Transcript
Brett McKay:
Brett McKay here, and welcome to another edition of the Art of Manliness Podcast. Do you have a not so rosy financial history and are worried that you’re going to pass on your bad money habits to your kids? My guest today on the show says you needn’t worry with a bit of thought and some self-education, you can clean up your own money problems while simultaneously teaching your children how to avoid the mistakes you’ve made yourself. Her name is Beth Kobliner. She’s the author of one of my favorite personal finance books, Get a Financial Life. And in her latest book, she shares research-backed advice on how to teach your kids the principles of sound personal finance. Beth shares the research at which age most kids develop their money habits they’ll have for the rest of their life, and it’s surprisingly young and provides some basic guidelines of what you should and should not talk about with your children when it comes to money.
We then dig into specific tactics on teaching your kids, whether they’re in preschool or college, about savings, work, insurance, and even debt. Even if you don’t have kids, you’re going to find some useful reminders about getting your financial life in order in this podcast. For those of you thinking about getting married soon, Beth shares some fascinating research on how the amount you spend on the engagement ring and wedding ceremony correlates with the marital success and happiness of your future marriage. Definitely provides some conversation fodder to discuss with your significant other. After the show’s over, check out the show notes at aom.is/kobliner. That’s K-O-B-L-I-N-E-R. Beth Kobliner, welcome to the show.
Beth Kobliner:
Oh, it’s so great to be here.
Brett McKay:
I’ve been a fan of your work. You wrote a book, Get a Financial Life a couple years ago. It’s been a great resource for me personally, but it’s been a go-to resource when I’ve written personal finance content on the site because you do such a great job just explaining things in layman’s terms and you hit all the essentials, which is fantastic. You got a new book out. It’s called Make Your Kid a Money Genius, Even If You’re Not. So here’s the first question. How is it possible if you’re a parent and you’re not a money genius, you’re terrible with money, how’s it possible to make your kid a money genius if you don’t have money genius?
Beth Kobliner:
I’ve been writing about personal finance now for 30 years and I feel like the best kept secret is how you really just need to teach your kids a few basic concepts. And if you know those basic concepts, you’re ahead of the game and that makes you and you then make your kid a money genius because you know more than most people know, which is very simple advice about how do you teach your kid about delayed gratification and saving? And what is the research? It’s a lot of research based. How do you teach your kid about the magic of compound interest? Or how do you talk about saving when a kid, all they really want is a Shopkins or another Lego set? How do you talk about these concepts? And there’s some really interesting research out there, but I think the most important point is that everyone has some financial baggage.
I meet people who came from parents who were great savers and the people say, well, now they’re grown up kids say, I’m not a good saver because my parents were so thrifty and I want to live life. And I’ve met the reverse. I’m a terrible saver because my parents were terrible savers. Nobody ever taught it to me. But whatever your financial baggage is, I think it’s so important as a parent to set that aside and go through the basic concepts of money to impart them to your kids. And I do that in this book and I’ve been sort of going all around the country to 20 cities and it’s been fascinating to talk to some parents who are investment managers but never talk to their kids. Some parents who are horribly ashamed of the credit card debt they still have, but they realize they still need to talk to their kids about money basic. So reading the book is a way to teach yourself to then teach your kid about money.
Brett McKay:
Yeah, that’s what I was thinking. I mean, a lot of the stuff in here, it’s stuff that any adult should know. So as you’re reading this, you’re going to learn this stuff and then you can impart it to your kids.
Beth Kobliner:
Right. And some people are telling me it’s sort of like, I’m pretending to read it for my kids, but really I’m learning about inflation and retirement accounts that I should have paid attention to a while ago. But the book really does focus on a wide age range with age appropriate advice, what you need to teach kids as young as age three, which research shows that they start understanding basic money concepts all the way up to 23 when our kids are often finished with college hopefully, but also probably living on your couch. So that wide range of kids is what the book speaks to and it really talks to parents how to talk to them.
Brett McKay:
What I thought was interesting, why it’s so important to start talking to your kids about money, even when they’re three years old, is that their money habits are established pretty early in life, aren’t they?
Beth Kobliner:
Yeah. I mean, it’s interesting. By age three, kids can understand basic money concepts like exchange or they can understand value and even understand making choices. We can buy two apples or three bananas with our dollar. Those kinds of choices are important to have with children, to let them have those choices and talk about those concepts at very young ages. We also know by age seven, some money habits are actually set, things like impulse control. So you want to talk, that’s a real sweet spot between age three and age seven about money. It’s not that you can’t talk to them more at age eight and you have to all through their teenage and then early 20s, but starting early is really, I think, makes it a whole lot easier for you as a parent.
