The Art of Manliness - #297： Make Your Kid a Money Genius

00:00:00.000 Brett McKay here and welcome to another edition of the Art of Manliness podcast. Do you have a

00:00:19.200 not so rosy financial history and are worried that you're going to pass on your bad money

00:00:22.600 habits to your kids? My guest today on the show says you needn't worry with a bit of thought and

00:00:26.480 some self-education. You can clean up your own money problems while simultaneously teaching

00:00:30.020 your children how to avoid mistakes you've made yourself. Her name is Beth Kobliner. She's the

00:00:33.760 author of one of my favorite personal finance books, Get a Financial Life. And in her latest

00:00:37.000 book, she shares research-backed advice on how to teach your kids the principles of sound personal

00:00:41.360 finance. Beth shares the research at which age most kids develop their money habits they'll have for

00:00:46.040 the rest of their life. And it's surprisingly young and provides some basic guidelines of what you

00:00:49.840 should and should not talk about with your children when it comes to money. We then dig into specific

00:00:53.500 tactics on teaching your kids, whether they're in preschool or college, about savings, work,

00:00:57.960 insurance, and even debt. Even if you don't have kids, you're going to find some useful reminders

00:01:01.440 about getting your financial life in order in this podcast. For those of you thinking about getting

00:01:04.900 married soon, Beth shares some fascinating research on how the amount you spend on the engagement ring

00:01:09.800 and wedding ceremony correlates with the marital success and happiness of your future marriage.

00:01:14.180 Definitely provides some conversation fodder discussed with your significant other.

00:01:17.280 After the show is over, check out the show notes at aom.is slash Kobliner. That's K-O-B-L-I-N-E-R. 1.00

00:01:23.500 Beth Kobliner, welcome to the show. Oh, it's so great to be here. I've been a fan of your work.

00:01:33.260 You wrote a book, How to Get a Financial Life, a couple years ago. It's been a great resource for

00:01:37.940 me personally, but it's been a go-to resource when I've written personal finance content on the site

00:01:43.300 because you do such a great job just explaining things in layman's terms and you hit all the

00:01:48.060 essentials, which is fantastic. You got a new book out. It's called Make Your Kid a Money Genius,

00:01:55.040 Even If You're Not. Here's the first question. How is it possible if you're a parent and you're not a

00:02:01.780 money genius, you're terrible with money, how is it possible to make your kid a money genius if you

00:02:07.320 don't have money genius? Right, in you. I've been writing about personal finance now for 30 years

00:02:13.340 and I feel like the best kept secret is how you really just need to teach your kids a few basic

00:02:21.760 concepts. If you know those basic concepts, you're ahead of the game and that makes you and you then

00:02:29.080 make your kid a money genius because you know more than most people know, which is very simple

00:02:35.680 advice about how do you teach your kid about delayed gratification and saving and what is the

00:02:42.280 research? It's a lot of research-based. How do you teach your kid about the magic of compound interest

00:02:47.480 or how do you talk about saving when a kid, all they really want is a Shopkins or another Lego set?

00:02:55.840 How do you talk about these concepts? And there's some really interesting research out there,

00:03:00.180 but I think the most important point is that everyone has some financial baggage. You know,

00:03:05.920 I meet people who came from parents who were great savers and the people say, well, now their grown-up

00:03:13.300 kids say I'm not a good saver because my parents were so thrifty and I want to live life. And I've met

00:03:19.660 the reverse. I'm a terrible saver because my parents were terrible savers. Nobody ever taught it to me.

00:03:24.160 But whatever your financial baggage is, I think it's so important as a parent to set that aside

00:03:30.000 and go through the basic concepts of money to impart them to your kids. You know, and I do that in this

00:03:39.300 book and I've been sort of going all around the country to 20 cities and it's been fascinating to

00:03:45.320 talk to some parents who are investment managers but never talk to their kids. Some parents who are

00:03:51.320 horribly ashamed of the credit card debt they still have, but they realize they still need to

00:03:57.340 talk to their kids about money basics. So reading the book is a way to teach yourself to then teach

00:04:03.160 your kid about money. Yeah, that's what I was thinking. I mean, a lot of the stuff in here,

00:04:06.680 it's stuff that any adult should know. So as you're reading this, you're going to learn this stuff and

00:04:11.240 then you can impart it to your kids. Right. And some people are telling me, it's sort of like,

00:04:14.900 I'm pretending to read it for my kids, but really I'm learning about, you know, inflation and

00:04:20.080 retirement accounts that I should have paid attention to a while ago. But the book really

00:04:24.360 does focus on a wide age range with age appropriate advice. What you need to teach kids as young as age

00:04:31.180 three, which research shows that they start understanding basic money concepts all the way up

00:04:36.740 to 23 when our kids are often finished with college, hopefully, but also probably living on

00:04:43.620 your couch. So that wide range of kids is what the book speaks to. And it really talks to parents how

00:04:52.100 to talk to them. What I thought was interesting, why it's so important to start talking to your kids

00:04:56.680 about money, even when they're three years old, is that their money habits are established pretty

00:05:01.380 early in life, aren't they? Yeah. Yeah. I mean, it's interesting by age three, kids can understand

00:05:06.900 basic money concepts like exchange, or they can understand value and even understand making

00:05:14.160 choices. We can buy, you know, two apples or three bananas with our dollar. Those kinds of choices are

00:05:21.520 important to have with children, to let them have those choices and talk about those concepts at very

00:05:28.240 young ages. We also know by age seven, some money habits are actually set. Things like, you know,

00:05:35.220 impulse control. So you want to talk, that's a real sweet spot between age three and age seven about

00:05:40.300 money. It's not that you can't talk to them more at age eight and you have to all through their

00:05:45.220 teenage and then early twenties. But starting early is really, I think, makes it a whole lot easier

