How to manage your personal finances during times of emergency
Dr. Annamaria Lusardi, George Washington University Professor of Economics and Accountancy joins Yahoo Finance’s On The Move to share her tips on managing money during a financial crisis.
JULIE HYMAN: You're watching "On The Move" on Yahoo Finance. I'm Julie Hyman. Well, we've talked a lot about the complexity of the system here of stimulus, whether it's applying for PPP or even just getting your stimulus check. We are joined now by Dr. Annamaria Lusardi. She is George Washington University professor of economics and accountancy and also, GW School of Business Academic Director of the Global Financial Literacy Excellence Center. By the way, this is a partner-- the Funding Our Future Campaign, it's a group we feature each week only on Yahoo Finance, who advocate for a secure retirement for all Americans.
Annamaria, thank you for joining us. So as I said, it's been tough for some people to navigate what you know right now. What do you think is the most important thing that people need to keep in mind as they are trying to get their finances in order during this crisis?
ANNAMARIA LUSARDI: Well, there are lots of things to keep in mind, so much so that we have provided 10 suggestions and advice on our website that you can find on the GFLEC website, and it is called Managing Personal Finance in Time of Emergencies. But I want to start with two, which can be helpful for everybody. That in this time of emergency, both the government and the private sector have put up a lot of help that we can try to take advantage of.
So our first suggestion is try to make sure you know all of the things you can do, and now they are allowed, so that you can better manage your finances. And I am, for example, referring to not just the stimulus checks that some people might be entitled that in, but the fact that we can postpone, for example, the payment of our student loan, potentially, our mortgage. That we can postpone the payment of the credit cards without the penalties. But this really requires an active behavior on our side. And so for example, we have to call the credit company ourselves. It's not that this is going to happen just by itself.
ADAM SHAPIRO: Hi, it's Adam Shapiro, Professor Lusardi. I'm curious, how do you reach the Americans who went into this crisis, didn't have $400 in savings, [INAUDIBLE] last week. And in one of the points you put out here is take advantage of lower interest rates and plummeting stock markets. Those same men and women, and they number in the millions, may not even have access to a 401(k). How do you reach these people?
ANNAMARIA LUSARDI: It's very, very difficult. And, you know, when we give this suggestion, it's very obvious that, you know, everybody is very hurting. And we don't argue that, you know, managing personal finances itself will be enough for you, for example, to find the resources. But that's why we started-- we'd take advantage of any help that can be offered, and that you can take advantage of.
Be, also, very careful about your budget. Is there a way in which you can find a way to cut some of these expenses? Because everybody, you know, is scrambling to deal with these very difficult times, and we have already documenting even before these crisis. For example, 27% of [INAUDIBLE] family were financially fragile. In fact, they couldn't come up with $2,000 in a month or as you said, $400 in a week.
So, you know, this came at a time in which we were already hurting, and this is why it's so complex. But, you know, this is, I think, the time in which some of these help in some of the, you know, being careful about what we do, and take advantage of what is offered can offer some relief.
- Professor Lusardi, one of the systemic questions, and I would call problems, is the lack of financial literacy starting from youth, right? Where children are not exposed to budgeting and all of these topics that we're talking about in this segment. How do you anticipate, as these children see their parents in dire straits, perhaps even squeezed further than pre-pandemic-- how do you imagine that this will shape their own understanding of money?
ANNAMARIA LUSARDI: I am worried about that, because in fact, just last week, they OECD, the OECD, released the PISA financial literacy assessment that measure financial literacy among 15 years old, and also, the US participated. And the US more or less a state at the same level. It [INAUDIBLE] that we see the average, but the US is the country with the most advanced financial market. It's the country where students start their economic life with student loans, and that's very different than other countries.
So more than ever, young people really need to manage their finances. And I worry about this situation, because I am afraid that we now connect personal finances with anxiety, with crisis. And, you know, I wonder whether they're also getting the right lesson just by watching what's happening around us.
And this is why I think more than ever, I agree with you that one of the big problems is indeed, financial illiteracy. Because we all need it. We all need to speak the language of finance not because we are going to become expert or because we don't need the help of other, but because we are all making decisions. And some of these financial decision matter enormously.
So consider, for example, two families perhaps who have the same income, but those who had some saving and those who do not have savings. Today, their experience is going to be completely different. And so, you know, it's incredibly important more than ever to have those basic skills. They are today so necessary to be able to navigate not just big shock, but even small shocks.
RICK NEWMAN: Hey, Annamaria, Rick Newman here. President Trump wants to cut payroll taxes as a further stimulus measure, and of course, those taxes are used to fund social security and Medicare. Do you think that's a plausible idea?
ANNAMARIA LUSARDI: It's-- you know, I actually think that Social Security and Medicare have been incredible programs. You know, for the lower income and lower in a sense of vocation attainment, you know, this is a great way in which you can help people. And so, you know, maybe providing that type of a basic and some financial security for the lower income can be quite important. We definitely need, I think, to rethink the way in which we offer support to the people who don't have, for example, secure jobs.
JULIE HYMAN: Annamaria Lusardi, thank you so much for your time. She is a George Washington University professor of economics and accountancy. And you can find some of the tips you talked about at GFLEC.org-- G-F-L-E-C.org. Thank you so much.