Brett McKay:
But it is possible to say you’re getting a late start, your kids are in their teenage years and they got some bad money habits. Are you able to correct that as a parent or help correct that?
Beth Kobliner:
Absolutely. I think like any parenting advice, it makes it easier for you if you start earlier, but when you start, it’s absolutely possible to talk to a teenager about, first of all, in middle school, you start talking about their college and instead of putting stress and pressure on the whole topic, talking about how we’re going to approach this as a family. And that’s why I have a whole chapter on paying for college and talking about finding an affordable college for your family that’s also a great place for your kid. And all of those topics, even if a kid has a part-time job, first of all, does it make sense for your child if they don’t need a part-time job to help the family with its budget? How do you figure out a way, does your kid work? Instead, does your kid do other extracurricular activities?
Or if they do work and they make money in the summers, how do they save that money? They’re great ideas for even opening a very, very small Roth IRA. When you start at very young ages, you save $100 a year from age 10 to age 20 in a Roth IRA and never look at it again until you stop working, you can easily have $50,000 in that account alone. So little tips that can help parents show their kids the importance of saving is really key and you can have an entry level at every age.
Brett McKay:
And we’ll get into detail more some of these tips because they’re great, but I’d like to talk high level here.
Beth Kobliner:
Sure.
Brett McKay:
So we need to start talking early to our kids about money, age three. How should those talks be? Because I think a lot of parents that are uncomfortable talking to their kids about money. I’m sure every parent’s been asked that question like, how much do you make, dad? Do I talk about that? So what things should you talk about with your kid and are there things you should avoid talking about when it comes to money?
Beth Kobliner:
Right. Well, I think with as young as age three, you can really start talking about basics like I make money from working and I have a job and let your kid bring your kid to your job and just explaining that concept. There’s a woman in my office who thought her dad’s job was to read the newspaper every day since he left home and had the newspaper under his arms. So she didn’t understand until years later that he was a teacher. So just explaining to your kid, you have a job and you make money from that job and that helps buy food and clothes and those basic concepts. But when it comes to kids asking bigger questions like how much money do you make, I don’t think you really need to answer that question directly, especially if a child’s young, say 11, 10, 9, those ages, because I don’t think they really have context.
Once a kid starts becoming closer to age to applying for college and you’re filling out the financial aid form, then it may make sense to say, look, this is how much we have and this is how much we’ve saved or didn’t save for college and this is how much we’re able to afford. And I go through a really step-by-step analysis of that. But when it comes to how much money you don’t have to tell your kid what your salary is, how much money you have in your 401 probably best to avoid how much you pay a babysitter or why your Aunt Louise is cheap, but your Uncle John is really rich. All those kind of comments are probably best left unsaid unless there’s a particular reason, again, like your kid is applying for college and you need to sort of buckle down and explain what you have to pay for it.
Brett McKay:
Right. That advice about not telling your kid how much you pay the babysitter, I thought it was pretty good because it gives your kids leverage in situations to be like, “Well, my dad pays you blah, so you got to do what I say.” We don’t want that to happen.
Beth Kobliner:
Right. And they’re not the boss. The parent is the boss and the babysitter works for the parent. And it’s really important, I think, especially with young kids to keep those lines very clear. First of all, a lot of younger children don’t realize the babysitter is paid at all. They think there’s just like a grownup who wants to hang out with them and why wouldn’t they? But I think that as kids get older, you want to be careful about not empowering them with so much information that when you go to the parent teacher conference, your teacher not only knows how much you have in your 401k, but how it did last year and what your salary is. Because I think kids also really just don’t know what to do with that information. You can say, “You know what? The median salary in our country for a family is about $65,000.” And then go from there.
We make a little more of that and we’re very comfortable and we’re so lucky we have a home and food and clothes, or we make a little less than that. And that’s why we have to be really careful. I know we want to go on a trip like our neighbors, but we can’t, but we could do is have our weekly family pizza night or whatever.That’s something that comes up a lot. Parents saying that they have trouble when their kids start asking them questions about why aren’t we going on this vacation like the neighbors or why can’t I buy these $300 sneakers like my best friend has? And I think talking about it very directly and honestly with kids and saying, “Yeah, there’s some things I’d like too, but we don’t have them, but we have this other family thing. We’re not going on a trip to Tahiti, but we have a ping pong table in our basement, so we have fun doing that.” Whatever it is, I think those kind of conversations are very important to have with kids.