00:05:51.020 for you as a parent. But it is possible, say you're getting a late start, your kids are in their

00:05:55.940 teenage years and they got some bad money habits. Are you able to correct that as a parent or help

00:06:00.300 correct that? Absolutely. I think like any parenting advice, you know, it's, it makes it easier for you

00:06:07.220 if you start earlier, but when you start, it's absolutely possible to talk to a teenager about,

00:06:12.860 you know, first of all, in middle school, you start talking about their college and, and instead of

00:06:18.320 putting stress and pressure on the whole topic, talking about how we're going to approach this as a

00:06:22.980 family. And that's why I have a whole chapter on paying for college and talking about finding an

00:06:28.960 affordable college for your family. That's also a good, great place for your kid. And all of those

00:06:35.320 topics, even if a kid has a part-time job, first of all, does it make sense for your child if they,

00:06:42.200 you know, don't need a part-time job to help the family with its budget? How do you figure out a way,

00:06:48.360 you know, does your kid work? Do you instead, does your kid do other extracurricular activities?

00:06:54.740 Or if they do work and they make money in the summers, how do they save that money? They're great

00:07:00.060 ideas for even opening a very, very small Roth IRA. When you start at very young ages, you know, you save

00:07:08.060 $100 a year from age 10 to age 20 in a Roth IRA and never look at it again until you're, you stop

00:07:16.980 working. You can easily have $50,000 in that account alone. So little tips that can help parents,

00:07:24.320 you know, show their kids the importance of saving is really key. And you can have an entry level at

00:07:30.140 every age. And we'll get into the detail more. Some of these tips are great, but I'd like to talk

00:07:34.460 high level here. Sure. So we need to start talking early to our kids about money, age three. How should

00:07:39.580 those talks be? Because I think a lot of parents, they're uncomfortable talking to their kids about

00:07:43.300 money. I'm sure every parent's been asked that question, like, how much do you make dad?

00:07:46.980 Right. You know, do I talk about that? So what things should you talk about with your kid? And

00:07:53.220 are there things you should avoid talking about when it comes to money?

00:07:56.140 Right. Well, I think with as young as age three, you can really start talking about basics. Like

00:08:01.680 I make money from working and I have a job and let your kid bring your kid to your job. And just

00:08:08.180 explaining that concept. There's a woman in my office who thought her dad's job was to read the

00:08:13.780 newspaper every day since he left home and had the newspaper under his arm. So she didn't understand

00:08:18.900 until years later that he was a teacher. So just explaining to your kid, you have a job and you

00:08:22.980 make money from that job and that helps buy food and clothes and those basic concepts. But when it

00:08:29.700 comes to kids asking bigger questions, like how much money do you make? I don't think you really need

00:08:35.160 to answer that question directly, especially if a child's young, say 11, 10, 9, those ages,

00:08:42.840 because I don't think they really have context. Once a kid starts becoming closer to age, you know,

00:08:49.460 to applying for college and you're filling out the financial aid form, then it may make sense to say,

00:08:55.480 look, you know, this is how much we have and this is how much we've saved or didn't save for college.

00:09:00.440 And this is how much we're able to afford. And I go through a really step-by-step analysis of that.

00:09:06.520 But when it comes to how much money you have, you don't have to tell your kid what your salary is,

00:09:10.740 how much money you have in your 401k, probably best to avoid, you know, how much you pay a babysitter

00:09:18.040 or, you know, why your aunt Louise is cheap, but your uncle John is really rich. You know,

00:09:24.780 all those kinds of, uh, comments are probably best left unsaid unless there's a particular reason,

00:09:31.820 again, like your kid is applying for college and you need to sort of buckle down and explain

00:09:36.200 the, what you have to pay for it. Right. Yeah. That advice about like not telling your

00:09:41.360 account what you pay the babysitter. I thought it was pretty good because it gives your kid

00:09:44.720 leverage and situation. You'd be like, well, my dad pays you blah, you know, so you gotta do what I say.

00:09:50.800 Right.

00:09:51.080 You don't want that to happen.

00:09:51.940 Right. And they're not the boss. You're the parent is the boss and the babysitter works for

00:09:57.280 the parent. And it's really important, I think, especially with young kids to keep those lines

00:10:02.360 very clear. First of all, a lot of younger children don't realize the babysitter is paid at all. They

00:10:07.960 think there's just like a grownup who wants to hang out with them and why wouldn't they? But I think

00:10:13.140 that, you know, as kids get older, you want to be careful about not empowering them with so much

00:10:19.760 information that when you go to the parent teacher conference, your, you know, teacher not only knows

00:10:24.740 how much you have in your 401k, but how it did last year and what your salary is. Because I think kids

00:10:30.660 also really just don't know what to do with that information. You can say, you know what? The median

00:10:35.640 salary in our country for a family is about $65,000 and then go from there. You know, we make a little

00:10:41.840 more of that and we're very comfortable and we're so lucky. We have a home and food and clothes,

00:10:45.840 or we make a little less than that. And that's why we have to be really careful. And when, you know,

00:10:50.640 I know we want to go on a trip like our neighbors, but we can't, but we could do is have, you know,

00:10:55.560 our weekly family pizza night or whatever. You know, that's something that comes up a lot. Parents

00:11:00.580 saying that they have trouble when their kids start asking them questions about why don't we have,

00:11:06.780 why aren't we going on this vacation like the neighbors? Or why can't I buy these $300 sneakers

00:11:12.720 like my best friend has? And I think talking about it very directly and honestly with kids

00:11:20.020 and saying, yeah, there's some things I'd like too, but we don't have them, but we have this other

00:11:25.680 family thing. You know, we're not going on a trip to Tahiti, but we have a ping pong table in our

00:11:31.060 basement. So we have fun doing that. Whatever it is, I think those kinds of conversations are very

00:11:37.020 important to have with kids. Yeah. Never lie to them though. Never say we don't have,

00:11:41.140 I don't have any money. Yeah. That's really important. First of all, you're going to get

00:11:44.820 burned. You know, if you say you're in a store and they're like, Oh, can we buy this? And you

00:11:48.760 say, I don't have money. And then you use your credit card in a minute, a minute later to buy a

00:11:52.920 coffee for yourself. They see that and they either think you're lying or they don't even,

00:11:58.180 they don't understand what's going on, which is another big issue. Most younger kids haven't seen

00:12:02.820 cash before. So they see card swiping and phone swiping with, you know, Apple pay and Venmo.

