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The Clark Howard Podcast
12.27.24 BEST OF: Clark Answers His Critics on Clark Stinks / Paying For Adult Children
00:37:12
BEST OF: Clark Answers His Critics on Clark Stinks / Paying For Adult Children
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- [00:01]
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- [00:26]
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Clark Howard
A best of edition of the Clark Howard Podcast. I hope you enjoy it. We are here to give you the best information that our head and our heart says is available for you and your wallet. Have a great weekend. It's great to have you here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you so you make better financial decisions in your life. Today we're starting with my favorite time of the podcast week, Clark Stinks. Also, we've talked about the cost of college, how it can hamper parents saving for their own retirement. But you know what we've not talked about as much as we should? Parents supporting their adult children through their adult lives. And I've seen some stats that are blowing me away and have me really worried. But right now, it is time for Clark Stinks. I should have never encouraged you to speak. You must think I'm pretty stupid. You should be ashamed of yourself. Well, maybe I'm wrong. Maybe I'm wrong. Maybe you're right, pal.
- [02:20]
Co-host
Okay, I'm going to read a couple that were a response to your quote unquote crazy idea how to solve the housing crisis that you did a couple weeks ago.
- [02:28]
Clark Howard
You were shocked when I laid that out, weren't you?
- [02:31]
Co-host
I thought it was a great idea. Okay, we'll start with this one. I thought Clark's idea to solve the housing issue seemed really good and unique. But one issue I see with it is most people who want to change houses want to upgrade and their new mortgage would be significantly larger than their existing mortgage, so they would still have to incur a large amount of debt at the Current higher rates. That's from Matthew. And here's the second one. Your proposed solution to the housing cost problem is more of the very thing that created this mess. Government intervention. The 2008 financial crisis was largely caused by the egregious government rules that forced mortgage companies to write loans for people that did not qualify for them. To solve that mess, they bailed out the too big to fail banks and move rates to unprecedented lows for way too long. People have come to expect unrealistic interest rates and modeled their lifestyle after it. It's time to rely on the free market and let supply and demand work. That's from Rick in Texas and then this one. Clark, your plan to make mortgages more portable is stinky because it's missing a key ingredient. Under your plan, if Krista decides to move to Florida, she gets a reduced mortgage rate on her new home. But there is no mortgage incentive in place for the buyer of her original home in Atlanta. If the home seller is the only party who receives an incentive, there will be no buyer for the Atlanta home and Krista is stuck there. At least she'll be able to watch Michael Penck Jr sling it on Sundays.
- [03:54]
Clark Howard
Eddie okay, so I told you when I talked about this that this was opening up a discussion and I love all the thoughtful things that people are posting about it. So in short, my idea was that if it was legal for lenders to do so, that they should be able to offer an existing mortgage borrower a deal. Right now the lenders hate that all these people are in these ultra ultra low mortgages, generally 2 to 4% huge percent of the market is in those. None of those people can move. A lot of them would like to move, but they can't their mortgage loan locked because if they go from that, they go into a market rate loan at 7%. So my idea was what if lenders were given the option under the law and it wouldn't be required, just be an option for them to allow you to move and allow you to transfer your mortgage balance to a new property at two points higher, giving the lender an incentive to make your loan portable and go to a new property. You benefit because you're getting a loan portable below the current market rate for that amount of money and you move it across. Then it creates velocity in the housing market which deals with the third comment you had. Right now the housing market's frozen because so many people who'd like to move aren't moving, not creating any availability, normal availability of housing. You'd recreate that if people were able to sell a house they really don't want anymore, a neighborhood they may not want anymore, even a city they don't want anymore, and go somewhere else where the lender benefits, you benefit, the marketplace benefits. Okay, now the first thing, you're only transferring the amount of money you have on your existing loan if you need more money that comes on a second mortgage. People who were around when mortgage interest rates went to 20%, that was 40 years ago, 44 years ago. In that era, people were allowed to allow a buyer to assume their existing mortgage non escalating, meaning whatever rate they had, they assumed that loan. My second home, I assumed what was at the time an incredibly cheap loan of 8 and a half percent. And nobody could believe I had an 8 and a half percent when mortgage rates were 18. I then had a second mortgage for a portion of the purchase that was at market rates. But most the money I had on that loan was at the eight and a half. That was just mind blowing that it was that cheap. On the stuff about the what caused the mortgage crisis in the first place, there was a bit of an issue involved with government agencies pressuring lenders to make loans that did not have good underwriting. But that is really a false positive for what caused all the problems. Back during the banking scandals. The banks were the reason it's called the banking scandals because they were doing all kinds of liar loans. They were doing all kinds of no doc loans that were allowing anybody, even in an quote unquote investor, no money down to buy as many homes as they wanted. Those were not part of the federal system. This was greedy behavior on the part of Wall street and the banks and led to all the banking failures. Federal Reserve keeping interest rates down in concert with central banks around the world was to prevent another Great Depression, which it did. But it did create moral hazard and create other problems by keeping interest rates artificially low for too long. There's a lot here, there's a lot of problems that were caused by first the banking scandals and then by the artificially low manipulated interest rates to reflate the world economy. And we're paying the costs for all that right now.
