An Interview With Personal-Finance Expert Beth Kobliner
In addition to writing a bestselling book on personal finance, journalist and personal-finance expert Beth Kobliner has discussed financial education with everyone from Elmo to President Obama.
Kobliner is the author of Get a Financial Life: Personal Finance in Your Twenties and Thirties and is currently working on a new book titled Make Your Kid a Money Genius (Even If You're Not). In 2010, Obama appointed Kobliner to the President's Advisory Council on Financial Capability, where she helped develop the national "Money As You Grow" initiative. She also taught Elmo about money as an advisor for Sesame Street's financial-education initiative, and she was a guest on the show in 2011.
Kobliner joins The Motley Fool to discuss the financial issues facing young adults today, from setting priorities to paying for college. She also has some words of advice for parents looking to help their children learn about money and how to manage it, including examples of how to begin introducing simple financial concepts even to very young children.
A transcript follows the video below.
Brendan Byrnes: Hey, folks, I'm Brendan Byrnes, and I'm joined today by Beth Kobliner. She is the author of Get a Financial Life: Personal Finance in Your Twenties and Thirties, and also the author of a new book coming up here soon that we'll talk about as well. Thanks for joining us today.
Beth Kobliner: Great to be here.
Byrnes: I wanted to start first with some of the most important things for someone in their 20s and 30s to get right, that will set themselves up for their financial future.
Kobliner: Right. The biggest one, of course, as most young people know, is getting out of debt. Credit card debt is still burdensome to young people, and on top of that they have student loan debt. It's getting out of high-rate debt, it's starting to save in tax-favored plans like 401(k)s, IRAs, really maxing out of those, and learning how to invest for the long term. You're talking about 20, 30, 40, 50 years of interest compounding; you want to start early.
Byrnes: Not all debt is created equal, though. There's credit card debt, which is usually a higher rate than student loan debt. Are there scenarios when you would say, maybe, "Hang onto that student loan debt, and invest in stocks" -- is that something that you would get into, or would you just say, across the board, debt first?
Kobliner: If you have a credit card that's charging a rate, say of 17%, and you pay it off, that's the equivalent of earning 17% on your money, guaranteed, after taxes. There's really no investment out there that can guarantee you 17%, except, of course, if you have a 401(k) that has matching. If it matches, say, $0.50 for every dollar you put in, that's a guaranteed 50% return on your money.
There is a priority of saving and investing in places that you know you'll get very high returns, like a 401(k) that has a guarantee of matching, but there aren't many investments that will pay you more than paying off that high-rate credit card debt.
Byrnes: What are some of the big mistakes that 20- and 30-year-olds make? Is it that? Is it not paying down their debt quickly enough, or are there other things that they're doing wrong as well, that they can correct?
Kobliner: It's a really tough time for people in their 20s and 30s -- one of the toughest we've seen in recent memory. Jobs are hard to find; savings, you're getting less than 1% on your bank savings account; and you have this massive, historically high student loan debt to cope with.
I think the most important thing is to realize there are ways to whittle away at every problem that you're facing and move forward and take advantage of the fact that you are still young. And even though sometimes young people don't feel so young anymore because they're facing a lot of financial obstacles, starting young and saving for the long term, and educating yourself on the basics.
I think a lot of young people think, "It's so overwhelming, I can't even start." But there are some really simple ways to learn to get out of debt, to save for the long term in 401(k)s and IRAs, and learn about investing -- the basics of index funds, which I know The Motley Fool are big fans of, and that type of basic education, which is pretty simple once you get your hands around it.
Start it, and you don't have to think about it every day. We're not saying, "Be a day trader." We're actually saying, "Don't be a day trader," but start on a road to financial success, because after 20 or 30 years go by, you'd be surprised how much money gets wrapped up in that 401(k) plan.
I think that's really important for young people to keep in mind. It's a long road ahead, but making small steps now can really make a difference.
Byrnes: How do you think young people are doing, overall? If you had to give them an average grade, "A" to "F," how are they doing? Are we getting better at this? Are they getting worse? What's the trend here?
Kobliner: I think, because of the tough economic times young people are facing, we actually are seeing them step up to the plate more.
I think also, life choices are changing based on tough economic times, so maybe somebody who would have gone to grad school right now decides not to go because it takes too much debt, too much money. They're thinking more about the implications of taking on massive amounts of student loans for a degree that they may or may not want.
I think that we're seeing young people making different life choices when it comes to what jobs they're going into. It's no longer chasing after the almighty dollar on Wall Street because, as we all know, that job might not be there in five to 10 years anyway -- or even two years.
I think that young people are being more mindful about the choices that they're making, because they're facing more obstacles.
Byrnes: Do you think the Internet has a big impact on this? How can the Internet really help someone get educated?