00:12:10.520 So that's, that's one issue, but also just the lying factor. You lose credibility. It's better

00:12:15.820 to say, you know what? We're not here to buy that now. Maybe we can put it on your wishlist for your

00:12:20.140 birthday or holidays, or there are so many different techniques and ways to move along and get your kids

00:12:26.900 to understand they're not going to get what they're asking for when they want it. And there's even

00:12:32.080 research that shows when you give in at the checkout line to a child repeatedly that those children were

00:12:39.500 then tracked and it found kids whose parents did that were more likely to have financial problems

00:12:46.160 and specifically debt problems when they were young adults. So you want to say no, you want to make sure

00:12:52.840 your kid knows that his impulses are not going to be indulged every time they want something because

00:12:59.780 that teaches them that they're going to have to wait, um, for something that they want.

00:13:04.740 Right. Well, another solution to that, um, for those impulse buys is providing your kids an allowance

00:13:10.440 so they can learn how to make financial decisions with their own money. Right. Correct. Right. So what's

00:13:17.140 your take on allowance? Everyone's got an opinion on allowance. Right. Allowance really is one of those

00:13:21.400 big hot button issues. And because of that, I decided to look at the research and believe it or not,

00:13:27.680 there are about two dozen studies that have been done on allowance from all over the world. And

00:13:33.200 after looking at them, the bottom line is it doesn't really matter if you give your kids allowance or not

00:13:39.560 in the sense that it doesn't make your kid brilliant at money by giving them allowance. And it doesn't make

00:13:45.360 them, you know, worse because some people and some studies actually showed that when you give a kid's

00:13:51.500 allowance, it could make them feel more entitled because they're not earning that money necessarily.

00:13:55.540 It's sort of across the board, but there's three things you really need to do. If you're giving

00:14:00.580 your kid money, whether it's through a regular allowance or they sometimes get money from their

00:14:05.380 grandparents or from you is to first be clear and realistic, you know, what are they expected to

00:14:11.660 use that money for? You can say it's for, you know, when you, you're going to so many birthday parties,

00:14:16.400 it's to buy your friends birthday presents. When, if you're only giving them $5, you know,

00:14:21.680 a month or $10, even $5 a week, it may not be enough to buy a present for each party.

00:14:28.440 So being realistic and then setting, you know, keeping to that, being consistent. And if you say,

00:14:34.560 well, I'll pay for a concert with your friends this time, but next time you have to pay for it for your

00:14:38.880 own money, you have to be consistent and really stick with that. And it's hard because kids pull

00:14:44.280 on our heartstrings and say, but everyone's going and I want to do it. And that's when you have to really

00:14:49.100 be consistent. And the final one is not to tie allowance to chores.

00:14:55.300 Yeah. That's the, that's the kicker one. That's the thing people argue about the most.

00:14:59.160 Right. Well, again, looking at the research, it shows there was this really interesting study

00:15:04.780 done out of university of Minnesota. And it found that kids who were given household, basic household

00:15:12.540 chores, like making the bed or, you know, putting the dishes in the dishwasher at very young ages,

00:15:18.220 four, five, six, and they were consistently doing those chores and were not paid by their parents.

00:15:24.260 Those kids, when tracked over time, built up a sense of responsibility and the, the notion of

00:15:31.140 contributing to a family. And then those kids were shown to be more likely to go on to finish school

00:15:39.520 or even start a career. So the responsibility that comes with being a team player and not being

00:15:45.880 paid for chores seems to be a very important factor in a child's development and building up habits that

00:15:54.120 help them throughout life. Right. I guess a compromise to that is you don't pay allowance for like basic

00:16:00.240 chores, but you'll pay for like work above and beyond. Like, you know, say the kid, Hey dad, I noticed

00:16:05.480 this needs done. Will you pay me $5? And you can have a talk about that. Yeah, that's a great point.

00:16:09.920 I absolutely agree. Like one off, one off chores that you'd pay someone maybe to do anyway. Like

00:16:16.260 I'm, I don't, I'm still not good at organizing photos on, you know, my, my computer. And I,

00:16:23.800 so sometimes I'll, you know, throw my kid a $10 bill, you know, could you, you know, really organize

00:16:29.660 all these birthday pictures in the last 10 years and put them in files for me and, and that kind of

00:16:35.620 thing that you'd probably pay someone else to do it anyway. It's, it's, I think that's really fine.

00:16:40.880 It's just those regular chores of everyday life, putting your clothes in the hamper, you know,

00:16:46.080 those kinds of things should be part of a, you know, internally intrinsic to a child being a member

00:16:51.940 of the family. It's doing those chores. Gotcha. So let's say you're paying your kid a regular

00:16:58.360 allowance, whatever it is. Um, you want to teach them to save some of that money set aside for long-term

00:17:03.640 goals at different phases of their life. Say he's in elementary school. What's the best approach?