- [08:23]
Co-host
Clark, you definitely don't stink, but I feel you have a bit of tunnel vision when you talk about only renting when you move to a new town. I feel your perspective comes from someone who is nearing retirement age and please don't retire and is looking to move elsewhere. But for someone like myself who moved with my family to Charlottesville, Virginia for a job change in 2021, we knew we had to move and we were going to stay there. If we had rented when we moved here and then bought a house a year later, we would have paid nearly 100,000 more dollars for our home and our interest rate would have been nearly four and a half percent higher. Plus we would have had to pay for another set of movers, among other things. While I do think renting is a good idea, when you get to a, it does involve a lot of costs as well. Cheers, David.
- [09:05]
Clark Howard
David, you're 100% right. And in your circumstance, my advice about renting first would have been a financial disaster. We're in a different housing cycle now. Housing prices are extremely high. Mortgage rates are extremely high, and it makes it even more favorable right now to rent while rents on average are falling around the country. And the cost of housing is. I, I talked about this recently. This enormous spread between the effective cost of renting right now versus buying. What happened in 21 worked perfectly for you. It would not be the same scenario today.
- [09:44]
Co-host
Clark, you're full of wisdom in many arenas, but in the episode I'm listening to, you stunk worse than our dying oceans. You said, quote, electric cars are not a political or environmental thing. I couldn't care about that, end quote, and went on to say, you only like them because they are fun. Please tell me I interpreted this incorrectly and that you do care about our environment. If not, you're part of the problem. And all the fun in the world will disappear with this kind of apathy toward Mother Earth. Michael.
- [10:10]
Clark Howard
Michael, thank you. All right, so let me explain. Am I an environmentalist? All the way back in 1973, I started a recycling program at my college before people even knew what that was. I mean, of course I want us to preserve our planet, preserve people's quality of life. My point about electric vehicles is you can't get people to buy an electric vehicle because it's better for Earth. It's got to be better for them. It's got to be better for their wallet. And electric vehicles, for many people, don't yet work in their lifestyle. They may drive distances. They're afraid to take an electric vehicle. They may live in a rural area. They may have problems finding a place to charge it. In my life, electric vehicles are a win, win, win, win. They've gotten to be so affordable where they were not before. In many cases, cheaper than the closest gas engine equivalent. And then ownership of one, what it costs to run one is so much cheaper for the equivalent of fuel.
- [11:24]
Co-host
Clarko you said buy the cheapest TV and I did and now I'm stuck with the Amazon Fire interface. Well, not really stuck because I got a Roku box and hooked it up, but I should have gotten a Roku TV in the first place. There are Google TVs, there are Amazon Fire and there are Roku and more. They are similar user interfaces but not the same and people should research them before buying.
- [11:45]
Clark Howard
J.P. j.P. Thank you. I love the Roku interface. I hate the ones from all the TV manufacturers. Their interfaces to this date really are terrible. Some people like the Amazon Fire interface. I didn't find it to be nearly as user friendly as the Roku and the Google one has been one of those areas that Google's made a big oops, it's terrible to use. So Roku is really cool. A lot of people in the electronics business say that what you did is actually the smart thing to do because if you buy a Roku tv, Roku through and through, you may decide later you want to use something else other than Roku and you still are stuck with it unless you buy an external device you plug in like you did, which a lot of people in electronics say be brand name agnostic for your tv, but get whatever stick or adapter you need for the format you love like you did with Roku.
- [12:53]
Co-host
Mr. Howard smells like a spawned out rotten pink salmon full of maggots on the banks of an Alaskan river. He mentioned the little free libraries that are springing up in neighborhoods and said that people are now putting DVDs in them. Whereas it is probably okay to put these DVDs in a DVD player. Do not put a random DVD in your computer. That is just as bad as plugging in a random USB drive to your computer. Daniel.
