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Ashton Kutcher recalls starting college, got a credit card, and then carelessly spent it. “I assumed that at some point I would be able to pay off this thing,” he says.
That's because, like most people, he was never taught the basics of financial literacy – including spending, saving, and managing debt. Because of this, Americans today carry an incredible amount of debt: the collective U.S. consumer debt is $ 14.9 trillion, and the average household credit card debt is $ 5,315. "The truth is, if I hadn't been extraordinarily lucky, I would probably have been in exactly the same position as many of these people," says Kutcher, who enjoys successful acting and investing careers, of course.
That's partly why he's passionate about helping people organize their financial lives, and why he's executive producer on the hit series Going From Broke, the second season of which is now available on Crackle. The show features dramatic financial interventions – where host Dan Rosensweig, CEO of education technology company Chegg, stages financial interventions with young people who are highly indebted and struggling to control them.
Kutcher and Rosensweig hope that people will observe their relationship to money and then reconsider. "If we can get people to understand, appreciate, and respect personal finances, America will be in a much better place," says Rosensweig.
In this conversation, Kutcher and Rosensweig discuss the show, people's biggest misconceptions about their money, and how people can begin to regain control.
Dan Rosensweig, CEO of Chegg.
Image Credit: Courtesy of Chegg
Many Americans are not taught financial literacy – but how many, in your experience, know they are not good at managing their finances?
KUTCHER: The overwhelming thing we found out is that people haven't learned the basics of financial management from any institution and they get frustrated and upset about it. They didn't learn from their parents either. Nobody teaches these basic simple rules of personal financial wellbeing unless you come from a family that already has it. This is the stark reality of why the rich get richer and the poor get poorer. Financial literacy is really cross-generational. If your parents do not have a financial education, you are unlikely to be financially literate.
At some point everyone thinks they are doing the right thing – the basic premise is "I know enough not to get into trouble". But when you are 18 years old or younger, there are people who give you these “debt makers” – they put this plastic debt maker in your hand and suddenly you can buy things that you couldn't buy before. So you do this. They build up debt over time, assuming that when I have money I will pay it back.
But you don't realize that you are just piling on more and more debt until it is in crisis mode and you are on the verge of being kicked out of your house or you cannot pay for basic needs and you feel like you are being fooled by the system for having it have done.
What did you learn when you started to intervene in your financial life?
ROSENWEIG: We wanted to deprive people of the opportunity to hold others responsible for their situation. At the end of the day, only one person is responsible for fixing your problem – and that is you. You are the CEO of your life and you have no excuses. You have to make tough decisions, you have to live with those decisions, you have to oversee those decisions.
KUTCHER: Basically, money is a drug. The nice thing about this show is that everyone who comes has to say, "I'm broke." Which is an admission of rock bottom. There is a lot of ego associated with wealth and material objects. Getting people to the point where they are not just saying the words “I'm broke” but actually taking a proactive stance and empowering themselves to move forward is usually a very emotional experience because you are emotional have to let go of your ego and self-identity tied to your money and materialism. This is very hard.
Ashton, it's interesting how you phrase the problem: you describe money as a drug and say that people have to admit they have a problem – which sounds a lot like starting a 12-step program. Do you think that people need to fundamentally rethink their relationship with money before they can fix their financial lives?
KUTCHER: Yes, and it's extremely challenging. When indebted people lead borrowed lives, you have to pay at some point. In some of these instances, people have taken out Parent PLUS loans, so it is not just their life that they are borrowing against; it is their parents' life. Getting people to face this reality is a challenge.
The show puts up a mirror and says, "I want you to look at yourself and see yourself." Then it says, “Would you like this self to look different and better and feel different and get off the drug of spending? Here are some tools that will enable you to do that. "
When you intervened in people's financial lives, what do you think were the biggest things they overlooked? I wonder what others can learn from these people's experiences.
ROSENWEIG: I want people to understand that they should have a goal before taking money for higher education. You should have a return on investment perspective. If I spend so much time and money on these subjects at this school, will I be able to repay, and if so, by when? If this is beyond your imagination, the chances of you paying it back are much lower. The facts show that – 40% of all students with loans either fail to pay them or are behind schedule. That's a huge number.
These are questions that are seldom asked because this myth is repeated again and again: To get into the middle class, you have to complete a four-year course. Well, only 50% of all high school students try to get a four year degree and 43% of them drop out. So really only 25% of the people who go through this system are able to be successful after paying all that money and borrowing all that money.
Then you live a life where you borrow that money but don't pay it back until after school – but you also have other expenses while you're in school. If you don't save money to prepare, then as soon as you leave or graduate or drop out, all of a sudden you have expenses like housing and transportation and insurance and medical care and no one has told you how much money it all costs and when you when 'will likely take it over and how much you need to earn.
Then, as Ashton says, nobody taught you how money works. Money can work for you – that is, you take money, invest it, and it generates more income and wealth. But if you borrow money and don't pay it off on time or only make the minimum payments, it will cost you money.
One of the characters on the show owed $ 1,900 – and when they wanted to pay off the money at the current rate it should be $ 20,000 in 20 years because they don't understand how interest is accrued and how the minimum goes their disadvantage.
The most important thing to understand is that if you owe money, the money that you have in your bank account is not yours – it is theirs. You need to treat it like it's other people's money, not your own.