00:17:08.160 You open up a bank account or you just use a save jar? At what point do you introduce, you know,

00:17:13.140 financial institutions to your child? Yeah. Great question. I think that first I would say

00:17:19.420 for kids, you know, kindergarten, first grade, younger than that, having jars by far is the best

00:17:25.580 way, you know, first grade, second grade, cause they see the money building up. And the whole thing

00:17:30.220 here is just making a goal. Your kid wants, you know, a Lego set and you like, well, you have six

00:17:37.700 of them, you know, you're gonna have to wait for your birthday or you can save up for it. Having a

00:17:42.080 jar or a piggy bank and putting money into that when they get their allowance or money from

00:17:46.880 grandparents too. And having that, you know, and you could teach opportunity cost in the sense that

00:17:53.020 if your kid walks home from school every day and they have a dollar to buy a snack, you could say,

00:17:57.660 you know what, you can spend it on the snack or you could put it in the jar and you're going to

00:18:01.060 get to that goal faster. I do think that opening a bank account makes sense for kids as young as

00:18:08.620 five, six. I think that they enjoy the experience. It feels like a rite of passage. Now, of course,

00:18:15.060 interest rates are quite low right now. Hopefully they'll be going up a little bit, but just the

00:18:19.920 experience of opening a bank account, there's some banks that offer special, slightly higher rates

00:18:24.300 for kids. So you can shop around for that. But when I was a kid, there was passbook savings account

00:18:29.920 and everyone had a passbook savings account because it was really a way to feel like a grownup and start

00:18:35.340 saving your money and you'd get it stamped each time you go into the bank. That doesn't sadly exist in

00:18:41.040 most places, but you still can have that experience of taking money seriously and, you know, call in

00:18:47.500 advance ideally and get a bank manager there who can explain to your kid and make it a nice

00:18:52.320 experience. And I found that, and parents have told me that that experience makes it kind of concrete

00:18:58.840 in a way and encourage the ZUM. And you don't have the bank passbook savings account, but you can

00:19:04.140 print out a statement and show, wow, you have more money. And every time you put money in,

00:19:09.120 you have more money and a teeny bit of extra money interest.

00:19:12.900 Right. And that's an opportunity to teach your child about interest, that you make money on your money.

00:19:17.540 Exactly. Exactly. My interest is free money. You get a little bit extra. And when they get into maybe,

00:19:23.200 you know, the later elementary school years or even middle school years, you can talk about,

00:19:27.800 you know what, we can transfer the money to an online bank that might pay 1% or even higher now.

00:19:34.420 So if they're interested in that, I think some kids get really into the idea of how can I make the

00:19:39.520 most of my money? And, and other kids are just, you know, happy to know, okay, it's in a very safe place,

00:19:45.020 just so you know, and you could tell, teach them about why it's safe and the federal government

00:19:49.460 guarantees it. And you know, that this is a place that you can save up money for something you really,

00:19:56.000 really want one day.

00:19:57.700 Right. And earlier you recommended even opening up a Roth IRA for your child. So what's the

00:20:03.120 approach that, do you open it up in their name? It's like that it's their Roth IRA.

00:20:06.780 Well, when you have say a high schooler who has either a part-time job and just to tap on that for

00:20:14.560 one second, research shows that having a part-time job during high school is fine. As long as your kid

00:20:22.220 keeps the hours under 15 hours a week, once you get beyond 15 hours a week, and that's including

00:20:28.660 weekends, those, it tends to on average cut into kids grades. So, you know, it's, it's good to keep

00:20:36.180 in mind and some kids in high school get a part-time jobs and they love the idea of making

00:20:40.380 money. So they kind of, you spend much more time on those part-time jobs than doing their homework.

00:20:46.360 And you see, you want to keep that balance and make sure it's not over 15 hours. But when they

00:20:50.920 start earning money, maybe in the summer, you can really encourage your kid. If you make $500,

00:20:57.260 open a Roth IRA and you could show them these examples of how money, when it grows free from tax,

00:21:04.040 as it would in this Roth IRA, it's called a retirement account, but it's really a super

00:21:08.300 smart savings account. It grows exponentially quickly. And starting when you're 15, 16 makes

00:21:15.440 your money will, it will grow so quickly. And even if you don't put money in it again, it's a great way

00:21:21.380 to save for the few years you're making some extra cash, but you could only put in as much as you earn.

00:21:27.280 So you might want to say to your kid, all right, you earned $500. I'm going to give you 250. You put

00:21:34.920 in 250 to your Roth IRA, and then you could keep that other 250 to yourself. In other words, you

00:21:40.000 could only put in as much as you earn, but you as a parent can kick in some. And that's where at any

00:21:45.860 age matching your kid's money, if that's something you can't afford, is a great incentive for getting

00:21:52.180 your kids to save more. That's awesome. I love that. And also when you open up the Roth IRA,

00:21:57.360 it's an opportunity to talk about investing. Exactly. The stock market. Exactly. What's

00:22:02.760 interesting now is there are ways to invest money at very small amounts. I'm a real fan of index funds,

00:22:10.180 which are low cost investments, and you can get them at companies like Schwab and Vanguard. And I don't

00:22:17.080 work for any of these companies. They're just my favorites because they have very low expenses. They're

00:22:20.920 much cheaper ways to get into them. But also there's something called ETFs, exchange traded

00:22:27.540 funds. And I go through the details in my book, but the bottom line is there, at least at Vanguard,

00:22:32.120 you could start with as little as one share, which would cost about $100. And that's a very good way

00:22:38.500 to introduce a kid to investing, to learn about it, to own it with not a lot of money.

00:22:44.900 Right. And besides actually investing money in the stock market, are there other ways you can

00:22:50.700 talk about investing in the stock market with your kids when they're, say, in elementary school?

00:22:55.840 Yeah. I mean, I think that when it comes to the topic of investing, a lot of parents sort of go to

00:23:03.280 the first off thing, well, we'll track a stock and we'll play a stock market game with pretend money.

