Michelle Singletary is a best-selling author and Loeb Award-winning writer. She also pens "The Color of Money," a nationally syndicated personal finance column that appears in The Washington Post.

The Motley Fool's Robert Brokamp caught up with Singletary to discuss: 

  • Why people fall for Ponzi schemes.
  • If you should pay off your mortgage before retirement.
  • Why we often lie about spending habits.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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Michelle Singletary: They feel as if there's got to be something out there, some secret sauce to jump-start, to get ahead, to be rich quick. They just buy into the scam because they want to believe that they can do this quickly, and they want something exciting, something interesting. Listen, solid investing is boring.

Chris Hill: I'm Chris Hill, and that's Michelle Singletary, best-selling author, award-winning business writer, and creator of the nationally syndicated column entitled "The Color of Money." Our own retirement expert, Robert Brokamp, caught up with Singletary to talk about the lies we tell ourselves about spending, how to find a financial advisor, and why Ponzi schemes keep roping in victims.

Robert Brokamp: Let's start with your story. You weren't born into wealth, but you did have someone in your life who taught you a lot about money.

Michelle Singletary: I, at the age of four, went to go live with my grandmother, who we affectionately call Big Mamma. In fact, my siblings joined me. There was five of us in total. I had sister, she was eight, I was four, my sister was three, and twin brothers who were right around two years old. My grandmother ended up really rescuing us from foster care before they put us into the system. She said, "No, I'll take them all." And she did. She was just an amazing money manager.

At the time growing up, I didn't think too much of it because she was so frugal. But looking back, what she was able to do to care for the five of us on not much income at all, about $13,000 at the top of her earning history. My grandfather had a drinking problem, so often, his money didn't make it home. She managed to feed us and clothe us. Didn't have a lot, couldn't get a lot of seconds at meals, but nonetheless, we were well taken care of considering the financial constraints that she had.

Robert Brokamp: As you mentioned, she didn't earn that much. She was a nurse's aide, and on top, but besides even just raising all of you, she was able to retire and to pay off her home, which is just amazing.

Michelle Singletary: Her goal when she took us in, whenever we would ask for stuff, she's like, "I'm paying my house off before retire," and she did. She lived 20 years of retirement. She had a small pension, Social Security, and $20,000 in the bank. When she passed away about 20 years ago, she had $20,000 in the bank. Because she learned how to manage with the money that she had, and she passed that on to me.

I must have just absorbed everything that she said, because I'm a carbon copy of this woman who grew up during the Depression, who understood the value of a dollar, who hated debt like it was the devil himself. It's because of her wisdom that I actually came to have this column with The Washington Post. I'm very fortunate to be able to share the things that she shared with me with so many readers and listeners across the country.

Robert Brokamp: Your first column came out in March of 1997, and it was about your grandmother. You definitely inherited her distaste for debt. That's certainly a common theme in your articles. What do you say to someone who says, well, yeah, there's bad debt, but there's also good debt?

Michelle Singletary: Yeah, there's no such thing. I hate when I hear that, because then I will challenge people when they say, there's good debt and bad debt. Traditionally, when people say that, what they mean is bad debt, credit card debt; good debt, oh, your mortgage or the money that you used to borrow to go to college. That's good debt.

But then I'll ask them things like, use some descriptive words for good. He was like, happy, elated, and you don't suffer. Then I said, now, is that how you would explain when you go to make that check to your mortgage company? Do you feel delighted? Do you feel elated? They go, no, I hate it. It's so, exactly. If you look at it that way, you will tend to borrow less.

That is my goal, to get people to see debt as the weight that it is, even when it is done for to purchase your house or go to school or buy a car, that if you look at it as a burden, and I want you to look at it as a burden, then you will borrow less, you'll pay it off sooner.

Robert Brokamp: Studies definitely show that debt brings down happiness. It brings it down more than savings increase happiness. Your grandmother was certainly right to try to be debt free by the time you retire. I think it's underappreciated, the fact that when you have debt when you go into retirement, that means your expenses are higher, which means you have to take out more money from your traditional IRA, you have to sell more assets, which increases your taxes.