I want to ask you later about high school. This is not taught in high school -- personal finance -- at least, not in mine. Why do you think that is, and can the Internet do anything about that? How can that change?
Kobliner: I think the Internet, of course, is this amazing tool that we have. When I talk to my kids about how I used to type on my typewriter, and my roommate used to make me type in the bathroom when I was up until three in the morning writing papers in college. They're like, "Why? Why didn't you just get a ...?"
I'm like, "They didn't have quiet keyboards in those days, on my computer!"
I think that the Internet, of course, is wonderful for information, but the real challenge for young people in particular is information overload. How do you know where to get unbiased information?
I think an advantage of this generation is that young people are much more skeptical, and they would question something more. But at the same time, if you're being bombarded with information that's quite complex, how do you figure it out? How do you dissect which is the right investment to make, and which is the wrong one? I think it's a dual-edged sword.
Byrnes: How about high school? Why are kids learning archery in high school, and they're not learning about personal finance and investing?
Kobliner: Right. Although, in the real world, archery might come in handy, if your boss...
Byrnes: It could!
Byrnes: The Hunger Games.
Kobliner: Yeah, exactly!
I think that, if you look at the statistics, only 17 states require personal finance to be taught in the schools at all, and of those states, only six of them actually test it, so we're really seeing the vast majority of states don't have any sort of personal finance requirement to teach kids anything about money.
I think that we're starting to finally talk about that, and there are all these academic discussions of, "Well, does teaching young people about money really help them anyway?" The answer is, we don't have great data to show it, but we also don't have great data that teaching Shakespeare helps people get a job one day, or teaching basic math helps you if you want to go into acting.
But we teach young people because we want to educate them, and I think it's really important. There's starting to be a bit of a movement to this point, that we need to start educating young people about money.
I would argue that you actually have to start way earlier than high school. There's now mounting evidence showing that young children, even as young as 3 years old, can really grasp some very basic financial concepts.
Karen Holden, out of the University of Wisconsin, has shown that young children are able to understand questions like choice -- and spending money is really about making choices. "Can I afford that? Can I not afford that?"
I think we're going to start seeing, in the next decade, a lot more research and programs that address that.
Byrnes: Let's talk about it. I think this is the focus of your next book, which is how parents can get their kids more into investing, especially at a young age. You mentioned 3-year-olds. What are some ways that you can do that, specifically as a parent, to get them interested in this? Because they're really only going to learn it if they're interested in it, right?
Kobliner: Right, absolutely.
Anyone who has had kids knows, kids are just fascinated by money -- just inherently -- to play with it, to play cash register, and that is something to really capitalize on, as a parent.
It's interesting, there's a commercial out now that I just saw the other day. It shows a little kid, goes with a big piggy bank, into a jewelry store. The dad's standing behind him, and the little kid is shaking out his pennies, and he wants to buy something for his mom; it was for Mother's Day. The dad's standing behind him, showing the store clerk his credit card.
I thought, "That's kind of cute, but he's missing a teachable moment." Pull your kid aside and say: "Hey, this is nice. You've saved this amount of money. This won't buy you a $100 necklace for your mom. I'm going to help you pay for it." The idea that there are so many teachable moments. When you go to the grocery store ...
Probably the most fun thing I ever did in my career was a project with Sesame Street, two years ago. I got to teach Elmo about money.
Byrnes: That's awesome!
Kobliner: I went on Sesame Street and we spent a day together, and we talked about the difference of why it's so important to save money, and how you have to make comparisons. If you have $1 and you go to the grocery store, you can either buy one mango or two bananas. Those are the choices we have to make.
Those kinds of concepts are really understandable. Children really can grasp some of those concepts. The other big one is delayed gratification, which is really, when you think about it, the key to saving money and investing money for the long term.
You're saying, "I'm going to take this money that I can buy something with, but instead I'm going to put it in some sort of place that I'm going to get to it in the future, and hopefully that will grow."
That concept of delayed gratification, the famous marshmallow experiment that Walter Mischel -- the professor who's now at Columbia -- who gave kids a marshmallow. I was going to bring you a marshmallow and say if you didn't eat it by the time the interview ended, that you'd be rewarded with ... I don't know what.
That concept of why it's important to delay gratification when it comes to this concept of thinking about the long term is key.
Even basic things, like you go to the park with your kids and they have a choice. They want to go on the swings, or they want to go on the monkey bars. Then they may have to wait a long time on that line, in order to get on the swings. That concept of talking about, "Yeah, we're waiting, but in the end we get this payoff of going on the swings."
Using those moments to discuss these concepts, I think is really key.
Byrnes: We talked about student loans earlier. I wanted to ask you about college. In many ways, it's people's first big investment in themselves. If they're taking on student loans to pay for college, that will theoretically pay for itself over time.
