QA with Kimberly Palmer, author of 'Generation Earn'
From a body pump gym class to a Beverly Hills charitable gala to a Capitol Hill office building, Kimberly Palmer has crisscrossed the country to speak with young professionals about their post-recession money issues.
Consider her a personal finance anthropologist: As the "Alpha Consumer" columnist for U.S. News & World Report, Palmer hears from consumers struggling with the challenges of earning, spending and saving money responsibly. For her recent book, "Generation Earn: The Young Professional's Guide to Spending, Investing and Giving Back," she spent time in the field collecting stories of Generation X and Y-ers dealing with today's financial realities.
In addition to her expertise, Palmer is also a young professional, new mom and member of Generation Y -- the age group sometimes dismissively labeled "Generation Debt."
It's from that combined perspective that the "Generation Earn" author spoke with CreditCards.com about a variety of personal finance topics, including budgeting for nonmathematicians, how debt can be beneficial and when the desire for simplicity results in living out of an RV.
CreditCards.com: You talk about the financial crisis dovetailing with the growing interest in sustainability, simplicity and frugality. Do you think those values will continue for young consumers when the economic recovery starts to pick up or be forgotten and put by the wayside?
Kim Palmer: What it seems like to me, based on some surveys that have come out after the recession, is that even though people of all ages were being more frugal -- and continue to be more frugal as the economy is slow in recovering -- it seems like the people who were affected for the long term are the people in their 20s and 30s. Those of us who are coming of age during the recession are really being shaped by it. I think we really have been affected, and it will really change how we spend and how we think about spending and our money, I think, for the rest of our lives. I think it's made a permanent impact on us.
CreditCards.com: Would you say it's similar to how the Great Depression impacted our grandparents and great-grandparents?
Palmer: Exactly. I think it's exactly parallel to what our great-grandparents or, in some cases, grandparents, went through, just because it's been so hard and life-changing just as we're trying to start our careers and start our lives. That's why I think it's had that huge influence on what kind of consumers we're going to be -- how we think about money, really.
CreditCards.com: Speaking of lean times, everyone's looking to save a buck these days. In the book, you mention that all kinds of retailers offer discounts -- if shoppers are willing to negotiate. In terms of a strategy, is there anything you recommend people do as a first step when they're haggling?
A new mom, Palmer talks about the challenges of teaching kids the value of money.
Clip 2: Her biggest financial mistake
Most financial gurus have embarassing financial gaffes that they've learned and grown from. Palmer is no different, as she describes in this clip.
Palmer: Yes! I think that everyone needs a line that they feel comfortable with. My husband and I go about it in such different ways: He feels totally comfortable being more aggressive and saying he could get a better price elsewhere, so what can you do for me? For me, I kind of take a softer approach by just saying something like, "Is there any wiggle room, or is there any flexibility on that?" You need to figure out what opening line you're 100 percent comfortable with. It really depends on your personality. But all you have to say is that one line and it opens the door for a lower price.
CreditCards.com: Since we are with CreditCards.com, I wanted to ask you about credit card issuers and whether negotiating works with them.
Palmer: Unfortunately, this has changed a lot. It used to be so much easier, pre-recession, to haggle with credit card companies. But people who are pretty good customers -- people who have had their cards for a long time, who pay on time -- are still a valuable commodity to credit card companies. So if you are a good customer, you do still have power in that relationship, and you absolutely should still ask. And you have a decent chance of getting what you want, especially if you know how your card and your card's interest rate compares with what else you could get that's out there. It definitely pays to do that research up front so you have that information at your fingertips when you are negotiating.
CreditCards.com: You also talk about the upside of debt. You mention that debt has been "unfairly maligned" and actually say that there are benefits to debt. Could you talk about some of the benefits of debt and credit cards, specifically?
