Interview with Bob Pessemier, Author, Educator,

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Interview Date:July 24, 2007

There aren't many folks out there teaching financial classes online ... but Bob Pessemier is one of them.

Bob is in the business of "getting the word out," as a glance at his website at Top 5 Mistakes will tell you. He's the author of The Top 5 Money Mistakes People Make (and How to Fix Them). (More info on the book here). As an extension of his book, he also offers inexpensive online courses which aim to enlighten participants about the myriad ways in which they let their money walk out the door.

"Our mission," Bob says, "is to make a difference in people's lives through practical financial education and personal support. We attempt to explain to people that when they do things the way most people do — well, it costs them a lot of money."

Bob has offered his classes for three years now, and it's obvious that his work is off to a fine start. Here's more of what he has to say:

Bob, lots of changes have happened in the personal-finance world in the last ten-plus years — the internet chief among them. As you look around, what do you feel are the best changes you've seen in this time? What about the worst changes?

The internet and ease of access to information has had a big impact. But it's a double-edged sword. It's easier to get information, and easier to get bad information and make bad decisions. Access is only half the equation. People still need information that is not incomplete, incorrect, or misleading. The internet has spawned a huge market for bad information designed to pick peoples' pockets. Information overload means it can be difficult to separate the good information from the bad (or at least questionable) information.

Complexity is another issue. Companies are always trying to come up with new financial products and services to sell. So there are more choices, and more complex choices. The financial services industry has much more regulation now than it did 10 years ago, at least for stocks and insurance products, and that is nice.

So we have easier access to information, easier access to bad information, more complex products and services, and we have not received appropriate financial education — which means most people are behind the curve. It adds up to a lot of potential for abuse, misuse, and poor decisions from information asymmetry.

If you had the power to modify, enact, or do away with any one law in our country — one that relates in some way to the financial lives of Americans — what would it be?

Eliminate the Alternative Minimum Tax (AMT) and make it retroactive to 1999. This is a bad tax that is really hurting people. It is incredible that this has been allowed to continue for this long. It was never meant to be used in the way it is today. It has to go.

But if the AMT were done away with, do you suspect (as I do) that the government would simply come up with another tax to make up the lost revenue?

Yes, they probably will, but hopefully it would be a more equitable tax. I'd point folks toward learning more at also.

A somewhat contested topic in my state (Oklahoma) currently is whether or not our public schools should be required to teach personal finance (say, at the high-school level). Do you support the idea of mandatory public-school, personal-finance education? Realistically, how much positive effect do you think such teaching might have?

Yes, I support mandatory personal finance education if the topics, content, and delivery are done right. I have taught classes for high school students on spending plans and credit cards and they find it enlightening. I taught a class at my old high school, and a few days later I got a call from a CPA who is a referral partner, and she was driving a few students down to Portland to see check out a college down there.

So we have easier access to information, easier access to bad information, more complex products and services, and we have not received appropriate financial education — which means most people are behind the curve.
— Bob Pessemier

One of the students in the car was at my class and said she had no idea that credit cards worked the way they did and that it really opened her eyes to what was really going on. She thought the class was great. She will not make the mistake of running up a credit-card bill anytime soon.

Another popular news topic at the moment: whether or not your "average American consumer" is continually struggling with money. What's your experience? How large a percentage of us have serious difficulties with our money (or lack of it)? Or do you believe that our "struggling middle class" plight has been overblown?

The research I have seen indicates 70% of Americans live paycheck to paycheck, regardless of income. I have seen this to be about right. The lack of education and information on the top 5 money mistakes are the usual suspects. I have clients with incomes that vary from $30k to $400k a year that are living paycheck to paycheck. The scale differs, but the problem is the same.

Actually, the people with less income often do a better job managing their money because they have less of it. But they still struggle under heavy debt loads — car loans, credit cards, mortgages — and find it difficult to impossible to save or invest. It isn't so much the lack of money as the lack of education and information to make good decisions about money. So my experience is that most people do struggle with money.

Those of us interested in bettering our financial lives are fortunate to have some talented financial authors and voices to guide us right now: Dave Ramsey, Suze Orman, David Bach, and Jean Chatzky, among others. Do you pay particular attention to any financial gurus? Do you find yourself agreeing with any one or two of them more than the others?

