How to Help Kids of All Ages Learn Smart Money Habits

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On this Motley Fool Answers episode, Alison Southwick and Robert Brokamp are joined by personal finance guru, journalist, and author Beth Kobliner, whose most recent bestseller is Make Your Kid A Money Genius (Even If You're Not): A Parents' Guide for Kids 3 to 23. It offers a raft of straightforward advice for teaching your children the skills and habits that will lead them to lifelong financial stability. But since one podcast can't sum up a whole book -- (guess you may have to buy it) -- they'll focus on one fundamental concept: How to get your children into the habit of saving.

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A full transcript follows the video.

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This video was recorded on Sept. 12, 2017.

Alison Southwick: Beth Kobliner is one of the nation's leading authorities on personal finance for young people. In addition to writing a number of lovely books, she's also written for Money magazine, The New York Times, and The Wall Street Journal. Beth, thanks for joining us today!

Beth Kobliner: It's so great to be here, you guys!

Southwick: In your book, Make Your Kid a Money Genius (Even If You're Not), you outline some really practical things that you can do, and conversations to have, with kids of every age to help them become better with money. Today, we're going to basically get those ideas from you, and give them to our listeners.

Kobliner: Absolutely. You don't even have to buy the book. Just listen to me now.

Southwick: No, they're going to want to buy the book, because you cover saving, investing, charitable giving, and all of these aspects. But today, we're just going to focus on how to get kids thinking about saving.

Kobliner: Perfect.

Southwick: And again, kids of all ages.

Kobliner: Kids from three to 23. Research shows you could start at age three, and kids can understand basic money concepts. And then by 23, they don't. No... they understand it, too, but you really want to hammer [it] home.

Southwick: First off, at what age did you start learning about money, and who was teaching you your money lessons?

Kobliner: So, a true confession. I was an English major at Brown, which is where I met Tom Gardner, but I didn't really pay that much attention to money as a child. When I think back to why I got into this -- and it was almost a revelation fairly recently -- my dad was a teacher and a principal. My mom was a chemistry teacher, but mostly a stay-at-home mom when we were little. And they struggled and skimped and saved, and that's how I learned. That's why I started paying attention. They were very good about money. They weren't financial experts, but they were super smart about putting the maximum they could into my father's 401(k) plan, which, when it started in the '60s, was 50% of his salary.

Southwick: Wow!

Kobliner: He always tells the story that he said to my mom that they had three kids and a mortgage, and they have to [save] 50% of [his] salary. And she was like, "How?" (My mom's name is Shirley.) "We can't afford it!" And my father said, "We can't afford not to."

And I never felt deprived, but I think I always observed that carefulness, whether it was cutting coupons for buying stuff at the store on triple coupon day -- going with my parents to the store. In those days, we didn't have the internet, so we'd have to go with our parents to do errands and see that. Opening a bank savings account. And I think that experience throughout my childhood made me interested in teaching these basic lessons to parents and young people.

Robert Brokamp: When you tell that story in your book, it's actually one of my favorite parts, because most people don't think of that in terms you can't afford not to save for retirement, because what are you going to do when you get to that age.

Kobliner: Exactly.

Brokamp: And also, I think another important point is that your father is a child of the Depression.

Kobliner: Yes, both my parents were born in 1929, the start of the Depression. My dad's father had a drinking problem and was out of work throughout the whole Depression. His mom was a seamstress, so she would take in work to support four children.

And my mom's dad was a little bit wealthier in Astoria, Queens. She certainly wasn't wealthy. They really struggled. Her dad was a pharmacist at a drugstore. And he was such a nice guy he would give away things for free -- like medicine for free -- because he felt bad for people. So in both cases, it was a lot of struggle, and I think seeing that as a child turned them into really good savers. And I think millennials are similar in that they're also having to be a little scrappier and to figure out how to make things work for them.

Southwick: I was thinking about this the other day. Do you remember in the '80s that it was really popular to have the poster that said, "He who dies with the most toys wins?" Do you remember that phrase?

Brokamp: Yes.

Southwick: The '80s was a time of "greed is good" ...

Kobliner: Yes, "greed is good." Wall Street. The movie Wall Street.

Southwick: Wall Street. Because Gen X is not well known for being necessarily good with money.

Kobliner: No.

Southwick: And I [thought], "I wonder if it was because of all those "greed is good" posters?"

Kobliner: Yeah.

Southwick: For millennials, it's like, "He who dies with the most artisanal kimchi recipes wins."

Kobliner: He who has the most student loan debt better pay that off at some point.

Southwick: Right.

Brokamp: That's true.

Kobliner: I just made that up.

Brokamp: Trademark that.