Brett McKay:
Yeah. Never lie to them though. Never say, “I don’t have any money.”
Beth Kobliner:
Even though that’s really important. First of all, you’re going to get burned. If you say you’re in a store and they’re like, “Oh, can we buy this?” And you say, “I don’t have money.” And then you use your credit card a minute later to buy a coffee for yourself, they see that and they either think you’re lying or they don’t understand what’s going on, which is another big issue. Most younger kids haven’t seen cash before. So they see card swiping and phone swiping with Apple Pay and Venmo. So that’s one issue. But also just the lying factor, you lose credibility. It’s better to say, “You know what? We’re not here to buy that now. Maybe we can put it on your wishlist for your birthday or holidays.” There are so many different techniques and ways to move along and get your kids to understand they’re not going to get what they’re asking for when they want it.
And there’s even research that shows when you give in at the checkout line to a child repeatedly, that those children were then tracked and it found kids whose parents did that were more likely to have financial problems and specifically debt problems when they were young adults. So you want to say no. You want to make sure your kid knows that his impulses are not going to be indulged every time they want something because that teaches them that they’re going to have to wait for something that they want.
Brett McKay:
Right. Well, another solution to that for those impulse buys is providing your kids an allowance so they can learn how to make financial decisions with their own money.
Beth Kobliner:
Right.
Brett McKay:
So what’s your take on allowance? Everyone’s got an opinion on allowance.
Beth Kobliner:
Right. Allowance really is one of those big hot button issues. And because of that, I decided to look at the research and believe it or not, there are about two dozen studies that have been done on allowance from all over the world. And after looking at them, the bottom line is it doesn’t really matter if you give your kids allowance or not in the sense that it doesn’t make your kid brilliant at money by giving them allowance and it doesn’t make them worse because some people and some studies actually showed that when you give kids allowance, it could make them feel more entitled because they’re not earning that money necessarily. It’s sort of across the board, but there are three things you really need to do if you’re giving your kid money, whether it’s through a regular allowance or they sometimes get money from their grandparents or from you is to first be clear and realistic.
What are they expected to use that money for? You can say it’s for, when you’re going to so many birthday parties, it’s to buy your friends birthday presents when if you’re only giving them $5 a month or $10, even $5 a week, it may not be enough to buy a present for each party. So being realistic and then setting, keeping to that, being consistent. And if you say, “Well, I’ll pay for a concert with your friends this time, but next time you have to pay for it for your own money,” you have to be consistent and really stick with that. And it’s hard because kids pull on our heartstrings and say, “But everyone’s going and I want to do it.” And that’s when you have to really be consistent. And the final one is not to tie allowance to chores.
Brett McKay:
Yeah, that’s the kicker one. That’s the thing people argue about the most, I feel like.
Beth Kobliner:
Right. Well, again, looking at the research, it shows there was this really interesting study done out of University of Minnesota and it found that kids who were given basic household chores like making the bed or putting the dishes in the dishwasher at very young ages, four, five, six, and they were consistently doing those chores and were not paid by their parents, those kids when tracked over time, built up a sense of responsibility and the notion of contributing to a family. And then those kids were shown to be more likely to go on to finish school or even start a career. So the responsibility that comes with being a team player and not being paid for chores seems to be a very important factor in a child’s development and building up habits that help them throughout life.
Brett McKay:
Right. I guess a compromise to that is you don’t pay allowance for basic chores, but you’ll pay for work above and beyond. Say the kid, “Hey dad, I noticed this needs done. Will you pay me $5?” And you have to talk about that.
Beth Kobliner:
Yeah, that’s a great point. I absolutely agree. One off chores that you’d pay someone maybe to do anyway. I’m still not good at organizing photos on my computer. So sometimes I’ll throw my kid a $10 bill. Could you really organize all these birthday pictures from the last 10 years and put them in files for me? And that kind of thing that you probably pay someone else to do it anyway. I think that’s really fine. It’s just those regular chores of everyday life, putting your clothes in the hamper, those kind of things should be part of internally intrinsic to a child, being a member of the family, it’s doing those chores.
Brett McKay:
Gotcha. So let’s say you’re paying your kid a regular allowance, whatever it is, you want to teach them to save some of that money, set aside for long-term goals at different phases of their life. Say he’s in elementary school, what’s the best approach? You open up a bank account or you just use a save jar. At what point do you introduce financial institutions to your child?
