How To Talk To A Teen About Money

One of my clients told me the other day about a conversation she had recently with her teen. The conversation began as a typical mother-daughter talk about a purchase and had every chance of devolving into an equally typical argument. But suddenly, my client decided to take the conversation in a different direction—into the sort of conversation she would normally have with me, her financial advisor. She was surprised at the results. Most of us don't talk to our older children about money because we don't want to share worries and anxieties or because we've been trained to keep the information "private." But very few of us live without financial limits. What we do within those limitations—the planning, the discipline and the constant adjusting for unexpected costs and opportunities that crop up in our lives—these are exactly what a young person in our society needs to understand. Next time you get a chance to mentor a young person about finances, resist the urge to hide the realities that you've been managing (whether skillfully or not), and try sharing your own experiences:

Don't be afraid to share how much you make

We train ourselves to hide how much we make, and most of us have suffered at one time or another from our resulting ignorance of how others in our community are faring. Besides, you might not be impressed by your modest income, but the teen who counts out spending cash one bag of chips at a time probably is. Enjoy the rare moment of respect when you tell them that you make more than a three-figure salary.

Show them the real costs of life

You build your choices around some pretty heft and inescapable costs—housing, health care, transportation, groceries and taxes just to get started. When you share these figures with a teen, you are often giving them their first real look at the baseline for getting by as an adult in our society. This is also a good moment to reflect on how much you ask of yourself as a breadwinner.

Have a dialogue about the choices

Our choices are where we become who we are. Every day we decide what is important to us: because that expense makes us healthier or saves us time we badly need elsewhere, because we are afraid of what might happen, because we believe in something outside ourselves. We make financial choices because we dream of changing our lives some day or just because that little expense makes us happier. None of these choices are things to be ashamed of, even when we aren't completely sure those choices are the right ones.

And this, I think, gets at the root of why we are so reluctant to talk to our teens about these things. As a society, we have been floundering along under the assumption that we should be better at managing our money than we are. Money has a way of squirming its way into every worry and challenge we face in life. And yet, the vast majority of us somehow find a way to get through. We probably all need to give ourselves a bit of break. We definitely all need to talk about it more—not just for our teens' sake, but as a reminder that every day, no matter how many unexpected obstacles crop up, we are there figuring out a way to make things work all over again.

Why Everyone Is Talking About Inflation

Well, not everyone, necessarily. But all of those chatty economists. And your grandma, of course ("Why is this store so expensive? You know, I used to be able to buy a loaf of bread for a nickel!"). But we are seeing signs that inflation is on the rise after years of a whole-lot-of-nothing. So what does it mean and why should you care?

Inflation, of course, is that phenomenon whereby the loaf of bread your grandmother could by for a nickel now costs $4.25. As economies grow, there is more money moving faster amongst more people. More dollar notes swirling around means they aren't as hard to come by, which means you have to give up more of them to get the same thing. If you are an average shopper, this doesn't sound great. I personally would love to go to the grocery store without wondering if my son will actually eat his inheritance. But really bad things happen if inflation goes too low. Consider this story from your great-grandmother's era—

Inflation in the U.S. has averaged about 3.32% over the years from 1914 to now. But in between there have been a few times when things went crazy. In June of 1920, the price of all sorts of products skyrocketed by 23.70%. That's like watching your neighbor by a car for $20,000 and four weeks later, having to pay $24,740 for the exact same car. It gets worse if you think about the fact that the CPI (Consumer Price Index) by which we generally measure inflation includes a lot more than cars—groceries, rent, medical costs, clothing, services and supplies are all in there getting ridiculously expensive all of a sudden.

It was a moment of spectacular political failure—the feds had slashed spending and raised interest rates to try to balance the budget, and everyone panicked. But what followed was equally bad. By June 1921, prices had dropped to the point where it became obvious that no one was buying anything. That month, the lowest inflation rate in U.S. history came in at -15.80%. Over the 18 months that the recession lasted the wholesale price of a lot what we buy fell by well over a third. Things were cheap because no one was buying. And the jobs disappeared as a result; unemployment went from a pretty normal 5.2% to a painful 11.7%. That's almost 12% of American who could work not being able to find a job.

All of this brings us to our current predicament. Our own Great Depression (after the 2008 crash—thank you, Wall Street) pretty much killed off inflation. The money just wasn't moving. And as much as we enjoy the lower prices, we've been counting on inflation to make a return (along with some more jobs, thank you).  Fortunately things are finally looking up. Inflation has gone from -2% this past April to .1% in June (total for the past 12 months). Still not impressive, but better than the goose egg we've been looking at since 2008. And speaking of eggs— they accounted for most of the inflation in food this summer (it was a tough spring for chickens). So you might do better to stick with that loaf of bread after all.

Money. The Person Next To You Probably Isn't Doing Any Better

A client walks into my office for a first meeting, puts down an envelope of assorted papers and takes a deep breath. I know exactly what is going to come next. I don't know yet what state her finances are in, of course. But what I do know is that she is already feeling embarrassed—embarrassed because she doesn't have enough money, embarrassed because she should have more, or just embarrassed that she has so much and still doesn't entirely understand what the heck she's doing with it. And don't let the "she" confuse you—all of this embarrassment around personal finances applies equally to men.

One of the most fascinating things about advising people on their finances is that you are often the only person who gets to hear what they are actually thinking about their financial situations. To me, their situations are almost never shocking—I've seen people with a lot more assets than you'd expect and plenty with a lot less than you'd think. What is shocking is how many people think their situations are unusual.

So here are a few bits of random information to make you feel better before the weekend—

Americans owe a total of about $8.17 trillion on their mortgages. Yours is just a drop in the bucket. And if you haven't bought a house, well, this is a good time to look at all those mortgage-bound borrowers and feel a little bit smug about your freedom.

Student loan debt stands at about $1.19 trillion, up about $78 billion from last year, which means that student loans are about as American as apple pie. In fact, more American than apple pie—how many Americans do you know who can make an apple pie?

The National Financial Educators Council tested over 8,000 people from 50 states on very basic financial literacy. The average score for adults 25 to 50 years old was a C-. Our oldest Americans (aged 50+) had the best grade with a resounding 75 out of 100. If you feel badly about the grade for your age group, at least you aren't in the 19 to 24 crowd. They got a cringe-inspiring 67% of their answers right. But then, again, mostly they're just trying to figure out the student loan apps right now.

The whole point of emergency savings is to spend it in emergencies. Also, emergencies—medical, employment, legal, etc...—happen all of the time.

Maybe that last point was not what you were expecting on a financial blog. But I find myself reminding people all too often that making ourselves (or anyone else) feel embarrassed about the ups and downs of life just doesn't make sense. And maybe, just maybe, if we talked about money more as a society, we might see that the person sitting next to us is trying to figure out all of the same stuff.

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Stats are from the New York Federal Reserve's May Report on American consumer finance, available online for anyone looking for some laughs.

One of the best (free!) places to get good information on financial basics is the Practical Money Skills For Life video series—and my blog, of course.