Kobliner: But I do think it's a more difficult time, and the more and more I talk to millennials, they're kind of serious. There's the beer and the cheese, and the food that I don't understand. Like, for me, local food was McDonald's. Like it's local. It's around the corner. But I do think that they really have had to be a little [more] savvy. And they have less credit card debt, certainly, than Gen Xers did when we were getting out of college. We got credit cards just by signing our names, and they did not. The rules changed, so you had to have a job, income, or be 21 to get a credit card.

So I think that there's a lot that young people have had to learn similar to the Depression generation, due to an economic mess that really was not of their making.

Southwick: What do you think is the biggest mistake people make when they're trying to teach their kids about money?

Kobliner: I think people lie. You're at the store and your kid is like, "I want that!" And you're like, "Oh, we don't have money," and then you go and buy a latte with a credit card. And they're like, "Wait a second. You just said we don't have any money. I don't get it."

I think parents who have a lot of money are really nervous about their kid [feeling] entitled. And I've heard that. I spoke at Google, and that was a repeated question. I think they're afraid to even broach the topic of money. But on the flip side, people who don't have much money -- who are really worried about it -- are worried that their kids won't be able to have as good a life as they had and not go to the schools that they went to.

So I think, in general, we think about our own financial baggage rather than just put it all aside and say, "Here are the things I need to teach kids." And I don't think you have to be a money genius to teach your kid to be a money genius. I feel strongly about that.

Southwick: Well, you feel so strongly it's in the title. Make Your Kid a Money Genius (Even If You're Not).

Kobliner: Even if you're not.

Southwick: So here's how we're going to help you make your kid a money genius when it comes to saving. Again, your book goes into saving, investing, and all these different topics around money, but we're just going to focus on saving today. So what is an activity that you can do with your preschooler -- let's just start young -- to get them to understand saving?

Kobliner: This is going to sound terrifying to anyone who has a preschooler, but go to a supermarket with your preschooler and at the checkout line, let them peruse the candy and then say no. The University of Minnesota did a study and found when we say no to our kids at the checkout line -- when we don't give in to the candy, or gum, or the crying and screaming for whatever they want -- those kids who are said no to are more likely to manage debt in a much better way when they're older. It makes sense, right? Because they have impulse control. They're building that impulse control muscle.

So I would say for parents, go to the store. Don't leave your kid home, because that's avoiding it. Say no with authority, and if you say it enough times, they'll learn. "OK, it's not really worth screaming and crying because the last four times it didn't work." You have four kids. You know.

Brokamp: Mm-hmm.

Kobliner: But I feel like it's so important to be consistent. I've said this to people and many people said, "Thank you for empowering me to say no to my child." But I think it's important because there's saving money and then there's dissavings, which is going into debt and just spending all your money. And a lot of little kids love to spend money already, so I think that's one of the important ones. Saying no at the checkout line.

Southwick: I think I'm more terrified of all the judging from the other Whole Foods' moms I'm going to get when Hanna has a meltdown.

Kobliner: Yeah. First of all, Whole Foods. That's what you get. But I also think that there is that feeling as a parent, "Oh, I don't want to seem like I'm doing [something] bad." Who cares? Just say to yourself, "This is better for my child." And there's so much we would do for our child. If it was better for him to spend a dollar every time, we would all do it freely. But it's actually better for him or her to say no.

Southwick: Let's talk about elementary school. Where do you fall on allowance? Ron Lieber's school of thought on this shook us up last year.

Kobliner: I love him. What was his school of thought?

Brokamp: Part of it was whether you tie allowance to chores.

Kobliner: Right.

Southwick: He says no.

Kobliner: He's right.

Brokamp: And that's what you say, too.

Southwick: Aargh!

Kobliner: And I actually looked into the research on this. We know from research [that] chores are essential. You have to have your kids do chores. But [as for] those kids whose parents didn't pay them for chores, there was a study done finding that [those kids are] more likely to hit milestones -- like graduating from school or even starting a career -- because of that internal motivation they have by doing their chores [and] being responsible. They're part of a family.

So it's not only psychologically important. I think what it does is, again, exercise that muscle of: "I'm going to be a responsible member of this family and I have to do my chores. That's just what I have to do." I think that's a really vital thing for children in the long term.

And again, people do think: "Wow, that's crazy. I'm not getting my kids to do it." But that's how you start off. Ideally start at three, four, or five [having your kids do] tiny little chores, like put this plate in the dishwasher. You don't have to do it with expensive plates, because that will be the end of that, but you want to make that a rule. You make your bed as best as you can. Or you do something like that.

And [then there's] extra jobs, like one-off jobs, or things you would hire someone to do. Like I am terrible with my photos, so I think, "How can I have somebody put them in some sort of reasonable order?" So every now and then I'll give a small amount, like $10, and ask [my kid] to spend a few hours and fix this for me. That kind of thing is fine, the one-offs, but [don't make] chores tied to allowance. It's really important.

