Family learns to spend less, live more

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Spotlight: Ellie Kay

Ellie Kay, an experienced skydiver and parasailer, shrugs off the danger associated with her risky pastimes by focusing on the rewards — conquering fear and the exhilaration of freefall.

Taking on unnecessary risk is not normally a trait associated with the staid world of personal finance, but Kay isn’t your ordinary household finance wizard.

If there’s a novel way to squeeze an extra dollar out of the household budget, chances are she’s mastered it.

Fifteen years ago, things were different. Newly married and a stepmom to two children, Kay’s family was mired in $40,000 of debt and squeaked by on a single military income provided by her husband, Bob, an Air Force pilot.

At a glance
Name: Ellie Kay
Hometown: Palmdale, Calif.
Education: Bachelor’s degree, Colorado Christian University in Lakewood
Career highlights:
  • Best-selling author of 13 books, including “Living Rich for Less” and “A Woman’s Guide to Family Finance.”
  • Financial commentator for ABC’s “Nightline,” ABC’s “Money Matters,” Fox News’ “Your World With Neil Cavuto,” CNBC “Power Lunch,” CNN, MSNBC, PBS and more than 800 television/radio stations.
  • Consumer finance educator and consultant to Fortune 500 companies including Procter & Gamble and Wal-Mart.
  • Founder and CEO of “Heroes at Home World Tour” conferences.
  • Recipient of Dr. Mary E. Walker Award for outstanding volunteer service to the U.S. Army.
  • Co-founder of The Smart Woman’s LifeStyle Conference.

But rather than throw up her hands in defeat, Kay went on the offensive and shifted how the family consumed. Among other things, she became a coupon guru and bought used clothes for her kids at garage sales. Whenever the family came into “found money,” Kay used it to pay down debt.

Her tricks she learned helped the family become debt-free in just two and a half years and she authored the book “Living Rich for Less.”

For Kay, now a mother of seven, the lean years taught her important lessons. She spoke with Bankrate about the merits of volunteerism, why Americans should learn to live debt-free and why anyone would want to jump out of a perfectly good airplane.

How important is it for children to understand the fundamentals of financial literacy starting at an early age?

It’s critical for children to be financially literate from a young age all the way up until the time that they graduate from college. With our own children, we’ve seen how important it is for our children to have an understanding of finances, a good work ethic, understanding credit, etc.

If you look at the No. 1 reason for divorce today, it’s cited as arguments over finances. If we teach our children financial literacy, not only are we helping them on a practical level in life, but we may actually help them preserve some of their future relationships. They’ll be less likely to argue about money in their own relationships or their marriage.

Should financial literacy be part of the school curriculum?

Yes, I believe that it ought to be taught in schools and that the kids should have the option of learning that.

In your book, “Living Rich for Less,” you talk about the transformation from new mom (with two children and $40,000 in debt) to being completely debt-free within two and a half years. How did you make that transformation so quickly?

I was a born saver who was always good with money, and I was a businesswoman. I had been a(n) (insurance) broker so I understood about money, but I married into a financially challenging situation.

One of the first things we did as a couple was we had a paradigm shift from a victim mentality to a victor mentality. The first step was a mental paradigm shift.

The next steps were very practical. We reorganized our budget to the point where we made paying down consumer debt one of our main priorities, if not the main priority. We downsized to one car. We started shopping at garage sales for the kids’ clothes. I became a master at couponing at the grocery store.

The last thing we did was we committed every unexpected dollar that came in toward consumer debt. That included income tax refunds, my husband’s unexpected refund on a GI bill and a dividend from our insurance premium. That’s how we were able to get out of debt so quickly. It was a very aggressive strategy, very Spartan, but only temporary.

U.S. households are now saving almost 6 percent of disposable income compared to just a few years ago, when it was closer to zero. Yet, do you think we’re saving enough to live financially secure lives as well as provide for our children’s educations and our own retirement?

No, I don’t believe it’s enough. Even 6 percent is not enough because of consumer debt primarily. I believe that the model has to be closer to a 10 percent savings rate in order to achieve those financial goals that you listed.

Why do you think Americans today find it so hard to save in comparison to, say, our grandparents’ or our parents’ generations?

I believe we have lost what our grandparents or parents had in their generation because of the huge amount of credit that’s been available to us. Families learned if they wanted something, they didn’t have to wait and pay cash for it, they could get it now.

With the credit card reform that we have right now, people are screaming that APRs are going up and everyone is going to have to pay annual fees. Well, there’s a generation that doesn’t understand that when credit cards first came out they were issued by banks to the very best customers only, they had an average APR of 20 percent and everybody paid an annual fee. So it was more egalitarian in its approach and that’s probably what we’re going back to.

As the spouse of a former career military officer, describe the unique financial challenges that military families face and how they differ from those faced by the average civilian family.

There is a misconception by people who do not have families in the military that everything is paid for, that they have health care, they have housing and they get salaries. This is true to a certain extent. However, enlisted military members especially do not make an exorbitant living.

One thing that impacts these families is that they move so much. Where you might have a dual income in most families, there is a gap in employment for that (military) spouse that can last anywhere from six months to the entire three years that they may be at an assignment where they can’t find a job. When they have to move to high-cost areas like Europe and the value of the dollar goes down, the cost of living allowance allocated to military families sometimes takes a while to catch up.

This is the kind of situation that military families find themselves in. They have tremendous challenges financially.

By all accounts, you’ve built a successful life for yourself and your family. To what do you attribute this success?

One of the reasons that we’ve achieved financial success is that there is this law of reciprocity that exists. When we give out in certain areas, whether it’s volunteering time or donating money to worthy causes, it eventually comes back to us. That’s the philosophy that we’ve had.

Over the first 15 years of marriage, we were still able to donate over $100,000 to organizations that we believed in. Being able to contribute to the community in a way that has a positive impact on people both at home and abroad to us is living a rich life.

You’ve volunteered over 10,000 hours of your personal time for various causes. Why is volunteerism so important to you and how do you manage to balance time between your family and your work schedule?

Back when we were a one-income family, I didn’t work outside the home. So I had a lot more opportunity while the kids were in school to give back. In terms of balancing it with family life, I’ve always prioritized time with my children and my family over volunteer work. What I found was that there’s lots of ways that the family could volunteer together.

One of the things we did was we clipped coupons and donated them to the base where they could be used by service members. They would go shopping with me. Then they would help me pack up the groceries and we would take them to the homeless shelter. The things we did together provided a natural balance for the home and family life in terms of volunteering.

What tips can you offer to families saving for more than one child’s education?

From the time they are in elementary school, you teach them a good work ethic. We taught all of our kids that their job is homework and as soon as they came home that’s what they did. But we also encouraged them to pursue their passions.

Our children at this point are on target to graduate from college debt-free because they’ve either earned scholarships or were involved in work-study programs.

We also saved and contributed to their college education financially. On a practical level, contributing to a 529 (education savings plan) or a Coverdell (education savings plan) is something that’s important.

You once wrote that it was an important milestone for you to go skydiving by the age of 40. What motivated you to want to do that and was it worth it?

I’m a person that likes adventure. I like the whole idea of trying things that may scare you considerably but help you conquer fear and overcome it.

That’s why I wanted to do it. It was an exhilarating experience and I’ve since repeated it. It keeps things interesting and it was 100 percent worth it.