Beth Kobliner:
Yeah, great question. I think that first, I would say for kids, kindergarten, first grade, younger than that, having jars by far is the best way, first grade, second grade, because they see the money building up. And the whole thing here is just making a goal. Your kid wants a Lego set and you like, well, you have six of them, you’re going to have to wait for your birthday or you can save up for it. Having a jar or a piggy bank and putting money into that when they get their allowance or money from grandparents too, and having that. And you could teach opportunity cost in the sense that if your kid walks home from school every day and they have a dollar to buy a snack, you could say, “You know what? You can spend it on the snack or you could put it in the jar and you’re going to get to that goal faster.” I do think that opening a bank account makes sense for kids as young as five, six.
I think that they enjoy the experience. It feels like a rite of passage. Now, of course, interest rates are quite low right now. Hopefully they’ll be going up a little bit, but just the experience of opening a bank account, there’s some banks that offer special, slightly higher rates for kids so you can shop around for that. But when I was a kid, there was pass book savings account and everyone had a pass book savings account because it was really a way to feel like a grownup and start saving your money and you’d get it stamped each time you go into the bank. That doesn’t sadly exist in most places, but you still can have that experience of taking money seriously and call in advance ideally and get a bank manager there who can explain to your kid and make it a nice experience. And I found that, and parents have told me that that experience makes it kind of concrete in a way and encourages them.
And you don’t have the bank passbook savings account, but you can print out a statement and show, wow, you have more money and every time you put money in, you have more money and a teeny bit of extra money interest.
Brett McKay:
Right. And that’s an opportunity to teach your child about interest, that you make money on your money.
Beth Kobliner:
Exactly. Exactly. Interest is free money. You get a little bit extra. And when they get into maybe the later elementary school years or even middle school years, you can talk about, you know what? We can transfer the money to an online bank that might pay 1% or even higher now. So if they’re interested in that, I think some kids get really into the idea of how can I make the most of my money? And other kids are just happy to know, okay, it’s in a very safe place, just so you know. And you could teach them about why it’s safe and the federal government guarantees it. And you know that this is a place that you can save up money for something you really, really want one day.
Brett McKay:
Right. And earlier you recommended even opening up a Roth IRA for your child. So what’s the approach? Do you open it up in their name? It’s like it’s their Roth IRA?
Beth Kobliner:
Yeah. Well, when you have say a high schooler who has either a part-time job, and just to tap on that for one second, research shows that having a part-time job during high school is fine as long as your kid keeps the hours under 15 hours a week. Once you get beyond 15 hours a week, and that’s including weekends, those, it tends to, on average, cut into kids’ grades. So it’s good to keep in mind, and some kids in high school get part-time jobs and they love the idea of making money. So you spend much more time on those part-time jobs than doing their homework. And so you want to keep that balance and make sure it’s not over 15 hours. But when they start earning money, maybe in the summer, you can really encourage your kid. If you make $500, open a Roth IRA and you could show them these examples of how money, when it grows free from tax as it would in this Roth IRA, it’s called a retirement account, but it’s really a super smart savings account.
It grows exponentially quickly. And starting when you’re 15, 16 makes your money, it will grow so quickly. And even if you don’t put money in it again, it’s a great way to save for the few years you’re making some extra cash, but you could only put in as much as you earn. So you might want to say to your kid, “All right, you earned $500. I’m going to give you 250, you put in 250 to your Roth IRA, and then you could keep that other 250 to yourself.” In other words, you could only put in as much as you earn, but you as a parent can kick in some. And that’s where at any age, matching your kids’ money, if that’s something you can’t afford, is a great incentive for getting your kids to save more.
Brett McKay:
That’s awesome. I love that. And also when you open up the Roth IRA, it’s an opportunity to talk about investing about the stock market.
Beth Kobliner:
Exactly. What’s interesting now is there are ways to invest money at very small amounts. I’m a real fan of index funds, which are low cost investments, and you can get them at companies like Schwab and Vanguard. And I don’t work for any of these companies. They’re just my favorites because they have very low expenses. They’re much cheaper ways to get into them. But also there’s something called ETFs, exchange traded funds. And I go through the details in my book, but the bottom line is there, at least at Vanguard, you could start with as little as one share, which would cost about $100. And that’s a very good way to introduce a kid to investing, to learn about it, to own it with not a lot of money.