If your mortgage, your car payment, and everything has you spending $10,000 to $30,000 more a year, you take that out of your accounts, you've increased your taxes by thousands of dollars. But then when you have to pay your tax bill the following year, you have to take that out of your account. It's like this domino effect of taxes just by having higher expenses in retirement.

Michelle Singletary: That's exactly right. There's this huge debate all the time about whether or not you should pay off your mortgage before you retire. I understand the theory behind it because, listen, I have a master's degree in business from one of the top universities in the country, Johns Hopkins University, so I get it. I'm not this imbecile. But when you look at how much we spend percentage-wise for our housing expenses, anywhere from 30% to some people 50%, even in retirement, if you don't have that debt, you're able to stretch those dollars just to what you said.

The argument is, well, you should just leave it in the market, and it's going to earn more than the interest that you're paying on that mortgage. But it's not a guarantee, and right now, we're in a situation where we see that in 2022, depending on how you were invested, you lost about probably 20%, at least on paper, of your value. That's a lot. That idea that you're always going to have a return in the market is just not true.

I try to get people to reduce their expenses as they get into retirement and then in retirement, and you can make those dollars stretch a lot longer.

Robert Brokamp: As I often say, retirement, the other word you would use is financial independence, but you're certainly not financially independent if you owe someone money.

Michelle Singletary: That's right.

Robert Brokamp: These days, there's a lot of talk about whether the U.S. is headed for a recession. But for the way you manage your money, the answer is always yes.

Michelle Singletary: Always yes.

Robert Brokamp: Always yes. Your latest book, you wrote,

I manage my finances as if I'm in a perpetual recession. It's not about being fearful. I'm planning for what I know by now is inevitable. When it comes to your finances, you have to hope for the best but plan for the worst.

Explain the rationale behind that.

Michelle Singletary: I wrote that book, What to Do With Your Money When Crisis Hits, right in the middle of the pandemic. As you know, I started writing it in 2020, and then it came out in 2021, and then the paperback last spring.

What I want to get people to do is to remember that it's not a matter of if there is going to be an economic downturn but when. It is cyclical, and so you've got to be in the posture of having your money available and plan, knowing that it's going to be a downturn. Now, some downturns may hurt you worse than others. The Great Recession, lots of people lost their jobs, lost their homes, and there was a little bit of thing blurp in 2020 when the pandemic hit, but we recovered quickly in the markets.

I just like to know that I'm always living below my means. That way, I've built in some cushion. My husband and I have never lived up to what we earn. We are crazy savers. We probably have always lived on maybe 50% or 60% of our income, saving the rest. I think that's just a prudent thing to do.

Do you know the hardest time for me to get people to save is when they actually have money? It's easy when you don't have any money. If you're doing well and you've got a good job, they don't want to save, because they just think that paycheck has got to keep coming, the good times we're going to keep rolling. They don't anticipate the time where the good times stop. Maybe it's not you, but it's people in your family, so you're doing OK, but you have no cushion to help anybody else.

That's what I mean by living in a recession. Living not in fear but in anticipation that something could happen, and you want to build in a really good cushion.

Robert Brokamp: It's basically not planning for the best-case scenario because you don't know what's going to happen. It could be your job, it could be something happens to your house, you need a roof or something like that, it could be a health issue. Something like 25% to 35% of people retire sooner than they thought they would because of health issues, which means they may not have saved as much. Plus because they're retiring sooner, now they have to spread that smaller nest egg over a longer time frame.

I'm in line with you here. I'm known as the awfulizer here at The Motley Fool. The way I put it is be a short-term pessimistic and a long-term optimist, because you don't know what's going to happen in the short term. Have that emergency fund, make sure your job is safe, live below your means.

The optimism part comes really to the investing. Eventually, no matter what happens, everything recovers, and being in the market is the best place to be.

Michelle Singletary: That's right. No, I was going to say that the history does show that. Now, there are obviously periods where it didn't recover as fast as we wanted. But the average recession lasts, what, about 18 months, two years at the worst, taking out the Great Depression.

But the fact of the matter is, you got to know that the most important thing with money is inflation, because that's like 2022. The word for 2022 was "inflation." You've got to make sure that your money is growing to keep pace with inflation so that you can buy the things that you need later in life.