00:23:11.660 And that's absolutely fine if a kid is into it. But I'm not a big fan of, I know people who gave

00:23:17.240 their 16-year-old a chunk of money and said, okay, now you could invest it for fun. I think if the

00:23:23.420 kid makes a lot of money, they're like, oh, I'm a genius. And it's luck. Or if the kid loses all the

00:23:28.240 money, they think, oh, that's bad. I'm never going to put my money in the stock market. But I think

00:23:32.720 something as young as, you know, my favorite book to read to my kids, they're all pretty much grown

00:23:37.700 now. But The Little Red Hen, you know, the story of the one hen was getting the grain and making the

00:23:44.340 flour. And, you know, I'm not a baker, so I don't know exactly how you make bread, but doing all the

00:23:50.300 things to make the bread and the other animals watch on and don't help. But in the end, the hen says, no,

00:23:56.100 I put the time and effort and investment into this bread. And I'm not going to, this is not something

00:24:02.780 that you guys get to jump on and eat the bread. You have to really work for it. And those kind of stories,

00:24:08.480 I think, are interesting to kids. I think making it clear to your kid that playing the lottery is a

00:24:15.800 really bad investment. I have a fun chart in my book that, you know, our chances of winning the

00:24:22.900 Olympics or being in the Olympics or, you know, becoming a movie star are actually better than

00:24:28.360 our chances of winning the Powerball ticket for the lottery. So what, you know, what makes sense and

00:24:34.780 what doesn't make sense. And there's a good website, investor.gov, that lets you put in different

00:24:40.380 numbers and see what, how quickly an investment will grow if you get, you know, a 2% rate of return

00:24:46.480 versus a 7% rate of return. And not all kids are interested in this, but I think starting these

00:24:53.180 conversations, particularly with daughters, because research does show we talk to our sons much more

00:25:00.440 about money and investing than we do talk to our daughters. And obviously that's a real mistake.

00:25:06.240 And we have to try hard to notice when we do that. One guy I know who's a great guy who runs a

00:25:12.280 nonprofit. After he read my book, he said to me, you know, I realized I joke with my daughter about

00:25:17.620 how much she spends shopping. And I talked to my son about stock investing. And I kind of never realized

00:25:24.860 how sexist I was being until I thought about it. And I think that is something that just being aware

00:25:30.980 of it can change your patterns. Gotcha. That's good advice for all the dads out there. So debt is

00:25:38.080 another issue you tackle in this book. And debt can be kind of hard to explain to an elementary school

00:25:43.980 kid because it's like negative numbers, right? And that's a very abstract concept. So how do you start

00:25:49.080 talking about debt and what it is to say a five-year-old? Right. Absolutely. I think the

00:25:54.200 first one is that you can't always get what you want, like the song, you know, and you have to make

00:26:00.360 it clear that we might want something, but if we don't have the money to pay for it, we're not going

00:26:08.100 to buy it. And that's very hard to explain to kids nowadays because they don't see us using cash.

00:26:14.660 They see us using cards and plastic and they see us, you know, using our phones. And I'm a real

00:26:21.720 believer, and this is a little bit of a radical idea, but with young kids, when you're giving

00:26:27.280 allowance, make sure to give them cash. When you're buying things in a store, make sure to use cash

00:26:32.600 sometimes. Let them see you use cash because without using cash, you're not really realizing that you're,

00:26:38.940 you know, teaching them counting, you're teaching them how to make change, you're teaching them that

00:26:43.660 money's a finite thing. And I know, you know, when my daughter was younger, she went shopping with

00:26:48.660 some friends when she was a teenager or like 13. And she said, oh, my friend's parents are giving

00:26:54.040 them a debit card or a credit card. And I said, no, I'm giving you cash because I know. And sure

00:26:58.940 enough, she came back and said, oh, I bought three things. But when I hit the limit of $50 that, you

00:27:04.420 know, the things I bought cost $53, I had to put one thing back because I didn't have the money to pay

00:27:09.840 for it. And I think cards make that deceptive. So making that point to kids are probably, it's

00:27:15.920 probably the most important thing you could do to letting them know that cash is really what money

00:27:22.240 is about, but also teaching them that a credit card is a kind of loan. And when you buy something

00:27:29.280 on a credit card, if you don't pay it back immediately, you're paying extra money, interest

00:27:35.480 to a credit card company. And just like we like getting interest from a bank, we don't

00:27:41.560 like paying out interest to a credit card company because it makes if you buy an iPad, you know,

00:27:46.760 for $800, it really is costing you closer to $1,500 if you only put it on a credit, if you

00:27:53.980 put it on a credit card and only pay the minimums. So starting that discussion early and often,

00:27:59.940 I think is really important. You know, just like we know, we should talk to kids about

00:28:05.080 smoking at young ages or not smoking and talking to kids about, you know, not drinking at young

00:28:12.220 ages. We should also talk to kids about credit card debt. And that's just, can be really not

00:28:17.960 only expensive, but stressful in people's lives if they can't afford what they buy.

00:28:23.280 Right. Yeah. One thing I do with my son, Gus, he's six, that kind of teach me the concept of debt

00:28:28.440 is say we go somewhere, usually if he wants to buy something, he'll bring his money, spending

00:28:32.900 money along his allowance. Let's say he, he doesn't do that. And he sees something that

00:28:37.340 he wants. We'll say you can get it. But like, when we get home, you have to pay mom and dad

00:28:42.700 back. Like, we'll give you a loan. And it's kind of funny to see his reaction. Like he'll

00:28:48.280 buy the thing right, right. Then like he gets it and he's like really happy. And then we

00:28:51.960 get home and we're like, we're collecting or here we are collecting the debt. And he starts

00:28:55.900 getting really sad. He's like, Oh, this is so terrible. I have to get my money away. But I think

00:29:00.460 that's one way is just, you know, float a loan to your kid short term and then be a debt

00:29:05.660 collector. Right. Tell them how generous you are that you're not charging them interest.