Brett McKay:
Right. And besides actually investing money in the stock market, are there other ways you can talk about investing in the stock market with your kids when they’re say in elementary
Beth Kobliner:
School? Yeah. I mean, I think that when it comes to the topic of investing, a lot of parents sort of go to the, first off, think, “Well, we’ll track a stock and we’ll play a stock market game with pretend money.” And that’s absolutely fine if a kid is into it, but I’m not a big fan of… I know people who gave their 16 year old a chunk of money and said, “Okay, now you could invest it for fun.” I think if the kid makes a lot of money, they’re like, “I’m a genius,” and it’s luck. Or if the kid loses all the money, they think, “Oh, that’s bad. I’m never going to put my money in the stock market.” But I think something as young as my favorite book to read to my kids, they’re all pretty much grown now, but The Little Red Hen, the story of the one hen was getting the grain and making the flour.
I’m not a baker, so I don’t know exactly how you make bread, but doing all the things to make the bread and the other animals watch on and don’t help. But in the end, the hen says, “No, I put the time and effort and investment into this bread and this is not something that you guys get to jump on and eat the bread. You have to really work for it.” And those kind of stories I think are interesting to kids. I think making it clear to your kid that playing the lottery is a really bad investment. I have a fun chart in my book that our chances of winning the Olympics or being in the Olympics or becoming a movie star are actually better than our chances of winning the Powerball ticket for the lottery. So what makes sense and what doesn’t make sense? And there’s a good website, investor.gov that lets you put in different numbers and see how quickly an investment will grow if you get a 2% rate of return versus a 7% rate of return.
And not all kids are interested in this, but I think starting these conversations, particularly with daughters, because research does show we talk to our sons much more about money and investing than we do talk to our daughters, and obviously that’s a real mistake and we have to try hard to notice when we do that. One guy I know who’s a great guy, who runs a nonprofit, after he read my book, he said to me, “I realize I joke with my daughter about how much she spends shopping, and I talked to my son about stock investing and I kind of never realized how sexist I was being until I thought about it.” I think that is something that just being aware of it can change your patterns.
Brett McKay:
Gotcha. That’s good advice for all the dads out there. So debt is another issue you tackle in this book and debt can be kind of hard to explain to an elementary school kid because it’s like negative numbers, right? And that’s a very abstract concept. So how do you start talking about debt and what it is to say a five year old?
Beth Kobliner:
Right. Absolutely. I think the first one is that you can’t always get what you want, like the song, and you have to make it clear that we might want something, but if we don’t have the money to pay for it, we’re not going to buy it. And that’s very hard to explain to kids nowadays because they don’t see us using cash. They see us using cards and plastic and they see us using our phones. I’m a real believer, and this is a little bit of a radical idea, but with young kids, when you’re giving allowance, make sure to give them cash. When you’re buying things in a store, make sure to use cash sometimes. Let them see you use cash. Because without using cash, you’re not really realizing that you’re teaching them counting, you’re teaching them how to make change, you’re teaching them that money’s a finite thing.
I know when my daughter was younger, she went shopping with some friends when she was a teenager, like 13, and she said, “Oh, my friend’s parents are giving them a debit card or a credit card.” I said, “No, I’m giving you cash because I know…” And sure enough, she came back and said, “Oh, I bought three things, but when I hit the limit of $50, the things I bought cost $53, I had to put one thing back because I didn’t have the money to pay for it.” And I think cards make that deceptive. So making that point to kids is probably the most important thing you could do to letting them know that cash is really what money is about, but also teaching them that a credit card is a kind of loan. And when you buy something on a credit card, if you don’t pay it back immediately, you’re paying extra money, interest to a credit card company.
And just like we like getting interest from a bank, we don’t like paying out interest to a credit card company because it makes if you buy an iPad for $800, it really is costing you closer to $1,500 if you put it on a credit card and only pay the minimums. So starting that discussion early and often I think is really important. Just like we know we should talk to kids about smoking at young ages or not smoking and talking to kids about not drinking at young ages. We should also talk to kids about credit card debt and that just can be really not only expensive, but stressful in people’s lives if they can’t afford what they buy.
Brett McKay:
Right. Yeah. One thing I do with my son, Gus, he’s six, that teach me the concept of debt is say we go somewhere, usually if he wants to buy something, he’ll bring his money, spending money along his allowance. Let’s say he doesn’t do that and he sees something that he wants. We’ll say, “You can get it, but when we get home, you have to pay mom and dad back. We’ll give you a loan.” It’s kind of funny to see his reaction. He’ll buy the thing right then, he gets it and he’s really happy. Then we get home and here we are collecting the debt and he starts getting really sad. He’s like, “Oh, this is so terrible. I have to give my money away.” But I think that’s one way is just float a loan to your kid short term and then be a debt collector.