Robert Brokamp: Not only do you write books and articles about money, but you actually work with people on their finances. You and your husband teach classes at your church, and you work with prisoner inmates who will soon be released. What have those experiences taught you, especially when it comes to convincing people to change their, shall we say, suboptimal attitudes and habits when it comes to money?

Michelle Singletary: Working with individuals has informed my reporting and writing, just amazingly so. Because it's not until you sit down with real people and you spend a considerable amount of time with them, looking at their budget, helping them either save or get out of debt or just build toward goals. Because a lot of financial advice is theoretical, and we know that behavioral economics says that, on paper, certain things work. Of course it does. The math adds up.

But when you add in behavioral issues, you add people's backstory, life, it doesn't work on paper. And so I feel like I'm a better writer, a better person giving financial advice, because I see everything. I see people's like, oh, I had no money to save and they absolutely have money to save. I'm talking people making minimum wage to people making high-six-figure salaries. It informs me so I can give better advice.

For example, we've always had when you have credit card debt, pay off the one with the highest interest rate. On paper, it makes complete sense. But behaviorally, if you start the debt starting with the smallest balance, we know that people love quick wins. We are a microwave generation. And so if they can get rid of that debt quickly, the smaller ones, it gives them a sense of accomplishment that makes them race toward debt forgiveness quicker. They don't actually end up spending more on interest rates doing that method.

I've seen this in the field, in practice, that people got rid of $200,000 debt, $700,000 of their debt, and next thing you know, it's all gone within a short period of time. I can give that advice because I've seen it in the field and how it actually works.

Working in the prisons... We are punishment society. And rightfully so; many people are there because they did some pretty bad stuff. But the fact of the matter is they are going to be released. Do we want them released informed, educated, and have some things going for them so they don't go back to prison?

My husband and I go into the institutions, and we teach them how to handle their money, because we think people in prison, they don't have any money issues. That is just not true. Many of them have jobs or people are sending them money, their kids are calling them, their wives are calling them, they have interaction with people.

I think it's important to teach them to recognize what they did wrong and then change that habit and teach them how to handle money, so when they do get a job -- and hopefully they will -- that they'll be able to handle that better and they won't resort to some of the things that got them in the first place.

A lot of the individuals, particularly the men who are in prison, are in because they sold drugs. They sold drugs because they wanted stuff, or many of them started selling drugs when they were small kids or teenagers to help their family or they wanted sneakers or things like that. If we can address those issues and get them to see that you don't need certain things, clothes, shoes, cars to have self-worth, then they won't go back and do some of the things that got them in prison in the first place.

Robert Brokamp: Such admirable work.

You touched on the behavioral finance part of it. One of the things I enjoyed reading from you was that you said when you work with someone, you want them to bring in a year's worth of statements, because you know they're lying about their money. They lie to you, and they lie to themselves primarily.

You've written also about one of the reasons why you are what some people would say harsh is that you don't want to cosign onto any bad ideas, because anyone who wants to spend something on that vacation or something like that, they're just looking for that little window of approval, saying, yes, I can do this.

When someone sits down with you and they go over their expenses for a year, does that help? Do you see a-ha moments where people are like, oh my goodness gracious, I had no idea how I was spending this much.

Michelle Singletary: All the time. It's one of my favorite things to do, have people bringing their credit card statements and their bank statements for a year. We got there because they lied to themselves. It's not like the latter, you're thinking. They think they don't spend as much as they do.

Let me give you an example. I was working with this woman in about her late 30s, had good income, no savings, not even saving toward retirement. She couldn't figure out what was going on. She said, but I really don't eat out that much. I really don't shop that much. I go to Salvation Army and I buy consignment clothes and things like that. I said, OK, let's just look at your bank statements.

I'm looking through, and what she was not recognizing is that she did eat out a lot, but it wasn't a whole bunch every time. It was like $5 here and $7 here. And she did go to Salvation Army and buy a $2 shirt, but it was a $2 shirt and a $20 X. When you add it all up, she had like $700 to $1,000 in expenses that she didn't even know was on her books. We used that to build her savings and put toward retirement.