- [13:16]
Clark Howard
Daniel, that's wonderful to mention. And did I mention that you can buy DVD players again really cheaply? Yep, like 25 bucks now. You'll see them at Walmart and other places. So going back to DVDs has become a thing because streaming went from being a steal of a deal to so much money and the picture is not as good as the DVDs. So that's why DVDs are back kind of. It's a boom lit. It's not a boom, but they're back in popularity with a segment of the population.
- [13:49]
Co-host
Clark, you stink worse than my dog's gaseous emissions. When someone who is buying a new home before selling their old home with lots of equity in it but still had enough cash for the down payment on a new one and asked what to do about the equity before selling, you encourage them to consider keeping the old home and becoming landlords. While it's a valid option, you never mention that they will lose the capital gain exclusion you get when you sell your primary residence. They had $230,000 of unrealized capital gains in that house. As a CPA, I get asked this question frequently and I find that nobody with that large of an unrealized capital gain chooses to forego it.
- [14:24]
Clark Howard
Okay, so that is a great point. My failure to mention it is really a bad oversight on my part. So let's take your example though. So they have a 230k and unrealized capital gains. If they do a conversion to a rental property, they don't sell it in a couple years, then they're taxed on that $230. So the tax will be on a typical taxpayer ceiling about $46,000. So if they're in an ultra low interest rate on that mortgage, if they turn it into a long term rental, it very well will likely be worth it to absorb the tax hit for the long benefit you have of being in an ultra low interest rate mortgage. So you're right, that was a bad oversight on my part, but there actually are circumstances because of the distortions we were talking about earlier with these really low mortgage rates that it could be a good idea to keep that loan in place and convert that property from personal residence to a rental property, even with the attendant tax bill.
- [15:37]
Co-host
Thank you for what you do, Clark. I have a comment about your recommendation to ignore a car owner's manual with regard to the use of premium fuel. Some manufacturers recommend premium fuel for a particular make, model or engine, while that same manufacturer will use much stronger language for other models. The owner's manual for my 2020 Lexus says the following. Select premium unleaded gasoline with an octane rating of 91 or higher required for optimum performance and fuel economy. If the octane rating is less than 91, damage to the engine may occur and may void the warranty. To me, that means that 91 octane fuel is required. I do know of an NX300 owner that has used regular fuel for years without issue, but that does not mean that he will not have an issue at some point. Engine repairs are expensive. I will continue to use premium but would be lying if I was happy spending the extra money. Bob.
- [16:30]
Clark Howard
Bob. Okay, thank you. We've had this debate for 20 years. So what they said in your Lexus manual, higher rated, higher required for optimum performance and fuel economy. So that's generally what you'll see. The second part you won't see where it says if the octane rating is less than 91, damage to the engine may occur and may void the warranty. That's very unusual. The reason that is is that virtually all engines today, except for certain high performance engines are computer controlled to be able to adapt to different levels of octane. There was a wonderful explanation from the chief engineer of Porsche about this that engines now have to be made to run at different qualities of fuel worldwide and you will get lower horsepower. You may get a slight decline in fuel economy, but never enough to account for how much money you'll save buying regular instead of buying premium. I'm really curious about why Lexus, why Toyota put that as part of their explanation on why they want you to buy premium. That last part about may avoid the warranty is pretty strong language and it sounds like lawyer written instead of engineering written. And I appreciate all your posts on Clark Stinks. You know, you bring so many new pieces of information to the table. So much of value to me and your fellow listener and viewer. So if you're listening or you're watching and you hear me say something that you're like what in the world? Don't just think that to yourself. Share it. Go to clark.com clarkstinks and you post away so I can hear what you have to say coming up ahead. Difficult topic in many families, once your child reaches adulthood, are they cut off or are you still giving them financial support? I got new data on that and it will surprise you.