00:29:09.620 You know, if I bought this on my credit card, it'd be extra money or, you know, just trying

00:29:13.720 to, for the six year old, that's probably a little bit complicated, but it's awesome that

00:29:18.580 you're doing that. And I agree with you. Like once you're out, you can say, you know what,

00:29:22.240 it's okay. You don't have your money. We'll give you the money. But do you ever get home

00:29:25.740 and say, ah, forget it. Or do you always make him pay you?

00:29:28.460 No, we always make him pay us. I remember that stuff.

00:29:33.240 Yeah. That's awesome. That's exactly, I think just by doing that, you know, he is getting

00:29:38.920 it. He knows it's probably really hard for him. He's like, ah, I didn't think I really

00:29:43.680 want this after all. He gets so sad.

00:29:44.740 And he'll remember that the next time or you remind him of that the next time. And I think

00:29:49.720 that's what it's all about. And even with older kids, you know, we gave our kids, we have

00:29:54.540 two kids in college. And when I was in college, my parents didn't have any money to give me.

00:29:59.500 So I worked and had jobs and our kids have, you know, our daughter works, but she also,

00:30:03.920 we decided to give her a little extra money beyond she gets her food, the meal plan at school. 0.98

00:30:09.500 And man, is she good at making sure not to spend that money because she is very aware it's her money 0.99

00:30:17.460 or she sees it as that way and is very careful about making choices. And that's money she has

00:30:22.860 to use if she wants to go on a weekend away with friends or that's on her completely. And she will

00:30:29.220 spend hours trying to find one. In one case for spring break, kids were flying for a ski weekend

00:30:34.780 and she doesn't even ski, but she wanted to go. And she was like, well, I can fly or I can take the

00:30:40.760 train and she ended up taking the eight hour train because it was, you know, she saved $300. And if

00:30:47.880 she flew and at a moment there, I was saying to my husband, ah, we're letting her go on a train for

00:30:53.460 such a long train trip. And I stopped myself and he reminded me, you're the personal finance person.

00:30:58.840 That's important. You have to stick to it. And it's hard as a parent sometimes, but you're doing such

00:31:04.020 a good thing for your kid. And we did, and she took the long trade ride and got our homework done and it

00:31:10.120 was great. That's awesome. Um, so you devote a section that I thought was really interesting

00:31:14.560 about money and weddings. And I'm sure there's listeners who have kids who are about to get

00:31:20.040 married or there's people who are listening to this podcast who are about to get married and they're

00:31:25.280 trying to figure out how much should I spend on an engagement ring? How much should we spend

00:31:28.440 on the wedding itself? So what does the research say about those two things, engagement rings and the

00:31:34.500 wedding ceremony itself? Right. Well, for the ring, um, it's very important to buy a ring you can easily

00:31:42.260 afford. I know for a while there was this sort of myth floating around that an engagement ring should

00:31:49.320 be equal to two months salary. And as best as I could, I trace that back to, you know, the diamond

00:31:55.940 companies who figure out, you know, formulas that really result in people feeling like they should spend

00:32:02.560 more money on a ring than they should. Um, there was a cool study from Emory University that found

00:32:10.460 that when a man spends between $2,000 and $4,000 on an engagement ring, he and his spouse were more

00:32:17.840 likely to divorce than when a couple paid between $500 and $2,000 for a ring. And, you know, one,

00:32:26.460 we don't know the exact explanation for that, but it could be that, you know, the couple didn't have to

00:32:30.400 go into debt for buying the ring. And a similar kind of thing when it comes to weddings, the less

00:32:36.940 money you spend on the wedding, research has shown the longer your marriage is likely to last,

00:32:43.140 which I think is just amazing and really important for young people to hear.

00:32:49.060 Right. And like, what do you do if you're a guy and you're like, okay, this sounds good. Like,

00:32:52.300 I want my marriage to last and I don't want to spend that much money. And, but you're like,

00:32:55.960 your fiance is like, no, like I want the, the big, you know, awesome wedding that you see on TLC.

00:33:01.880 What happens when you have that conflict there?

00:33:04.520 Yeah. Yeah. It's tricky. I think you have to, they should show them this part from my book on page,

00:33:10.880 you know, 118 and 119. If they want to even go into a store, take a picture of that page. I'm fine

00:33:17.060 with that to show their future spouse, but really also just to talk about it and say, you know,

00:33:23.540 maybe there are ways we can do this that look great or we focus on what we really want and we

00:33:29.840 skip the flowers. I'm hearing so many people are like, we're not going to have flowers. We're going

00:33:33.580 to do, we're going to do this in a way that we can afford. And we're really, what we want is a

00:33:38.620 down payment on our home. So we're going to take any money we would have paid on extras, figure out a

00:33:44.600 way to make it look beautiful. Cause it really, you know, a wedding's all about the bride and groom's

00:33:49.620 mood. And that's no study. That's just me having been married for 24 years and my parents were

00:33:57.180 happily married for 65 years. So, but I think that talking that through and not making it a tense

00:34:05.840 conversation, but Hey, let's decide as a couple, what we want and being realistic about it and sitting

00:34:13.280 down. And it's great to have ideas of what, you know, we all want great things, but what do we want

00:34:19.600 as a couple? And the fact is, I think you're going to need to be able to have those conversations

00:34:24.660 throughout a marriage and expectations and talking about values is really important now. And if it can

00:34:33.740 be done without judgment of we can't afford that, that's crazy. Or wow, you're so cheap. Why won't

00:34:40.580 you want to do this? It's just calming down and discussing it, I think is so, so important. And

00:34:47.380 really in order to be good at money as a couple, and then eventually good as money as parents,

00:34:53.360 you need to have those conversations. Right. Make sure you're lined up on the same page.