It's a wake-up call. Lots of people don't realize how much they eat out and how that adds up. Having them, and I get the statements, the hard-copies, because sometimes, you can't really see it on the computer. It doesn't resonate. I get them, get hard copies and get a bunch of highlighters, different colors. We're just highlight stuff, and I'll say, well, OK, you went to an ATM and you took out $20. Well, what did you use that $20 for?

They don't have any clue. I'm like, OK, what about this? It's like, what is this service? There was a service they didn't use for six months to a year. It is a wake-up call to them about the unconscious spending that we do all the time.

As a part of the ministry of my church, I actually created this thing called a 21-Day Financial Fast, which is one of my books. Although it's biblically based, it can apply to anybody. Basically, for 21 days, you can't spend on anything that is not a necessity. You can't use your credit or debit card.

Lord, have mercy. These people holler because they can't go out to eat, they can't go to lunch, they can't go to the movies. But what it does is it shuts everything down, and when they reboot, they see how much they spend and not even think about it.

Robert Brokamp: You talked about people in prison, and you wrote a few articles relatively recently about a guy by the name of Eddie Alexandre, who recently plead guilty to a Ponzi scheme involving cryptocurrencies and foreign currencies. This is in keeping with a regular topic in your articles, which is basically what's the latest fraud and how to protect yourself.

Over the years, you've had a chance to talk to some of the victims of various scams. What have you learned about how to spot scams? And also, why do people fall for them?

Michelle Singletary: There's so much to unpack there. That scam that I wrote about, it was a mini FX. It was a platform, and it was mostly targeted to the Haitian community. It's quite sad. It was a Ponzi scheme.

Basically, what a Ponzi scheme is, people who get in early get paid by other people behind them. It's this investor money paying investor money. The money wasn't invested in anything. I talked to the receiver for this case, and they believed him up until he plead guilty.

I wrote a column about this. I interviewed them. I'm looking at the documents. I can see that he has not invested your money, he's paying you with other people's money, and they totally believed it.

I think what happens is we send the message -- "we" meaning the financial media and financial experts -- that you've got to invest, you've got to save, you've got a bunch of money, and they hear that. They feel as if there's got to be something out there, some secret sauce to jump-start, to get ahead, to be rich quick. They just buy into the scam because they want to believe that they can do this quickly, and they want something exciting, something interesting.

Listen, solid investing is boring, and it should be. [laughs] If you adopt that principle, people coming to you with all these different ways to make money. I used to do sessions for the new rookies in the NFL. People pitch them restaurants and all kinds of different ways to make money, and they want that because they are in an exciting field. They're on the field and there's all this action.

I come in there talking about diversification in index funds, and they're just like, who is she? What is she talking about? But the margins on restaurants, the profit margin is so tiny, and that's if you're successful. I was trying to tell them, listen, a low-cost index fund can return you twice as much as all that stuff that people are trying to sell you. But they want to believe that there's something else, that the rich people have some secret way that they become rich. That now they're going to be susceptible to.

And also the fraudsters, the scammers use affinity, they call it affinity fraud. They gain the trust of someone within their sphere and no one's done their due diligence. But if my pastor vouches for this person, well, my pastor wouldn't introduce me to anything that is illegal, immoral, or a fraud.

But if your pastor hasn't done his due diligence or her due diligence, she absolutely would. That's how people end up believing this.

I don't subscribe to blaming the victims. Were some of them greedy and unrealistic and didn't do the homework? Of course. But that does not give anybody the right to defraud them. You shouldn't be defrauded because you didn't check something out. Should you? Yes.

I just don't believe that you can't cheat a honest man. I think that phrase does not do justice to the many victims of financial scams. What it does is keep people from reporting them. The fewer people who report them, the more these scams go on for a long time before the fraudsters are caught.

Robert Brokamp: They're hesitant to report them because they're embarrassed.

Michelle Singletary: They're embarrassed.

Robert Brokamp: They tell them, I can't believe I fell for this, and I don't want anyone to know about it.

Michelle Singletary: That's right. That's very unfortunate. Any crime we should not, I don't even want to use this example because it's so extreme, but women who are sexually assaulted. "Well, she shouldn't have been at the bar or her skirt was too short." That is, I mean, you want to just choke somebody when they say that, are you kidding me? You don't have a right to victimize anybody. Even if she was buck naked, you have no right to invade her body.

