One Life-Changing Class You Never Took: Alexa von Tobel at TEDxWallStreet

December 30, 2019 0 By Kody Olson

Translator: Bob Prottas
Reviewer: Leonardo Silva 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 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. Seventy five percent 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 puts on individuals. So I often ask myself:
How on earth did we get here? How do we end up where
this thing that is so critical to every single person in this room? It’s something that we’ve never learned. 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 ended 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 her monthly take home pay
will be approximately $2,300. 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 now
and says: “I barely get any money that I’m making.
Why am I creating a detailed budget? I’ll be lucky if I can just pay my bills.” She doesn’t 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. First she’s going to do what every other
college graduate does, get an apartment. Then she’s going to spend $1,200 on rent. In the beginning, 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?” Instead of aggressively paying it down she
only going to pay her minimum payments. Worse she’s going to miss a few
of those payments. 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 is she can
barely think about how she pays her bills. She thinks: “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 rely on credit card
debt to keep her head above water. Her fourth big mistake is she’s not going
to negotiate her salary. She is so thankful that she got a job that she’s not going
to negotiate her salary. She’s going to wait for her boss
to tell her when she gets one. So few years later
she’s still making just $35,000. The final major mistake
that Jessica’s going to make is she’s not going to think about
retirement in her 20’s. The reason she’s not
is retirement is 43 years away. Why on earth would she think about it?
She says. Because of that she doesn’t take advantage
of her employer 401k match program, and she doesn’t open a Roth IRA.
Now I want to fast forward 15 years. Applying those exact same
behavioral traits, not learning much more about personal
finance, making a few more mistakes, Jessica’s going to get married
and she’s going to have 2 children. Fifteen years later,
applying the national APR of 15%, Jessica’s going to be closer
to $20,000 in debt. As her life grew,
credit card was her answer. Her interest rate has of course gone up. From there, she still has about $10,000
of her student loans. So a decision she made 2 decades ago
is still haunting her every single month. Additionally her credit score has gone
from 622 to something more in the 500’s, and that’s because she’s amassed more debt
and she’s missed more payments. She started thinking about retirement, but she currently has less than $10,000
in her future retirement savings. Which actually is about
54% of America right now. Beyond that, she doesn’t set up
a 529 plan for her children because she has no other dollars
to think about. So I want to pause for a second and I
want to think about the national impact. I just walked you through Jessica’s story
and I want us to pause and I want us multiply that by a thousand
by a million, and by tens of millions. Jessica’s story is the story
of tens of millions of Americans living in our country today. You understand that
and we pause and really think about it. It helps you better understand why we
currently are a country where we have $2.5 trillion, yes trillion dollars
in consumer debt. We’re in a position where the American
dream of home ownership is not a reality as 25% of applications
are denied immediately. Where 31% of Americans today
have no retirement savings and therefore the American dream
of pausing when you’re 65 when your bones are starting
to get brittle and being able to retire, they’re not going to have that
as a reality, and finally and maybe even worse, money is the number
one cause of fights in marriages. And married couples who fight
are 30% more likely to end up in divorce. So this gives you an idea
of where we are today. But this doesn’t give you
a sense of the domino effect. Jessica and her husband
they have two beautiful kids. Those kids will go off to college
with the exact same credit card debt and student loan debt that Jessica had. But worse, they’re probably going to have
to help Jessica with retirement. That domino is going to fall down for
generations to come and as you can see Jessica has flipped
a domino and the downward financial spiral that will continue for many generations.
So what if we could rewind? What if I told you that I really believe
that there’s a solution to all of this? I really believe that we can go back
to the tens of millions — We can ultimately go back to Jessica
and there’s a simple solution. We can take her
before she enters the world, before all of our college seniors do,
and we can basically stop and teach them 5 principles. We can help them
avoid making these mistakes, let them understand why
a budget is so critical, learn the principle of living beneath
their means; help them better understand
that debt is not an answer and in fact it is absolutely so important
to aggresively pay it down as it is designed to defeat you; help them understand that an emergency
savings account is so critical – if anything happens, you want
to be able to sleep at night and that’s why it’s there; help them understand that they have to
negotiate their salaries along the way that their voice will always
be the loudest; and finally that retirement is something
you have to think about in your 20’s. I saw this graph many, many years ago. It’s a simple principle,
it’s compounding interest. An individual who starts contributing
to retirement in her 20’s versus her 40’s and they both contribute the same dollars. This is a really powerful graph
and a really important thing, and I just always wonder
what if we can make this go viral? So I want to go back
to the educated Jessica. Let’s say we did actually teach her
all of these empowered facts. Years later she’d be in a position
where she could open the coffee shop she’d always dreamed of. She and her husband now own a home
because they knew about credit score. They knew not to miss their bills
and they knew to keep it in the 700’s. They’re looking forward to their
retirement. They took advantage of all those things
in their 20’s and compounding interest worked its magic, and probably best yet,
her children have 529 plans. They’ll go off to college and they’ll be
in a significantly better place than Jessica was decades ago. This is the empowered Jessica. So I wish it weren’t true but it is,
money is such a lifeline. If you love someone you can travel
around the world to see them, and if you’re sick, as I know this week
you’re going to want to pay the best dollars that money can buy
to get the best doctors. Money will affect us every single day
of our lives until the day that we die, and I wish it weren’t true,
but it’s a fact. I look forward to a future where
we can pause, we can take all of the people
before they enter the world and teach them these
basic financial principles. That we can empower them so that they can end up
living really powerful financial lives. That they can feel great about money and
from there it ultimately is going to have fantastic impact on our balance
sheets and as our nation as a whole. But most importantly it’s going dwindle
down for many generation to come. When I think about money
I think it’s not important to be rich. It’s not about being rich. It’s about
being able to live your richest life. I want that for me.
I want that for Jessica. I want that for the hundreds of millions
of Americans who deserve just that. Thank you. (Applause)