00:34:58.180 So another concept you dig into that you should give explanations, how you can talk about it is

00:35:02.400 insurance, which is funny because I don't know how the conversation came up between me and my six

00:35:07.460 year old, but he asked me like, what's insurance? Like what's car insurance? And I'll be honest,

00:35:12.620 it was like hard to explain. He's a smarty, I like him. Yeah. I was having a hard time explaining to

00:35:17.400 him. I was like, well, we pay this money in case we get in a wreck and then we get some money back

00:35:22.940 if we get in a wreck. And I could tell he was kind of having a hard time wrap his mind around it. So

00:35:27.020 how do you start explaining about the importance of insurance or what insurance does to your kids

00:35:32.100 during various phases of their life? Yeah. I mean, it's sort of an interesting concept,

00:35:37.340 which I put a whole chapter on insurance in my book. And I feel like with young kids, just,

00:35:45.720 you know, there are things you can do to protect yourself and your stuff. And, you know, the basics

00:35:51.840 of when we Scotch guard, you know, shoes to protect them from the rain, or we, you know, tie mittens on

00:36:00.700 a string through loops, through a coat of an arm to make sure we don't lose our mittens. Those are ways

00:36:05.640 we're trying to protect ourselves. And we do that with the stuff we own too. And we also do that with

00:36:11.080 our bodies. I think the easiest way to start these conversations is when you go to the doctor,

00:36:16.180 hopefully you have insurance and, you know, and you start talking with your son about when you

00:36:22.380 go to the doctor, often you give, show them your card, which is an insurance card. And that means that

00:36:28.820 some of the cost of going to the doctor is paid by an insurance company. And some of it is

00:36:35.400 paid by us as the people who were treated by the doctor. And what's nice is that if we ever have

00:36:44.020 big expenses, if we break our arm or sprain our ankle, it can cost a lot of money. So we know that

00:36:50.640 we're protected, that this insurance is going to help us pay for some of that expense. And kids could

00:36:57.680 really understand when you go through that very clear, you know, if you go through a clear explanation

00:37:03.360 like that, you can say, just like with the car, if we get hurt in the car or we accidentally hit

00:37:11.200 something and it dents the car, that would cost a lot of money. So the, you know, we wouldn't want to

00:37:18.000 spend all our money on it. But so by getting insurance, we pay them a little bit a month or a

00:37:23.560 little bit a year. And then if something happens, they will come in and pay that big bill. Now,

00:37:29.200 obviously that's a simplified explanation of insurance and you might want to roll your eyes

00:37:35.060 and say, gee, we think they should be paying more for them than they are. But if you can kind of leave

00:37:39.800 out the sarcasm on that one and really explain to your kid what the point is, it really, insurance

00:37:50.600 protects us from really big losses. And if we have an accident and we get hurt ourselves, damage,

00:37:59.740 something happens with our body or our house, that this will protect us and help us pay for that

00:38:07.760 damage. And I think probably that kind of explanation, if you repeat it in different ways at different

00:38:14.060 times and kids are interested, you can talk to them. I also have a box on Lloyd's of London

00:38:20.240 that cool insurance company, which in London, which it's been reported, you know, I don't know for

00:38:28.200 sure, but like super model Heidi Klum's legs were once insured for a couple million dollars. And, 1.00

00:38:35.480 you know, David Beckham, same with him, you know, so that people insure things that are real value to

00:38:42.920 you. And it was rumored Bruce Springsteen insured his voice, you know, all those things kind of make it,

00:38:48.780 it's a fun way of explaining the concept of insurance as well.

00:38:52.780 Right. And then as they get older, and maybe your kids start making some big consumer purchases,

00:38:57.540 like computers or things like that, opportunity to talk about insurance that you might not need, that's not

00:39:02.620 useful. It's just a money grab for the company.

00:39:05.700 Really good point. I mean, you want to talk about you need health insurance. When you go to college, you need car

00:39:13.900 insurance if you're driving the car, and that may or may not be something, you know, if you have a high

00:39:18.480 schooler, do you want him to chip in on it or not? And if you're willing to pay it for him, then you

00:39:24.760 have to, you know, it's good to tell him, this is what it costs, and this is what we're paying, and just

00:39:28.940 to let him know. But you usually don't and shouldn't get things like extended warranties or service

00:39:36.840 contracts. When you buy like appliances, they're often will say, do you want the extended warranty?

00:39:43.680 And usually it doesn't make sense. Because people are more likely odds are to replace the item,

00:39:51.000 you know, and need a new one before they actually take advantage of the warranty. Or you don't need

00:39:56.240 airline insurance. If you fly, I think that there are, you know, all kinds of different like laptop

00:40:02.240 insurance. It kind of depends. If you are able to set enough money aside for a pair or even a new

00:40:08.680 computer, you probably don't need it. But if you're clumsy, and you, you know, may benefit from a one

00:40:14.560 year policy, as my daughter did, then it may make sense to buy it. But I do go through all the different

00:40:20.220 kinds of insurance. You know, it's important to know whether they really pay off or not. And also what

00:40:27.940 your habits are. And is it something that would make sense for you? But often, when you're talking about

00:40:33.380 insuring small things, it's probably better to skip it.

00:40:38.380 Gotcha. Well, Beth, we've been talking about what parents can do to raise money geniuses. But like, let's say

00:40:43.540 as you talk to me, these things about your kid, you hopefully will start putting things in order in your

00:40:47.260 own financial life. But in your your years as a financial person, what are some like the big, like the

00:40:54.800 the small changes that adults can make in their financial life that has like an immediate ROI?