And it's the same thing with financial crimes. They have no right to victimize people who are, most of the time, they're just trying to get ahead and, rightfully or wrongfully, didn't do what they're supposed to do to check things out.

But most people who are victims, they just want to have money to retire. They want to have moneys to send their kids to college. They want to pay off their mortgage. I feel like we should not attack victims in these cases.

Robert Brokamp: That's very good points.

You mentioned some things like index funds and things like that, diversification. You learned a lot about spending from your grandmother, but not so much about investing. She wasn't comfortable with anything beyond a passbook savings account. As I understand it, you didn't become comfortable with investing until you began working with a financial planner.

I think many people would be surprised that someone like you would need to work with a professional. But I know that many personal finance experts, myself included -- and I have the Certified Financial Planner designation -- often work with an advisor or an asserts agent or accountant or attorney, because you can't be an expert in everything, and this stuff can get complex.

Talk a bit about working with a financial planner. Do you think everyone should do it, and if so, how do you find one that's capable and ethical?

Michelle Singletary: Yeah. My grandmother was a great saver. She didn't understand how to grow her money. My grandmother didn't even trust CDs, like certificate of deposits, which is a bank deposit account. It's like you've put money in and you get your money back for some interest. The only bond that she believed in was the bond adhesive for her dentures.

I understand, because there was a period where African Americans were not allowed to invest. There was redlining, and so the traditional ways to build wealth were not accessible to us the way it was for the majority population. Then she feared banks; she feared anything that she didn't understand. What she understood is I put my savings in it, it give me my savings back with a little bit of money.

It took me a long time to shake that fear of the market myself. I was a extremely conservative investor when I started in my late 20s, when my company opened up a 401(k) plan. I had them all in bonds through my 20s. Most of my 30s. I could just kick my younger self.

And then I had the fortunate, my husband and I had fortunate, we were fortunate enough to meet a financial planner, African-American woman who just changed our investing life. She looked at how we were both investing for retirement, and she was like, what is wrong with you all? She talked about diversification, and she got us so much out of bonds and more in equities, and she talked about 529 plan for our kids' college fund, and she just redid everything and really pushed us to invest.

I'm so grateful, because we are so well situated for our retirement. We put all three of our children through college debt free. One of them, a master's program debt-free. That was because of the work with the planner.

Now, we're much more sophisticated. We don't necessarily need a planner now, but we bring one in every once in a while to basically break our plan. It's really funny. It's like, OK, look at this and see if you could break it, see where the holes are. It's cool when they go no, can't find the holes.

How do you find a planner? Recommendations from people who have worked with somebody. You want to view at least three people, and then there are many associations that you can tap. They have a network of advisors.

Most of the time, I say fee-only. If you're not going to use a fee-only, you better darn well know what they are getting paid. You ask them, how are you paid?

When you sit down with an advisor, they ought to be listening to you more than they're talking. What are your hopes and dreams, what are your financial goals, what are you afraid of? How risky do you want to be?

If they're like, you should do this, this, this, this, and that in a first meeting, that is not a good planner. They shouldn't be listening to the holistic picture of what you are financially. Like, for example, my husband and I tithe: We give 10% of our gross income to our local church as part of our charitable giving. A lot of planners are like, what? You should be putting that money in the market. Now saying no, that is not our value.

Someone who is trying to push us to not do that, that is not the planner for us, and also why we hate debt. We met with a planner who was so cute. We were thinking about maybe we wanted a second home, like in a warm place or something like that, but we want to pay cash for it. He's like, well, I don't know, do you want to pay cash? We were seizing, because he knew how I felt about that. He's like, I'm just joking. I know you're not go buy it even though... I love that about him, that he already knew that they'll be trying to propose nothing to hide anything with debt with me.

You want to look at it for planner where it's going to be symbiotic relationship where they're listening to you, they understand your risk tolerance, and they build a plan based on you and not what they need to sell.

Robert Brokamp: Great advice. Some of the networks that we often mention here at The Motley Fool are NAPFA, the Garrett Planning Network, and the XY Planning Network. If you liked Michelle's advice, those are some places where you can find a fee-only financial planner.

Chris Hill: As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.