- [18:56]
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- [19:30]
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- [19:59]
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- [20:30]
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- [21:00]
Clark Howard
This is so common that after I talked about this I don't know how many months ago I've repeatedly been stopped by people who were telling me their own situation, but I was talking about how many adult children are still receiving financial support from their parents. And one recent survey from the Pew Research project found that 60% of people, adults up to just before they reach middle age are continuing to receive financial support from their parents. This is so very common. People say well I'm doing this. What do you think? I say well you know you've got to decide for you. I'm just talking about, you know this is a very common thing today. Didn't used to be parents and kids have so many webs of involvement. Some are really light kind of things where families have these family plans for cell phones and kids were on them really young and they're still on the family plan in middle age and you got the streaming services. That is best people can still do now with all the geolocating streaming services you're doing but you know kids are on their parents streams. Sometimes parents are on the kids streaming services. But I'm talking about big stuff because on average According to a Savings.com survey parents are giving their kids $1384 a month and that's not even restricted to people up to middle age. This is adult children of any age. When parents are giving the average amount is 1384amonth. Now, get this, the parents are giving twice the amount to adult children that they're saving for their own retirement. And that's where this becomes potentially a real problem. I remember the line I heard from an adult child talking about their aging parent and said, well, you know, my mom should have saved more money while she was working. And I'm thinking, and I couldn't say it. Well, what did she do for you over the years? Should you be doing something for her? Because we as children get amnesia about what our parents did for us a lot of times. And a lot of times, mom or dad or mom and dad don't have enough money to live on in retirement because they were funneling money to you as an adult child. And so this is hard because when you get used to having the assistance from a parent as an adult child, it's hard to say, hey, thanks, I'm okay now, I got this. And so that money becomes almost like, expected, like a paycheck. And the parent may even silently be thinking, what am I doing here? But they don't know how to stop the momentum. So what I recommend as a parent, if this is causing a financial burden on you, sending money every month or regularly giving money to an adult child, that you just don't have the means to do it, and it's meaning you're not saving that money for retirement that you need to save, then have a conversation with that adult child and don't cut them off cold turkey because then it's hard to stick to it, taper it down, say, you know, I. I've looked at my budget. I'm. I'm in a train wreck financially. I can't keep doing this. What I'd like to do is over the next 18 months, whatever, I think 18 months is a good number. But whatever number works for you, I'm going to be able to give you less money six months from now. That give you now last six months after that, so that you're weaning them from being on an allowance from you as an adult child. And there are reasons a parent may want to help an adult child. One of the most common is to help with the grandkids, to subsidize child care for a grandkid or pay for some schooling for a grandkid or sports teams for a grandkid. That's one of the most common reasons. But whatever it is, be honest with yourself. Can you afford it? Can you afford to be. If you're doing the Average, that's like over $16,000 a year. Quick math that 1384. If you're doing that, can you really afford to do it? Does it need to be less? Does it need to be zero for you to be able to take care of your own financial needs and especially your own financial future?
- [25:57]
Co-host
On our community and clark.com there's a very popular thread about this exact topic about, you know, supporting your adult kids. So we'll link that in today's show notes.
- [26:07]
Clark Howard
That's wonderful because this is, this is not black and white. This one's got shades of gray. It's tough. And that's why. And we got love involved. And so there are times that, that we put ourselves in a really rough spot trying to do what feels like the right thing, but maybe the wrong thing. Creating more dependence in an adult instead of independence and maybe causing financial harm to yourself. But again, I said maybe, possibly all that because there is great at this.
- [26:40]
Co-host
Yeah. And if you haven't already checked out our community, please, please join us@clark.com community I really think it's. It's great. It's growing and people are helping each other out, which we love. Okay, so Max in Pennsylvania says, how do you recommend thinking about money when deciding on what number of kids to have? My wife and I earn a good living around $200,000 household and currently have one child. As we decide whether to have another, it feels hard to separate out the finances from the rest of the decision. I've been listening to your show for years and don't know how to reconcile saving money on haircuts, razor blades and cell phone service. But then turning around and having a child that will cost thousands of dollars per month in daycare alone. With one kid, we could live a great lifestyle with plenty of travel and cushy retirements. With two, it will be tricky for the next decade due to some residual student loans and the cost of daycare, et cetera. What would you tell me if I were your own child?
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Clark Howard
Oh boy. So, Max, this is the name of.
- [27:39]
Co-host
One of your grandchildren?