Palmer: On the most extreme case, even credit card debt, if used wisely, can be useful. The best example of this is if you are just getting out of school. You really don't have money in your bank account. You have a job, and you need to show up looking professional. You need a place to sleep at night. If you have certain basic things that you need in order to earn money, in order to grow your career, then the credit card can be useful in that situation, obviously, as long as you pay it off as soon as you can. But other forms of debt that are also unfairly maligned are things like auto loans and student loans -- all these things can be so useful to us. But I think the most controversial argument that I'm making in that chapter is that we really need to invest in ourselves, invest in our careers and put money into things that can earn us more later. Things like a professional wardrobe or investing in the services of a career counselor early on. Sometimes if you don't have the cash, you might need to use loans, use debt to get ahead at first. And as long as you're smart about it -- by which I mean you pay it off as soon as possible and find as low interest rates as possible -- then that can be a smart way to go.
CreditCards.com: If people are in debt, what would be the best way to go about tackling that debt and eventually paying it off?
Palmer: I really like the first step as sort of a "get organized" approach, because so many people -- myself included -- we have different kinds of debt. They're all at different interest rates. It's often with different lenders, and it's just confusing. So the first step is to write down all of your debt and do a little calculation that shows how much it's costing you each year. Then you can start to figure out what you want to prioritize paying off first. And this is another misconception that I think comes in: People think that certain debt, like student loan debt, is "good debt" so they can just pay it off over the entire term of the loan, which can be as long as 30 years. But I really advocate for even paying off that allegedly "good" debt early, if you can, when it's at higher interest rates. So when people have, for example, private student loans that are at 6 percent or higher, they should definitely pay that off as soon as they can, way before the 30-year term is up, because it's costing them so much money. Just writing down what all of your loans are, doing that little calculation so you know exactly how much you're paying each year, can motivate you to put some of your savings toward paying it off.
CreditCards.com: You talk about voluntary simplicity or minimalism. Can you explain what it is and how someone who's interested in it might go about that?
Palmer: I love this concept. Basically, the whole idea behind voluntary simplicity is that if we really want to be happy and focused on what makes us happy, it's really not buying things. It's not upgrading our lifestyle or purchasing material possessions. It's about deciding what is really important to us. For a lot of people, it's their families or hobbies. In some cases, it's their career or their work. The most extreme example in my book is a woman who, with her husband, left her house in Colorado and lived in an RV for a year, just traveling around the country with very little. Taken to extremes, it can mean something like that. But other people can make smaller changes throughout their day -- deciding that instead of working late, they're going to come home early and devote time to a hobby or maybe do freelance work to earn extra money. There are so many smaller ways we can sort of incorporate those principles into our lives. Research shows that it makes us happier by doing that.
CreditCards.com: I also wanted to ask you about budgeting and how important that is for young professionals to create a budget for themselves.
Palmer: I think budgeting, in some form, is important. I say this in the book, but I sort of think of it like cooking. I cannot stand measuring things, and I also cannot stand counting specific amounts of dollars and where they are going on an ongoing basis, so I sort of estimate. The first time I cook a recipe, I follow everything exactly. That's my outlook. I recommend for two weeks keeping a spending diary, writing down everything you spend. That's what I did. It gives such insight into your budget and where your money is going. If you have general saving and spending goals, and know that your money is going to your priorities, then the smaller details don't have to stress you out too much. That's the approach that I recommend.
CreditCards.com: Where do you stand on the debate about using credit cards versus using debit cards for your spending?
Palmer: Personally, [of the two card types], I am a huge credit card fan for that -- and that is with the caveat that you're paying off your credit card each month. Some debit cards do offer this, too, but it's more common with credit cards to make it really easy to do your spending analysis each month. Most banks now, at least most big ones, offer software that when you log in online, you can, with a few clicks, do a quick analysis of where your money is going. And this is really helpful, too, if you're sharing an account with a spouse or other family members. You can see immediately the trends in where your money is going -- if, suddenly, your spending on food or retail spikes upwards. That's why I think credit cards can be such a useful tool. Of course, you need to be paying it off each month or it's just costing you too much.
Palmer: I am fascinated by everything having to do with family money management -- like parenting, having a baby -- because I just found since having my baby, it puts such a strain on your finances. I don't want to make it sound negative, since it's a wonderful thing, obviously. But it makes it so much harder to manage your budget. So I'd love to explore that more.
CreditCards.com: Is that something you might write about in another book?
Palmer: I hope so. I'd like to. I'm thinking about that now, but because I have a baby, I have no time. [Laughs]. So I don't know when, but I would love to.
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