Beth Kobliner:
Right. Tell them how generous you are that you’re not charging them interest. If I bought this on my credit card, it’d be extra money. Or just trying to… For the six-year-old, that’s probably a little bit complicated, but it’s awesome that you’re doing that. And I agree with you. Once you’re out, you can say, “You know what? It’s okay you don’t have your money. We’ll give you the money.” But do you ever get home and say, “Eh, forget it,” or do you always make him pay you?
Brett McKay:
No, we always make him pay us.
Beth Kobliner:
That’s awesome.
Brett McKay:
I remember that stuff.
Beth Kobliner:
Yeah, that’s awesome. That’s exactly… I think just by doing that, you know he is getting it. He knows it’s probably really hard for him. He’s like, “Oh, I didn’t think I really want the doctor off.”
Brett McKay:
He gets so sad.
Beth Kobliner:
He’ll remember that the next time or you remind him of that the next time. And I think that’s what it’s all about. And even with older kids, we gave our kids… We have two kids in college, and when I was in college, my parents didn’t have any money to give me, so I were… Had jobs and our kids, our daughter works, but she also, we decided to give her a little extra money beyond she gets her food, the meal plan at school. And man, is she good at making sure not to spend that money because she is very aware it’s her money or she sees it as that way and is very careful about making choices. And that’s money she has to use if she wants to go on a weekend away with friends or that’s on her completely. And she will spend hours trying to find, in one case for spring break, kids were flying for a ski weekend and she doesn’t even ski, but she wanted to go.
And she was like, “Well, I can fly or I can take the train.” And she ended up taking the eight hour train because she saved $300 than if she flew. And at a moment there, I was saying to my husband, “Oh, we’re letting her go on a train for such a long train trip.” And I stopped myself and he reminded me, “You’re the personal finance person. That’s important. You have to stick to it.” And it’s hard as a parent sometimes, but you’re doing such a good thing for your kid. And we did and she took the long trade ride and got her homework done and it was great.
Brett McKay:
That’s awesome. So you devoted a section that I thought was really interesting about money and weddings. And I’m sure there’s listeners who have kids who are about to get married or there’s people who are listening to this podcast who are about to get married and they’re trying to figure out how much should I spend on an engagement ring? How much should we spend on the wedding itself? So what does the research say about those two things, engagement rings and the wedding ceremony itself?
Beth Kobliner:
Right. Well, for the ring, it’s very important to buy a ring you can easily afford. I know for a while there was this sort of myth floating around that an engagement ring should be equal to two months salary. And as best as I could, I trace that back to the diamond companies who figure out formulas that really result in people feeling like they should spend more money on a ring than they should. There is a cool study from Emory University that found that when a man spends between 2,000 and $4,000 on an engagement ring, he and his spouse were more likely to divorce than when a couple paid between 500 and $2,000 for a ring. And one, we don’t know the exact explanation for that, but it could be that the couple didn’t have to go into debt for buying the ring. And a similar kind of thing when it comes to weddings, the less money you spend on the wedding, research has shown the longer your marriage is likely to last, which I think is just amazing and really important for young people to hear.
Brett McKay:
Right. And what do you do if you’re a guy and you’re like, “Okay, this sounds good. I want my marriage to last and I don’t want to spend that much money.” But your fiance is like, “No, I want the big awesome wedding that you see on TLC.” What happens when you have that conflict there?
Beth Kobliner:
Yeah. It’s tricky. I think they should show them this part from my book on page 118 and 119. If they want to even go into a store, take a picture of that page, I’m fine with that to show their future spouse. But really also just to talk about it and say, maybe there are ways we can do this that look great or we focus on what we really want and we skip the flowers. I’m hearing so many people are like, “We’re not going to have flowers. We’re going to do this in a way that we can afford. And really what we want is a down payment on our home. So we’re going to take any money we would have paid on extras, figure out a way to make it look beautiful because a wedding’s all about the bride and groom’s mood and that’s no study.