Brokamp: But you still do believe in an allowance.

Kobliner: Right. I looked at more than a dozen research studies on allowance, some international and some in the U.S. The bottom line is it doesn't really matter. Like you can give your kid allowance, and if you do it, you want to be clear. You have to be consistent. Like stick with what you're telling them they're going to pay for. Don't change. And do it in cash. I think cash is really important. There are all these apps, and I think actually giving kids cash, which is concrete, makes a real difference.

But I also think you don't have to give allowance. You can just say: "I grew up without an allowance. [My parents didn't have a lot and] when I needed money for a certain thing, they would make decisions based on whether they thought it was worthwhile and whether they had it. And if they didn't have it, we didn't get it."

I think that neither one, at least according to the studies out there, is the right way. I meet so many parents who [feel] so guilty. They're like, "Oh, we started allowance in June and now it's like August and our kids forgot to ask, and we forgot to give it." They're all stressed out about allowance. If you want to do that, great, but you don't have to do it to make your kids smart about money.

Southwick: Let's move on to middle school. What can you do to help a middle schooler understand saving?

Kobliner: I'm a real believer, first of all, in opening a bank account for a kid, middle school or younger. Right now, of course, interest rates are still so low, although they're rising a little bit. So maybe you can find 1%. There's some banks that give a little higher rate if it's a kid's account, so shopping around helps. But also going to an online bank if a kid is really interested.

I remember my son when he was little. He was maybe in sixth grade. He asked my husband one night, "Daddy, where does compound interest come from? And how can I get more of it?" Kids love to hear, "OK, well this is half a percent. And that's 1 percent."

In the end, it's not huge numbers. It was better in the '80s when CDs were at a much higher rate. But still, opening a bank account. Feeling like you're a grown-up saying, "We're going to save and we're going to [get] statements." Unfortunately, they don't have passbook savings accounts. But you get the statements, and seeing that money grow is empowering, even if it's just putting money into it.

I have memories, and I've said this at every talk I've ever given in the last year on a book tour. I say, "Who remembers opening their bank savings account?" And so many people 35 and up raised their hand and smiled. "Yeah, I remember. I opened my bank account." I think [it's important to make] that a real thing for kids because now. Of course, it's all done online and it sort of becomes meaningless. I think being mindful of saving and talking about it can be somewhat motivating for many kids.

Southwick: The next step is high schoolers.

Kobliner: Right. I have a few here. I would say having your kid open a Roth IRA sounds nuts, right? High school [and a] Roth IRA? But if a kid has a summer job and if they're really saving money, [you could say], "You could open this thing, a Roth IRA." Say [your kid earns] $1,000 over the summer starting at age 16 to age 20 and never invests again. I mean, you know the math. If [your kid did] that, by the time your kid is ready to stop working at 65, he could easily have $200,000 in that account just by the money compounding.

So I'd say start with a Roth IRA, and even if your kid makes $1,000, as long as they earn $1,000, you could give them $1,000 to put into that Roth IRA. Make that: "Here's some seed money. I want you to start with this, but you can't touch it for many years." It can be kind of empowering for a young person, again.

Southwick: Very motivating if you're getting double your investment immediately thanks to Mom and Dad.

Kobliner: Exactly.

Brokamp: Obviously, someone in high school is getting close to college.

Kobliner: Yes.

Brokamp: As I understand it, one of your beliefs is that kids actually should contribute a little bit to paying for their own college degrees.

Kobliner: Definitely. I mean, one nice thing about a Roth IRA is if you think you might get a little financial aid, but the savings the kid has isn't really enough to make a huge difference. I have to say that when they look at the formula for how much money you have to contribute to college, when a kid has savings, that's counted more heavily than a parent's savings. So by putting it in a Roth IRA, you're taking it out of the equation. They don't usually look at money in Roth IRAs.

Brokamp: You cited a study that indicated kids who had to do a little bit to pay for their own college degree actually had a higher GPA.

Kobliner: Exactly. And it's probably just the idea of having a little skin in the game. Just about a month ago, my dad pulled out the sheet where he spoke to me about whether I was going to Queens College, which would have been basically free, or to Brown, if I got into Brown -- and other schools which I didn't get into.

And one thing I saw was I contributed every year $2,000 for four years. And I was like, "Wow! That's the equivalent of almost $10,000 today, adjusted for inflation." And so I remember very clearly working. It never was a deterrent. It actually was kind of fun in college. And we do know when you work in college, as long as your hours are under 20 hours per week, and as long as you have an on-campus job, that also results in a somewhat higher GPA than kids who don't work at all. So having your kids contribute, having them work in college is really a beneficial thing according to the research.