It seems like there's more of a school of thought now -- I don't think the majority, but still the minority -- that says college might not be worth it. Tuition keeps going up. What are your thoughts on that, and what do you think, over time? Does that change with the Internet as well? What do you think?
Kobliner: The idea that you should put off college and instead work because college is so expensive is absolutely wrong. If you just looked at the numbers that we know now, that someone who goes to college will earn about $800,000 more than someone who didn't go to college.
Right away, that's telling you on average, you want to make sure to get that education. I think the problem is that colleges have been increasing tuitions quite dramatically, and we haven't been educating the public about what to do.
There are, for example, 2 million people who could qualify for a Pell grant, but never fill out the form because they don't know how, maybe they don't know about it, it's very complicated.
I think we have to step back for a minute and not get people inflamed about college costs rising -- which they are, they definitely are -- but we have to educate young people about what kind of college do you choose, and how do you fill out that form?
The National Bureau of Economic Research found that, when they actually have a professional helping a young person fill out the form, that results in 20% increase in college enrollment. In other words, people who fill out the financial aid form and get some financial aid, not surprisingly, they will go on to college.
Michelle Obama has been doing some really great work, and on the President's Council that I'm on ... it's the President's Council on Financial Capability for Young Americans. This is a council that's specifically focused on young people, and I'm on the committee that's focused on college affordability.
I think that we are at the time where people need to understand college is important and worth it, but it's also something they have to give a lot of thought to, and start talking to your kid about in ninth grade, really early, to start thinking about, "What are your options?"
Byrnes: How about someone just out of college? They're probably not making much money yet, maybe struggling to make ends meet, maybe some loans as well. What's your advice for them when they say, "I can't save anything. I can't invest anything. Why even try to do that at this point? I'll take care of that when I'm 40, and then I'll be fine." What do you say to them?
Kobliner: Usually I'd say, "Look at your parents," because probably if they're OK financially, they didn't do that. They were really trying to save money.
I think that the problem is, if you wait until you're 40, then you'll have kids, you'll have a mortgage, you'll have all kinds of expenses that you probably don't have if you're a young person right out of college in their 20s.
The problem with waiting, of course, is also you're not taking advantage of money compounding over time, which is having time on your side. It's got to be that, if you can't save the full amount in your 401(k), at least save as much as your 401(k) will match, or at least do half of that this year.
I have to say, having done this for many, many years -- several decades now -- it's been so gratifying to have people come over to me, now in their 40s, and say: "I read your book a long time ago, in the late '90s, and I put that money in the 401(k). I didn't really have it, but I did it. I just forced myself, and now I have a significant amount of money, a couple hundred thousand dollars."
That is so critical. Once you get that concept -- once I explain it to someone, they really get it; the idea that starting in your 20s and saving all the way up to ... even if you start in your 20s and stop in your 30s, and let the money just sit there and accumulate over time ...
Byrnes: Time is your best asset.
Kobliner: Time is your best asset. You'll have more than if you start in your late 30s. It's essential for young people to know, even if it's a small amount ... maybe if you get an increase in your salary this year, a small bump up, put that money aside because last year you didn't have that money.
Just forcing yourself to think about this. Again, it doesn't have to be a full-time job. You don't have to think about the stock market 24/7. You have to just get a few things in place, your 401(k), start paying off that high rate debt, do something smart with your student loans -- there's income-based repayment programs, which are terrific and a lot of people don't even know about them.
Getting those pieces in place makes a huge difference.
Byrnes: Do you think among young people there's an unhealthy skepticism of the market? In the past 15 years they've lived through the dot-com crash, they've lived through the Great Recession. How does that impact young people, if at all, do you think?
Kobliner: I think young people are smart to be skeptical, but I also think they have to be aware of long-term trends. I think that, if you're putting money aside for 20-30 years from now -- which is a pretty hard concept -- in your 20s it's hard, but if you buy into that concept, you can think about the fact that, over long periods of time, historically stocks have done significantly better than alternatives.
Byrnes: The delayed gratification you were talking about.
Kobliner: Delayed gratification, getting back to that. I think index funds are the way to go, low expenses. That's all you need to do, in my opinion.
I think a lot of parents -- it's interesting, with younger children they try to get kids interested in the stock market. They said, "Let's think of your favorite companies. McDonald's, or Disney. Let's buy a stock."
I actually think that's a really bad idea, because if the Disney stock does well then you think: "Oh, this is great. I love investing. I'm so good at it, I'm going to keep doing it" -- and of course you're putting all your eggs into one Disney basket. It's a risky investment, because it may do well or it may not.
Probably the best thing that could happen is if you give your kid one stock of a company and it tanks. That's a good experience, because at least they're learning -- although you don't want them to be so turned off that they never invest again.
Byrnes: Right, teach diversification there.
Kobliner: Diversification. Putting your money into a low cost index fund is the way to go, and unless you decide this is your career and you want to spend your whole life trying to beat the market -- and even then you may not, as most fund managers don't -- you definitely want to go for long-term investing in a diversified, low-cost index fund.
