Alexa von Tobel on One Life-Changing Class You Never Took at TEDxWallStreet – Transcript
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Alexa von Tobel – Founder and CEO, LearnVest.com
So thank you so much for having me. I’m Alexa von Tobel and I’m incredibly passionate about personal finance.
I wanted to start talking to you all today about my favorite television show, which would of course be, The Biggest Loser.
I love The Biggest Loser and I’m sure many of you watch it here. I love to watch it while I’m on the elliptical machine. Everything from the crazy donut binges, to the dramatic weigh-ins, it’s incredibly entertaining.
Though when I watch it I often step back and I think: “What a great television show.” America is really struggling with obesity and this is a show that brings that to the forefront. Six million people view it every Tuesday night and I often pause and think, “God I really wish something like this existed for personal finance.” I really wish that there could be a show like The Biggest Loser for person finance but unfortunately money is still so taboo.
In America right now, the average person makes approximately 6 to 10 money decisions every single day. Those decisions can range from simple things like whether or not to buy a cup of coffee, to bigger things like What should I do with my 401K? I think what’s important about that is those decisions are completely unguided. Right now personal finance isn’t taught in high schools, colleges, or graduate programs across the United States. People typically learn about personal finance by talking to their parents, who unfortunately were also never formally educated about personal finance.
The take-away there is most people simply learn through trial and error. Money is such an important thing it effects us all and most people simply learn about it through trial and error.
So from there, it’s easy to understand that money right now is the number one thing that young people really stress about. Worse, 76% of the country feels completely out of control when it comes to money.
Pause for a second, four of your closest friends, three of them right now feel out of control when it comes to their personal finances. 75% of this room feels out of control when it comes to their personal finances.
Unfortunately we’re not doing anything to change this. Right now 84% of college graduates said that they need more help when it comes to personal finance but they’re not getting it, and as a result of all of this, 61% of the country is living paycheck to paycheck. More than 50% of our country is not quite sure how they’re going to pay their bills next month. That is staggering. Think about the stress that that provides to an individual’s life, really staggering.
So I often ask myself: How on earth did we get here? How do we end up in a position where this thing that is so critical to every single person in this room and in this nation’s life? It’s something that we’ve never learned.
What I want to walk you through is, I want to take the 1.8 million college graduating seniors from this year and I want to walk you through exactly what ultimately happens. I want to introduce you to someone who will represent the absolute norm and we’re going to find out how they end up on such a ride.
So meet Jessica. She’s 22 years old, she studied English. She’s going to graduate from college this year with $25,000 in student debt, and $4,000 in credit card debt, and she’s going to end up, if she is lucky and I repeat lucky, with a job right out of college, where she’ll make $35,000. That means that she will take home every month approximately $2,300 in take-home pay.
So I’m going to walk you through 5 decisions that Jessica’s going to make, some that she’s aware were bad decisions, some that she’s not, and it helps you better understand how she ended up in a situation that most of America is in.
So first, she’s not going to have a budget. Jessica thinks about her life right now and says: “I barely get any money that I’m making. Why on earth am I going to sit down and have a detailed budget? I’ll be lucky if I can just pay my bills.”
She doesn’t even know that good financial planning recommends that 50% of her money that she takes home goes towards essentials, 30% towards life style, and 20% towards the future. That’s really key — 20% towards her future savings.
Jessica’s going to move after college to a big city. She’s going to first do what every other college graduate does, get an apartment, which she’s going to spend $1,200 on rent. Right out of the gate, a simple decision such as getting her apartment is going to throw even the chance of her having a balanced budget completely out of whack, but also put her in jeopardy for years to come as she won’t have that 20% going towards her future.
Next, Jessica already has lots of debt. She thinks to herself: “Everyone in America is in debt. Why do I have to worry so much?” And instead of aggressively paying it down she’s only going to pay her minimum payments. Worse, she’s going to miss a few of those payments because she doesn’t even understand what a credit score is. Nor does she understand why it’s so critical to her financial future.
After that she’s not going to think about emergency savings, and the reason she doesn’t is she can barely think about how she pays her bills. So she’s like, “What do I need emergency savings for?” What she doesn’t know is if she loses her job tomorrow or has any type of an emergency, she’s completely vulnerable and she’s going to have to rely on credit card debt in order to keep her head above water.