We do know that there's more pressure on kids with college and just more awareness of colleges. Kids are prepping for SAT courses. Boy, did my kids get surprised when they saw my SATs. They were like, "Mom! We thought you were smart."

Southwick: This was a different era. They also readjusted the formula, by the way.

Kobliner: There you go. That was the hard SAT. That's my story and I'm sticking to it. But I think that for kids, overall, using that summer ... It's hard to work during the school year, and studies do show if you work more than 10 hours a week in high school, you are probably decreasing your chances of graduating from high school. So more than 10 hours is kind of a cutoff point.

If a kid wants to work during school, it's great. Just keep it limited. But the summers of high school is a great time to really try to figure out how you can make some money. I remember I learned to make change when I worked at a diner as a hostess. I didn't know how, because I would take the number and subtract it, and my dad said to me, "No, calculus math honors girl. You have to round up. If a bill is $3.47, you say three more pennies make $0.50, and then add $0.50 to that. That's how you give change. You don't try to subtract it in your head."

So practical skills like that -- people are paying now with debit cards and credit cards, but it's still good for kids to have practical, service-oriented skills that will last them a lifetime.

Southwick: The young adults in our lives. How can we help them understand saving?

Kobliner: I'd say the best way to save as a young adult is to pay off high-rate credit card debt. Just that idea of paying off a credit card that's charging a rate, say, of 15% is the equivalent of earning 15% on your money after taxes.

So talk to your young adults. Especially if they're living at home with you, try to encourage them to look at all their debts and pay off the high-interest-rate debt more quickly than maybe the student loans. They still have to make all their payments on time, and that's another important point, but when it comes to saving, paying off high-rate debt is super important. I believe it's even more important than setting up the emergency cushion because you're digging yourself into a hole by continuing to pay high interest rates on credit cards.

So imparting that information of paying off those high-rate debts most quickly, I think, is a very valuable lesson to pass along that we certainly don't learn in school. I mean, nobody really tells you that, so I think that's an important one.

Southwick: But talking to kids about money is obviously something people don't love to do, so what is some parting advice for our listeners who are ready to get in there and start talking about money?

Kobliner: Honestly -- and I think you guys would agree -- a lot of this stuff is made so complicated often by the people who are selling you things in this field. Start saving right away in, like, a 401(k) with matching if you have that at work. That's a no-brainer. That's free money. When would you turn down free money? Pay off those high-rate credit card debts. I think those two concepts alone -- teaching your kids that -- will go such a long way for making them successful in life and, of course, index funds or ETFs. Putting money in those.

You don't have to be a money genius to teach your kid to be a money genius, and that's not just a slogan. That's really something I feel so strongly. That by demystifying it -- I hope in my book -- whether your kids are really little or you're starting later in the game and your kids are teenagers, or even moving back home post college with you, you want [them] to know that it's not that difficult, and by reading my book, or learning this information, you can teach your kids the habits that will last a lifetime, and that's so valuable and necessary.

Brokamp: Since you bring up index funds, another thing that you discuss in the book is teaching kids how to invest ...

Kobliner: Right ...

Brokamp: You're actually not a big fan of opening a brokerage account for a kid ...

Kobliner: No ...

Brokamp: ... and then having them buy five individual stocks.

Kobliner: I'm not. I've heard so many stories of parents. "Like, yeah, my kid is just a brilliant financial whiz. He picked the two best stocks." And the next person is like, "Oh, my kid. He'll never be an investor. She'll never be an investor. Look at how poorly they did." It's basically a random walk. We know that. A random net walk down Wall Street. You could throw darts at a dartboard of listed stocks and you'd probably do just as well as putting it in an index fund.

So I strongly believe that, for the vast majority of young people, [it's important to] explain an index fund. [Explain] diversification to young kids. Explain why this is the smart thing to do. We talked about this before. In the '80s, it was about greed, and how you get the most that you can.

I think for this generation -- certainly the millennials I talk to -- they want enough money to live the life they want to live. And I think your best shot at that is something like an index fund, or an ETF invested in an index like the S&P, or a broad-based index. I'm a real believer in those.

Southwick: Beth, we have run out of time, but thank you so much for joining us.

Kobliner: Thank you.

Southwick: Again for our listeners, the two books by Beth I have in front of me are, Make Your Kid a Money Genius: (Even If You're Not), and then for millennials and young adults, you also have written, Get a Financial Life: Personal Finance in Your Twenties and Thirties. We'd love to have you back on again to talk the next time you're in town.

Kobliner: I'd love to.

Southwick: And then I'm going to ask you stories about meeting Elmo and Tom Gardner.

Kobliner: Oh, OK.

Southwick: But not at the same time, though.

Kobliner: That would have been something.

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