Of the people you mentioned, Dave Ramsey is the only one I have paid any real attention to. A 16-week program like his seems a little too long and drawn out for most people, but the basic ideas are solid.

I have read Orman, Bach, Kyosaki, and others. I find them to be fairly useless. I think having a good personal financial planner/advisor is a better strategy. The gurus seem to start out with something good to say, but then get caught up in the commercialization, and the message becomes a formula to sell books and ancillary products.

I have yet to meet anyone who is doing or following any of these gurus' methods for any length of time. Life gets in the way; life is a messy business. People buy their books because Oprah says they should, or because they are looking for the magic shortcut to wealth. If you don't have the basics done right, you can't get to the point of following any guru's advice.

Credit cards: Are they a pretty much a necessity today, or would we be better off without them entirely?

If you want to get a high credit score and buy a house, you need to play the credit card game. The important thing is to play it to your advantage, not to the credit card company's advantage.

The math for credit cards is different than other loans. A 14% credit card ends up being a 1,112% loan. People spend 20% to 30% more money when they use debit or credit cards. Plastic is an insulator between purchase and payment. But you need a credit history to get a high credit score and to have lenders loan you money for a house. So get 3 cards, and never carry a balance, and watch out that you don't spend more money just because you use a card.

Then there is the "But I have a 0% card" trap, which means that you are still out inflation (2%) plus opportunity cost (could be investing the monthly payment at 8%). So a 0% card costs you 10% on your money.

How would you feel about folks like myself who carry no balances on credit cards and who occasionally take the opportunity to play credit-card arbitrage when it presents itself? Would you discourage this at all costs?

If you have the discipline and see real profit, I'd say go for it. I would just balance that against other investment options.

How did you make the progression from firefighter to personal-finance instructor and author?

Firefighting is a great profession. You help people in a very direct way; it's tangible. I had been in for 10 years, was decorated for courage and bravery for a river rescue, made Lieutenant in only 4.5 years, wrote a book on fire and life safety for business owners which was nominated for a national award, was an instructor at the local fire training academy ... and then felt an urge to get out in the private sector.

The fire service back then still had dinosaurs for leadership and I had a creative streak they did not want to support. So I got into high-tech for 12 years, and at the end of that the dot-com bust happened. I lost my job, and lost $4.5 million. Now I was broke. I then lost my Mom to Alzheimer's, had my sister-in-law diagnosed with lymphoma, had to sell the house and downsize, got ripped off on the mortgage ... and I had to have open-heart surgery. It was a tough couple of years.

All that made me look at what I was doing personally and financially. I needed to get back to helping people in a tangible way. Money was the current issue. So I got into how to help people not get creamed along the roadway of life — which is what I had just experienced.

For many folks, a huge financial weakness involves automobiles and auto purchases. You mention this as one of your Top 5 Money Mistakes. What is it about car loans and leases that gets so many folks in trouble? Have the auto- and auto-financing industries provoked this?

Too many people think there are only 2 choices when it comes to cars: buy or lease. I think the only car you can afford is the one you can pay cash for. The average person will trade over $750,000 in future money to buy or lease wheels now. If you are talking about a couple, then more like $1,500,000. It's about opportunity costs. If you put money into a depreciating liability like cars then you can't invest it. You lose that money.

And the car industry does everything it can to promote the idea that you have to buy the latest and greatest. How can you grab life by the horns when you are losing over $750,000, and how does a vehicle help you do that anyway? Aren't there more important things to spend that kind of money on than basic transportation?

The first car you buy with cash may not feel very good, but keep your eye on the $750,000 you will have down the road. And it won't take too long before you will have enough money to buy any car you want and pay cash.

Tell us a little more about your online classes. What can users expect? Is there anything that's come up in one of your classes that you found particularly telling in some way?

We've been teaching this class for 3 years now, and I have never had anyone tell me that they knew all of this already. Everyone learns something new, even 25-year veteran financial planners and CPAs

The class is about financial fundamentals. If you make one or more of these money mistakes, it makes it really tough to reach financial independence. Emergency funds, spending plans, car loans, credit cards (and how to pay them off), and home loans are the basic areas where people make bad decisions because they have been given incorrect, incomplete, or misleading information. We are trying to level the information asymmetry. Article End