With a master’s degree in psychology and a way of cutting through the mumbo jumbo, Ulrich takes dry topics such as debt and investing and puts it into the context of our lives
|Carmen Wong Ulrich, author,|
‘Real Cost of Living’
In her latest book, “The Real Cost of Living,” Carmen Wong Ulrich examines such toast-dry topics as credit, debt and investing within the framework of life’s rich tapestry: college, marriage and divorce, family, home ownership, running a business — and heck yes — even the occasionally spending spree.
Forget the number crunchers: If you want to find out why you spend, you need a psychologist, not an economist.
While it’s not technically accurate to say the doctor is in when Carmen Wong Ulrich hits the air for her daily “On the Money” personal finance show on CNBC, her master’s degree in psychology from Columbia University has a way of cutting through the ticker tape mumbo jumbo to get to the heart of our spending behaviors.
In her latest book, “The Real Cost of Living,” Ulrich examines such toast-dry topics as credit, debt and investing within the framework of life’s rich tapestry: college, marriage and divorce, family, homeownership, running a business — and heck yes — even the occasionally spending spree.
This is kitchen-table talk, no calculators required. Real people, real problems, real solutions. What a concept.
We caught up with the busy Brooklynite for a no-holds-barred chat about life, money, and why credit cards trump debit cards.
CreditCards.com: A psychology degree is a pretty apt background for a money guru.
Carmen Wong Ulrich: That’s what I said when I first started and no one believed me, so now I’ve been vindicated. To me, it was obvious that you really can’t talk about money in any profound way without realizing that people make decisions emotionally, because of their past, because of how they were raised. If you’re going to really affect people’s lives in any way when it comes to money, you have to at least pay attention to the fact that there are other factors beside the dollars.
CreditCards.com: Our love-hate relationship with credit cards is a classic example.
Ulrich: Yes. We are starting to wean ourselves off credit because we just went through so many years, from the early nineties on, where we had un-reined-in credit where we got credit no matter what, even if you didn’t have a job. We just had such easy access to it that it really distorted the whole root of credit, which is the fact that you owe somebody money. We lost sight of that and instead just saw it as a way to live the way we wanted.
CreditCards.com: Were credit cards to blame?
Ulrich: No, I don’t think credit in itself is evil in any way. It’s just a tool, a very useful tool. We just lost sight of how best to use it. It gave everyone the illusion that, well, everyone is living that way, so I should live that way, never realizing that everyone was living that way because we were all living on this mound of straw that was about to fall apart.
CreditCards.com: One of the aspects of credit that we’ve come to appreciate again is the opportunity cost of credit card debt. That is, you’re not just in debt; you’re also losing the investment power of that money when you pull out the plastic.
Ulrich: What I think credit cards are very useful for are emergency needs — as a stopgap between employment and that type of thing. But if you’re using it without thinking, if you’re thinking, ‘Oh, it’s only 9 percent,’ it’s so much bigger than that because you’re paying so many other penalties in the sense of what that money could be doing for you. You could be investing in yourself, your business, other endeavors. That’s the real cost of credit card debt.
CreditCards.com: Unlike many money gurus, you recommend credit cards over debit cards. Why?
Ulrich: And I get a lot of heat for it, let me tell you! The fact is credit cards have advantages; debit cards have disadvantages. The majority of Americans live paycheck to paycheck, so the majority of Americans, if they had a debit card, they would probably overdraft it. Over 80 percent of Americans don’t have a problem with credit cards; they pay off their bills, they’re good with it. If you can’t pay off the balance every month, don’t do it. But if you’re like the 80 percent, why don’t you use this form of plastic for a lot less money and take advantage of a lot of perks that are attached to it?
CreditCards.com: Do you have a debit card?
Ulrich: I have an ATM card in my wallet and the date on it, I’m not kidding, is like 1999. Because the bank keeps sending me debit cards, and I keep telling them, “I don’t want a debit card,” and they just look at me like I’m an absolute freak. I had a debit card early on because I’m an early-adapter type, and I used it for groceries, those types of needs, and they were siphoning off $60 a week! I was just starting out, I didn’t make a lot of money at the time, and I just said, “Wait a minute! Where did this money go?” And I had to sit in the bank and fill out the paperwork and found out checks had bounced. It was then that I realized how vulnerable debit cards make you. If I had used a credit card, those checks wouldn’t have bounced. I lived paycheck to paycheck at that point, so my account was empty. So it’s just a matter of seeing the facts about this card, the facts about that card, what’s your behavior, what’s your bank balance — here’s the card for you.