Byrnes: Let's talk about women in investing. We've seen a lot of studies that show that women are better investors than men, but we were talking about earlier how men still seem to be, in many households, handling the investments, etc. Why do you think that is, and how do you think you change that and get more women involved in investing?
Kobliner: I think that we know, when it comes to children, that parents don't talk to their kids about money. We're more willing to talk to our kids about sex or drugs or alcohol, than we do about money.
There are all kinds of reasons why. Maybe we feel we don't know enough about it, so we feel uncomfortable, or maybe we're embarrassed by how poorly we've done with it.
Byrnes: And those are near-term threats. Money is more of a longer-term.
Kobliner: Exactly, right. You're thinking about how do you talk to your children, and what we see is that not only do people not talk to their children, but when they do talk to their children about investing -- the few that do -- they're talking more to sons than daughters.
That could be due to the fact that maybe your parents or your grandparents, the dad was in charge of the investment portfolio. It's historically been something that may have been considered a bastion of what a male does, and maybe the mom was more about budgeting. Often mothers, historically, were the ones who were doing the family finances.
Of course, we're seeing big shifts in that now, but I do think there's still some inherent bias in the way parents approach young children. That can easily be addressed by talking more about it -- and of course, as parents, you have to learn the basics yourself.
It was interesting, when I did the Sesame Street program a couple years ago, on teaching young kids about money -- teaching Elmo about money -- what they found is after they did the show, they had some worksheets and kits that went along with it. Then they had a company poll the people who watched the show, and then they had a control group.
They found that those parents whose children watched the show, and they watched the show with their kids, not only did the kids learn some basic concepts, but the parents actually saved more. They went from 67% of families had emergency savings at the beginning, and after the show 76% had emergency savings.
Kobliner: So, we're seeing that, by children learning this information, that their parents in turn are learning some basics -- because certainly they weren't taught in school either.
Byrnes: Tell us a little bit about the "Money As You Grow" initiative that you're involved in with the Obama administration.
Kobliner: I'm on the President's Council of Financial Capability for Young Americans, which is a council that's basically an outgrowth of a council I was on two years ago, under President Obama, which was focused on financial literacy in general.
Our new council is focused on financial literacy for young people; for children, for high school students, for young Americans just starting out.
My project on this council was to spearhead an effort called "Money As You Grow." What I did as part of the council was look at every research report out there having to do with kids and money -- on saving, on investing -- and cull together what we felt were the 20 most essential lessons that families have to know, that parents have to teach their kids about money.
What we did was we had this very beautifully designed chart, which I got to pull out like this when we met with President Obama. He kind of liked it. It tells you, from ages 3-5 or 6-10 or 11-13 or 14-18, and then 18-plus, what are those five essential lessons that kids need to know?
What was interesting to me, from all the projects I've done in personal finance, this is the one that went viral. We didn't have a marketing budget -- it was a government thing -- and we just need a few more thousand and we hit a million unique visits which, for personal finance for kids, is a very big number.
It was all done by social media. Not that I did it -- I won't take the credit for it -- but what happened is we put it up, and it got a lot of interest on Pinterest, and then it just kept growing from there. It's mostly moms, sharing the information.
That has been really interesting, and I think is a perfect example of the fact that people are so hungry for this information. To speak to your other question, it's really not out there in a digestible form, so that's why we did this on the council and, I think, why there's such a need.
My next book is Make Your Kid a Money Genius (Even if You're Not), because parents ... are the No. 1 influence on their children's money behaviors. Research has shown that.
So, it would be nice if the schools do something, or we have educational programs outside of the family, but when it comes right down to it, parents are the No. 1 influence. I think, because of that, it's essential parents know the basics of, how do I talk to my middle-schooler about saving, or the risks they face financially, or going online ... there are so many issues that children can be educated about.
There was one study out of Cambridge University recently that found that, by age 7, they said your financial behavior is kind of set -- which is stunning, that by age 7 years old, you really have a fundamental, set financial behavior model that's in you.
Of course, you could change it. You could learn. But to me, it really points to the fact that we are not doing nearly enough to talk to our children about money, which is such an essential part of life.
It's not just a materialistic thing, because whatever your child's goals are, whatever they want to do in their life, if they decide they want to go into a lower-paying job, well, you need money in some fashion to be able to do that.
I think we're seeing a trend. We're seeing more people talk about the importance of teaching young people about money. I'm happy to be a part of that, and I hope it continues.
Byrnes: It sounds like it's never too early to start having that conversation with your kids.
Kobliner: Absolutely. It starts really young and continues, probably forever.
Byrnes: Great. Beth Kobliner, best-selling author, financial expert, and Sesame Street star! Thank you.
Kobliner: Thank you.
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