That’s just me having been married for 24 years and my parents were happily married for 65 years. But I think that talking that through and not making it a tense conversation, but hey, let’s decide as a couple what we want and being realistic about it and sitting down. And it’s great to have ideas of what… We all want great things, but what do we want as a couple? And the fact is I think you’re going to need to be able to have those conversations throughout a marriage and expectations and talking about values is really important now. And if it can be done without judgment of we can’t afford that, that’s crazy or wow, you’re so cheap. Why won’t you want to do this?” It’s just calming down and discussing it, I think is so, so important. And really in order to be good at money as a couple and then eventually good as money as parents, you need to have those conversations.
Brett McKay:
Right. Make sure you’re lined up on the same page. So another concept you dig into that you should give explanations how you can talk about it is insurance, which is funny because I don’t know how the conversation came up between me and my six year old, but he asked me, “What’s insurance? What’s car insurance?” I’ll be honest, it was hard to –
Beth Kobliner:
He’s a smarty. I like him.
Brett McKay:
Yeah. I was having a hard time explaining to him. I was like, “Well, we pay this money in case we get in a wreck and then we get some money back if we get in a wreck.” And I could tell he was kind of having a hard time wrap his mind around it. So how do you start explaining about the importance of insurance or what insurance does to your kids during various phases of their life?
Beth Kobliner:
Yeah. I mean, it’s sort of an interesting concept, which I put a whole chapter on insurance in my book. And I feel like with young kids, just there are things you can do to protect yourself and your stuff. And the basics of when we scotch guard shoes to protect them from the rain or we tie mittens on a string through loops through a coat of an arm to make sure we don’t lose our mittens, those are ways we’re trying to protect ourselves. And we do that with the stuff we own too. And we also do that with our bodies. I think the easiest way to start these conversations is when you go to the doctor, hopefully you have insurance and you start talking with your son about when you go to the doctor, often you show them your card, which is an insurance card. And that means that some of the cost of going to the doctor is paid by an insurance company and some of it is paid by us as the people who were treated by the doctor.
And what’s nice is that if we ever have big expenses, if we break our arm or sprain our ankle, it can cost a lot of money. So we know that we’re protected, that this insurance is going to help us pay for some of that expense. And kids could really understand when you go through that very clear, if you go through a clear explanation like that, you can say just like with the car, if we get hurt in the car or we accidentally hit something and it dents the car, that would cost a lot of money. So we wouldn’t want to spend all our money on it. So by getting insurance, we pay them a little bit a month or a little bit a year. And then if something happens, they will come in and pay that big bill. Now, obviously that’s a simplified explanation of insurance and you might want to roll your eyes and say, “Gee, we think they should be paying more for than they are.” But if you can kind of leave out the sarcasm on that one and really explain to your kid what the point is, insurance protects us from really big losses.
And if we have an accident and we get hurt ourselves, damage, something happens with our body or our house, that this will protect us and help us pay for that damage. And I think probably that kind of explanation, if you repeat it in different ways at different times and kids are interested, you can talk to them. I also have a box on Lloyd’s of London, that cool insurance company in London, which it’s been reported. I don’t know for sure, but super model Heidi Klum’s legs were once insured for a couple million dollars. And David Beckham, same with him so that people insure things that are of real value to you. And it was rumored Bruce Springsteen insured his voice. All those things kind of make it, it’s a fun way of explaining the concept of insurance as well.
Brett McKay:
Right. And then as they get older and maybe your kids start making some big consumer purchases like computers or things like that, opportunity to talk about insurance that you might not need, that’s not useful. It’s just a big money grab for the company.
Beth Kobliner:
Yeah. Really good point. I mean, you want to talk about you need health insurance when you go to college, you need car insurance if you’re driving the car. And that may or may not be something. If you have a high schooler, do you want him to chip in on it or not? And if you’re willing to pay it for him, then it’s good to tell him this is what it costs and this is what we’re paying and just to let him know. But you usually don’t and shouldn’t get things like extended warranties or service contracts when you buy compliances. They often will say, do you want the extended warranty? And usually it doesn’t make sense because people are more likely odds are to replace the item and need a new one before they actually take advantage of the warranty or you don’t need airline insurance if you fly.
I think that there are all kinds of different, like laptop insurance. It kind of depends. If you are able to set enough money aside for repair or even a new computer, you probably don’t need it. But if you’re clumsy and you may benefit from a one year policy as my daughter did, then it may make sense to buy it. But I do go through all the different kinds of insurance. It’s important to know whether they really pay off or not and also what your habits are and is it something that would make sense for you. But often when you’re talking about insuring small things, it’s probably better to skip it.