CreditCards.com: It’s so easy to overdraw because most of us don’t track our checking balance.
Ulrich: Yes. I tell people who really insist on using debit because they don’t trust themselves with a credit card to be sure to sign up for text and e-mail alerts, whatever works best for you, so that at least you know when your account has dropped below a certain balance. But I think debit cards can be very, very dangerous. How many millions of dollars did the banking industry make before overdraft fees were regulated? I just find it so amusing that credit cards have been so vilified while meanwhile debit cards ran amok.
CreditCards.com: What are your pet peeves when it comes to bank fees?
Ulrich: On the debit side, the monthly maintenance fee on debit card checking accounts just makes me batty. If you look at how banks work — and we all know that now a lot of banking is done online — there’s not so much brick-and-mortar, and the bank’s expenses in terms of processing a transaction with you have gone down to a fraction of what they used to be. There is absolutely no basis to be charging us a monthly maintenance fee.
What kills me with credit cards are the cards that charge you an annual fee if you don’t keep a balance at a certain amount. That’s extortion. It’s like, if you don’t owe me money, I’m going to charge you for not owing me money. It’s like, what? Say that again? It’s a total shakedown. It just does not make sense. It’s awful.
CreditCards.com: Do young people today worry about not being hired due to their credit history?
Ulrich: At a time when we’re coming through such a horrible recession, when you have six million people unemployed for more than six months, it’s important to realize that credit can get out of control and really bring you down if you don’t have income. I think the big wake-up call with the recession was, ‘Oh, man, I always thought I’d have a job! And if I lost it, I could get another one in three months and pay off this credit card bill.” People now know that the possibility of being without a job for over a year exists, and that’s terrifying. I don’t think there has ever been a generation since the Great Depression that has ever faced that reality. It’s scared-straightness. No one wants to be in debt right now. No one. Even people with jobs.
We have whole industries that are disappearing, that are never coming back. So it’s not just unemployment numbers in the economy, it’s also what are we going to turn into as a nation if we’re not industrial? What are our jobs going to be? So I think everybody is pretty much realizing that we’re in a time like no other and, wow, we really have to take care of ourselves because no one else is going to do it.
CreditCards.com: You have a few bones to pick with the Credit CARD Act.
Ulrich: What I really didn’t like at all was the whole “full-time students must be 21 to get a credit card” part. I absolutely did not agree with that. I had my first credit card in college when I was 19. Yes, the first things I charged were books and then a trip to Florida (laughs), but I paid it off, and it taught me how to do that. It also allowed me to get my own apartment because I had credit and a credit record. If you’re over 18 and you can go to war, don’t tell me I can’t have plastic. Of course, the campus marketing was craziness and absolutely should have been stopped. But to basically stop a whole generation of young people from being able to build their own credit and live grownup lives is wrong.
CreditCards.com: Not to mention the impact on their parents.
Ulrich: I see a lot of parents who are burdened by having to co-sign on things for their kids. I don’t want to do that for my daughter! I don’t want to be co-signing credit card stuff.
CreditCards.com: You also advise married couples against joint credit cards. Why?
Ulrich: I’m just a super-big fan that adults should be responsible for themselves, to a point. I’ve just seen too many marriages dissolve where the couple is splitting so much debt because one person had a problem and the other didn’t — one was good with handling credit and the other wasn’t. And the one who wasn’t ends up dragging down the other, and oftentimes the woman is left with just tremendous amounts of debt. What people don’t realize is, just because you get married doesn’t mean your credit is joined. In terms of your credit score, just because you get married doesn’t mean everything suddenly gets put in one pile.
CreditCards.com: But with separate cards, don’t you double the odds that you’ll get into trouble with credit?
Ulrich: Everyone’s behavior is going to be what it is. But if you both apply for, say, a mortgage loan and one of you has good credit and one of you has bad, it’s not going to help either of you if you join up and you both get dragged under. Maintain your good credit, help your spouse who has trouble with credit, but in the meantime, you have to protect the person who’s keeping you afloat — not financially, but credit-wise. Because having great credit is actually worth a lot of money. So I’m going to buoy us up as a team. But I can’t do that if I let you drag us down by signing up for joint cards.
Plus, what if something goes wrong? If we’re unemployed and I have great credit, I can take out loans and use credit cards to help us at a less expensive rate and have access to credit than you would or the both of us would together.
See related:7 simple ways to create an emergency fund, Debt card overdraft protection: when to avoid it, when to opt in, Fed: Consumers must opt in to debit card overdraft fees, Joint accounts: Till debt do you part