00:41:00.500 Right, right. Turn on investment. Yeah, right. I think, and in my book, the last chapter is really

00:41:08.400 advice for parents, like what you need to know about your own financial life. And of course, having

00:41:15.120 health insurance is a no brainer. Having life insurance, if you have kids is really important.

00:41:21.620 But you want to stick with term life insurance, which is way cheaper than pretty much anything

00:41:27.980 else. But I think some of the real basics are, you know, pay off high rate debt. If you have a

00:41:35.260 credit card that's charging a rate of 18%, paying it off is the equivalent of earning 18% on your money

00:41:43.160 guaranteed after taxes. And you can't really earn that anywhere. The other big one, even maybe before

00:41:49.800 paying off high rate debt is 401ks with matching. If you have a 401k at work, you absolutely should

00:41:55.880 put in as much as the company will match. I spoke yesterday at a company and they matched dollar for

00:42:01.940 dollar up to 5% of what people put in, which is a good deal. And half the people admitted they hadn't

00:42:10.420 been contributing. And that's just leaving free money on the table. That's actually dollar for dollar

00:42:15.440 is 100% immediate return on your money. So max out of the 401k with matching, pay off high rate debt

00:42:22.100 using savings you have even. People say, oh, I don't want to lose my savings. But you have a chunk of

00:42:28.300 money sitting in a bank account paying you less than 1%. You should use a big chunk of that to start

00:42:34.520 paying off your high rate debt. Because if it's sitting in the bank account, you're basically earning

00:42:39.300 zero. But if you have money on that credit card, you're paying out way much more than that in interest

00:42:46.640 payments. So paying off debt, starting to save in the up to a company will match, opening a Roth IRA is a

00:42:55.020 really good idea. And then having an emergency cushion, trying to save money automatically. In all these cases,

00:43:03.240 particularly the savings, doing it automatically makes sense. I wrote my book, my first book,

00:43:09.640 Get a Financial Life, 20 years ago, actually when I was in my late 20s. And then I actually just came

00:43:16.620 out this week with the 20th anniversary of Get a Financial Life for millennials. So time flies.

00:43:24.880 But it really is, I've had people come over to me who are in their 50s and say, late 50s and say,

00:43:31.780 you know, I read your book 20 years ago and I put the most I could in my 401k. And I am so glad I did

00:43:39.960 because now I have a lot of money saved. And it makes me feel great to know. And I think it's

00:43:46.360 important for people to know that small steps now make a huge difference later. And especially if you

00:43:52.240 do it automatically, you know, if you set it up, you just have it happen and you adjust your lifestyle

00:43:57.980 to fit that, you know, how much you have. And I've had some millennials say, you know, and I, you know,

00:44:04.940 God, people in their 20s are amazing. They're actually doing great in many ways. They actually

00:44:09.260 do save more than certainly the Gen X generation or the baby boomer generation. But they'll sometimes

00:44:16.060 say, you know, but we have it really hard. We don't have that much money. And I agree. But I do know

00:44:22.540 the great thing about getting older is I'm like, yep, everybody said that 25 years ago,

00:44:26.620 that when we were in our 20s, we couldn't save either because it really was actually a very bad

00:44:31.240 economy too. But you have to do it. You have to force yourself, whatever you earn, if you can put

00:44:37.040 away 3%, 5% of that, force yourself. It really can make a difference in the long run.

00:44:44.100 Awesome. So pretty basic stuff. That's the secret of personal finance. It's all pretty basic.

00:44:47.840 Yeah. Yeah. I mean, that's why, you know, I call it make your kid a money genius, even if you're not,

00:44:53.540 because a lot of people just don't know the basics, you know, getting, paying off your bills on time,

00:45:00.000 that will get your credit score in order. You want a credit score of 700 or higher,

00:45:04.420 and that will help you get better deals on, you know, mortgages and auto loans and credit cards. So

00:45:11.760 keep, you know, keep, keep your bills being paid on time. That's key. And paying off the

00:45:17.680 high rate debt and putting your money in a 401k with matching, that's kind of the basics,

00:45:22.880 you know? And if you do that, you're, you're on a really good path.

00:45:27.940 You're going to be good. Well, Beth, is there some place people can go to learn more about your work?

00:45:32.300 Yeah, I have a website. It's just bethcobliner.com, but, and the books are available online at the

00:45:40.500 obvious places or in local bookstores. So there's either make your kid a money genius or the new,

00:45:46.060 totally revised, get a financial life for millennials or people in their twenties and

00:45:52.040 thirties. Awesome. Well, Beth Kobliner, thank you so much for your time. It's been a pleasure.

00:45:56.520 It's been awesome. Thank you so much.

00:45:59.060 My guest today was Beth Kobliner. She's the author of Get a Financial Life. Her latest book 0.70

00:46:03.380 is Make Your Kid a Money Genius, even if you're not. She's also updated, Get a Financial Life.

00:46:07.980 Check it out. You need it. It's a great book. One of my favorite. Those are both available on

00:46:11.060 amazon.com. Also find out more information about Beth's work at bethcobliner.com. Also check out

00:46:16.460 our show notes at aom.is slash kobliner, where you can find links to resources, where you can delve

00:46:20.820 deeper into this topic.

00:46:33.100 Well, that wraps up another edition of the Art of Manliness podcast. For more manly tips and advice,

00:46:37.260 make sure to check out the Art of Manliness website at artofmanliness.com. If you enjoy our

00:46:41.360 show and have gotten something out of it, the times you've listened to it, I'd appreciate if you take

00:46:44.420 a minute to give us a review on iTunes or Stitcher. That helps that a lot. As always, thank you for your

00:46:48.560 community support. And until next time, this is Brett McKay telling you to stay manly.

The Art of Manliness - April 21, 2017

#297： Make Your Kid a Money Genius

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