the time that I have left, before you go back and start making that money for that tuition, let me ask you the advice, then, that we give to college grads, because we are, again, in that season. What are the 3 or 4 things that they ought to be thinking about doing or certainly starting to do right now to put themselves, for a lifetime, we hope, on a path to personal wealth and freedom?

Jim: OK. First thing is to try to keep the percentage of their gross income that they're spending on housing down to about 25%. Now, obviously, that's not possible in a really high-cost city like a New York or a San Francisco. But even with that, try to keep it below 36% of your pretax earnings. That's a good discipline measure to do.

Number two is to be very careful about automobile debt. Don't get yourself into a lot of debt. Consider a used car and don't fall into the leasing trap, which is usually a way to overbuy and to pay for a vehicle that you probably don't need and can't afford and really will never build up any equity in.

Number three is to very, very quickly get your handle about the student loan debt that you have. The typical college student is going to come out with about $12,000 in student loan debt. He's gotta start moving on that fairly quickly, because if he's got federal debt and a Stafford loan or a Plus loan, he's only got 6 months to decide if he wants to consolidate those 4 or 5 loans that he already has into a single loan. So that has to happen in a very short period of time. This is a great time to consolidate student loan debt right now. Very, very low rates, and you can lock it in for a period for traditional paybacks of 10 years, and for people with a lot of debt, like a professional-school graduate or a medical-school graduate, all the way up to 30 years. So they need to get a handle on that right now.

And then the fourth, most important thing is they have to get into a habit of savings. They should think that even at the beginning, they've got to consider savings to be an expense, not a luxury. They've got to think about 5% of savings from day one, and they've got to think about a way to actually move that, longer term over a number of 5 to 7 years, up to 10% of their earnings.

Tavis: I got about 20 seconds. Even if you consolidate, but you don't have a high-paying job coming out, but you owe these loans, right quick, what do you do?

Jim: Well, the government has a number of repayment plans, and one of them actually is income-dependent. You can choose that. It's a little more expensive in the long haul, but it will allow you to pay a lot less at the beginning, and every two years, the amount you pay will go up, and that'll track your income growth.

Tavis: Jim Ellis from BusinessWeek. Jim, we got to do this again, because I suspect that they'll need some refresher courses between now and not too long to keep them on this road to personal wealth and freedom. But thank you for coming on. I appreciate it.

Jim: Thanks so much.

Tavis: My pleasure in having you on the program. Jim Ellis from BusinessWeek. Coming up next on this program, musician/rap artist Everlast. Stay with us.