Brett McKay:
Gotcha. Well, Beth, we’ve been talking about what parents can do to raise money geniuses, but let’s say as you talk to these things about your kid, you hopefully will start putting things in order in your own financial life. But in your years as a financial person, what are some of the big, the small changes that adults can make in their financial life that has an immediate ROI where it starts clearing things –
Beth Kobliner:
Return on investment. Yeah.
Brett McKay:
Right.
Beth Kobliner:
And in my book, the last chapter is really advice for parents, like what you need to know about your own financial life. And of course, having health insurance is a no-brainer. Having life insurance if you have kids is really important, but you want to stick with term life insurance, which is way cheaper than pretty much anything else. But I think some of the real basics are pay off high rate debt. If you have a credit card that’s charging a rate of 18%, paying it off is the equivalent of earning 18% on your money guaranteed after taxes and you can’t really earn that anywhere. The other big one, even maybe before paying off high rate debt is 401 s with matching. If you have a 401 at work, you absolutely should put in as much as the company will match. I spoke yesterday at a company and they matched dollar for dollar up to 5% of what people put in, which is a good deal.
And half the people admitted they hadn’t been contributing and that’s just leaving free money on the table. That’s actually dollar for dollar is 100% immediate return on your money. So max out of the 401 with matching, pay off high rate debt, using savings you have even. People say, “Oh, I don’t want to lose my savings.” But you have a chunk of money sitting in a bank account paying you less than 1%. You should use a big chunk of that to start paying off your high rate debt because if it’s sitting in the bank account, you’re basically earning zero. But if you have money on that credit card, you’re paying out way much more than that in interest payments. So paying off debt, starting to save in the up to a company will match, opening a Roth IRA is a really good idea. And then having an emergency cushion, trying to save money automatically.
In all these cases, particularly the savings, doing it automatically makes sense. I wrote my book, my first book, Get a Financial Life 20 years ago, actually when I was in my late 20s. And then I actually just came out this week with the 20th anniversary of Get a Financial Life on four millennials. So time flies, but it really is… I’ve had people come over to me who are in their late 50s and say, “I read your book 20 years ago and I put the most I could in my 401k and I am so glad I did because now I have a lot of money saved.” And it makes me feel great to know, and I think it’s important for people to know that small steps now make a huge difference later. And especially if you do it automatically, if you set it up, you just have it happen and you adjust your lifestyle to fit how much you have.
And I’ve had some millennials say… God, people in their 20s are amazing. They’re actually doing great in many ways. They actually do save more than certainly the Gen X generation or the baby boomer generation. But they’ll sometimes say, “But we have it really hard. We don’t have that much money.” And I agree, but I do know the great thing about getting older is I’m like, “Yep, everybody said that 25 years ago that when we were in our 20s, we couldn’t save either because it really was actually a very bad economy too, but you have to do it. You have to force yourself whatever you earn, if you can put away 3%, 5% of that, force yourself. It really can make a difference in the long run.”
Brett McKay:
Awesome. So pretty basic stuff. That’s the secret of personal finance. It’s all pretty basic.
Beth Kobliner:
Yeah. I mean, that’s why I call it make your kid a money genius even if you’re not, because a lot of people just don’t know the basics. Paying off your bills on time, that will get your credit score in order. You want a credit score of 700 or higher, and that will help you get better deals on mortgages and auto loans and credit cards. So keep your bills being paid on time, that’s key. And paying off the high rate debt and putting your money in a 401k with matching, that’s kind of the basics. And if you do that, you’re on a really good path.
Brett McKay:
You’re going to be good. Well, Beth, is there someplace people can go to learn more about your work?
Beth Kobliner:
Yeah, I have a website. It’s just bethkobliner.com. And the books are available online at the obvious places or in local bookstores. So there’s either Make our Kid a Money Genius or The New Totally Revised Get a Financial Life for millennials or people in their 20s and 30s.
Brett McKay:
Awesome. Well, Beth Kobliner, thank you so much for your time. It’s been a pleasure.
Beth Kobliner:
It’s been awesome. Thank you so much.
Brett McKay:
My guest today was Beth Kobliner. She’s the author of Get a Financial Life. Her latest book is Make Your Kid a Money Genius, even if you’re not. She’s also updated Get a Financial Life. Check it out. It’s a great book, my favorite. Those are both available on amazon.com. Also find out more information about Beth’s work at bethkobliner.com. Also check out our show notes at awim.is/kobliner where you can find links to resources where you can delve deeper into this topic.