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Clark Howard
Actually, that's right. So Max, I'm not seeing you allowance though. Sorry, I got one. Max. So this is an issue for so many Americans. That's why we're not at replacement rate. The birth rate in the United States I think is down to 1.7. Needs to be 2.1 to even keep population even. So it means we are a declining population of native borens in the US at 1.7. And the cost of raising a child being so expensive is the reason a lot of people are deferring having a child or choosing not to have one. The very thing you're trying to figure out. No one can make this decision for you. The reality is if you decided to have a second child, there are sacrifices you make and things that you enjoy doing. Maybe getting a new car, maybe taking a fancy vacation. Said you take a driving trip somewhere. I mean, it's all personal priorities at an income level like you have. And you make the choice that feels right for you as a couple, whatever that is. If it's stopping at one or two or whatever. One thing I will tell you, if they're close in age together though, 1 is 1, 2 is not 2, it's 10. The complexity. You saw that, didn't you?
- [29:14]
Co-host
Actually, I mean it just depends. Like I actually, I feel like for me going to one was way harder than going to two.
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Clark Howard
Really, that was not the case for me. Anyway, whatever decision feels right to the two of you, that's what you do. It's nobody else's judgment that matters. Pressure from, from either your parents, whatever. Let that rest. You make the decision that's right for you.
- [29:43]
Co-host
Matt in Vermont says in November I'm planning a trip to help a friend move to Colorado. He's planning to downsize drastically and thinks we will only need a small U haul trailer for his bel. I'm thinking about renting an SUV to tow this trailer rather than using my own truck to keep the mileage off of it. It will be around 3,600 miles round trip.
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Clark Howard
Wow.
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Co-host
Not to mention an SUV would provide a bit more enclosed storage. Do you think this is worth the roughly 6 to $700 added expense? In hopes of keeping the mileage off of my 2019 Covid era bought out lease truck which is still holding a great value. Alternatively, do you have any other suggestions to make this move even more budget friendly? I listen to the podcast work.
- [30:26]
Clark Howard
I think you're nothing short of brilliant. You don't want to put in a short time, put that 3,600 miles on your vehicle. If you figure that will be an eighteen hundred dollar cost by conservative traditional measurements, putting that additional 3600 miles on your vehicle. So paying six to seven hundred bucks if it really is that cheap to round trip and that suv, I'm assuming that's what you mean is you would take it round trip instead of doing one way with a drop in Colorado, I think it's a great idea if you could rent it one way. Airfares are cheap enough one way you could fly back. I'm just worried about what kind of drop charge you'd have on the SUV when you got to Colorado. Your plan is a smart one versus putting those miles on your own vehicle. And the rental agency is crazy that they offer unlimited miles, but actually they're crazy like a fox because most people drive a rental car less than 60 miles a day. You'll be driving it a little more.
- [31:36]
Co-host
John and Georgia says this is being posted by Realtors I assume online. Is it a true statement? And here's what the post is In 1971, the interest rate for a mortgage was 7.33%. If you waited for interest rates to go down, you wouldn't have purchased a home until 1993. You would have rented for 22 years waiting for rates to go down. Meanwhile, the value of real estate quadrupled. Don't wait to buy real estate. Buy real estate and wait. Marry the house. Date the rate.
- [32:05]
Clark Howard
Okay, so it almost certainly is correct on the interest rate. I don't remember exactly what it was in 71, but having a rate in the sevens was unusually low through much of my adult lifetime. And so what we had from the aftermath of the banking scandals up until 2018, 2019, when did rates start rising anyway? In roughly a 10 year period, these abnormally low rates, that is not a normal interest rate at all. The rates we have today are much more normalized and in fact are lower than rates were many times in the past. So is the statement correct? True? Very likely. Also, if you think about the 22 years, it's not like it's static that it would have cost you four times the price for a home. Because incomes rise over time too. Today interest rates are a lot higher than they've been in people's recent memory. Interest rates, as long as inflation is under control, will come down some from where they are now. I think ultimately the first digit will be a 5 when rates normalize. But it would take unbelievable circumstances for them to get back to the twos, threes, fours. And I can't predict with certainty that won't happen. But it would be very unlikely. So the statement on its face probably is certainly true that you take out an interest rate today, you can refi later if in fact I'm correct that rates go down. If rates don't go down, you're stuck with the higher purchase price of today and the higher interest rate of today. So I want to tell you I hope you have an absolutely wonderful extended weekend going forward. Memorial Day is looked at as the unofficial kickoff of summer. It's also a time that we remember people who lost their lives. Paying the ultimate sacrifice for your and my freedom. So remember, this is a twofer. Yep, it's a Monday holiday. Unofficial kickoff to summer. But don't forget why we have this day. Because of those brave men and women who lost their lives for you and me to be free. Have a great, great weekend. We'll see you Tuesday with our next edition of our audio and video podcast.