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Talking to your parents about money can be a humbling experience–for them

Ramit Sethi

I’m on a rampage!!! I’ve been on vacation for a week and I think that sleeping 16 hours a day really sharpens the mind. If you have questions about personal-finance, this is a really good time to ask. Email me or just add a comment to any post on this site, and I’ll try to help out.

MP Dunleavey wrote a nice column about the money myths we inherit from mom.

I’m going to suggest something unconventional: talking to your parents about money–but this time, you quiz them.

  • What’s their investment strategy?
  • What’s their asset allocation? When was the last time they rebalanced?
  • Why do they own their mutual fund(s)? How much are they paying in fees?
  • Are they aware of better investments in terms of cost and risk?
  • Are they maximizing investments based on their tax status?
  • What % of their salary are they saving?
  • What fees do they pay for their bank accounts and credit cards?
  • Speaking of credit cards, what’s their average monthly balance? Why isn’t it 0? How could they get it there?
  • Are they maximizing their 401(k), at least as much as their company matches?
  • What about other retirement vehicles like a Roth IRA? Do they have one?
  • Do they read http://www.IWillTeachYouToBeRich.com? NO? WHY NOT, POPS?!?! (Note: highly recommended that you scream this really loudly)

You don’t have to know all the answers to these questions. But if your parents are investing, they should. At the very least, they should know what they don’t know.

I’ve actually had the most fun when people email me to tell me about talking to their parents after they take my 1-hour class. For example, one thing I always tell people to ask their parents is to guess what percentage of mutual funds beat the market. Do you know? (Hint: It’s really low.) When the students tell their parents the answer, the parents’ typical response is either disbelief or anger; something like “You don’t know what you’re talking about!” or “I don’t believe you! How could that be?”

I’ve heard this from a bunch of my students. I love it.

So try asking your parents some questions tomorrow. See what their response is. And please let me know. Money should be talked about more openly in families, and I’d love for it to be educational from both ends–parents and children. Plus you can seem really smart and maybe you can hit them up for some new jeans or something.

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2 Comments

 
  1. Cheska

    Can i just SreaM?? Ramit, my parents have to have a meeting with you. lol… we’ve only been here for a year and a half having moved from another continent.. i got a quick start on my finances thanks to my friend.. i’m doing good.. got my 401k, roth ira, emergency savings. i pay off my cards every month. here’s the thing.. my parents and my brother have no credit!!! my parents are averse to debt. they’ve never had a loan nor have they had credit cards before. nope. nada. they don’t have stocks. well they did. but not because they invested but because the company was demutualized. not that i want them to invest in stocks at their age but the least they could do is have some credit history!!! i can stop griping now.. i got tired of asking them to fill out the secured card applications that i filled them out myself.. i just asked them to sign and yes finally… they’re getting credit cards!!! as to my other gripes.. i love asking people how they invest.. i almost always ask those questions you have above from people at work.. and so far i’ve only had one satisfactory answer. it came from someone who worked in investments before. as for the others.. here are my observations: 1) they think of their 401k as a savings account. it’s like a one-time thing. set up how much you want taken from your paycheck and choose your funds. no rebalancing. 2) they put way more than what the company matches on the 401k. (the rest could be put in a roth ira.. that’s just me.. they look at me funny like why are you only putting 6%???) 3) they don’t know what affects their credit/fico scores. 4) they’d rather put their retirement funds or whatever savings they have on “physical” banks that offer interest rates of a third of a percent!! GOOD LORD! instead of placing them with ING direct or other online banks that are also FDIC insured!! just because they want to be able to talk to real people.. (okay.. maybe i’m over-reacting.. but would you give up 2.85% of your possible interest earnings just to talk to a live teller at the bank?? i wouldn’t.. ing has a rate of 3.15 less almost 1/3 of a percent= around 2.85%) 5) most of them don’t have roth ira’s even if they qualify 6) they never listen when younger people try to give them investment advice!!! i’ve tried (with little success)to talk to them about putting their savings in accounts that have higher yields, or rebalance their 401k or open a roth ira. i’m just a little frustrated.. agh!… lol..

  2. Lauren

    HI! My name is Lauren and I am just out of college, working as a slave (ie; flight instuctor) in Dallas, TX and after seeing my parents struggle with credit card debt and all the other ailments of adulthood, I am ready to take the reins on my own life and start investing and making sound financial decisions. If you have any good advice as to where I should start investing (mutual funds, roth IRA’s, stocks, my company does not offer 401k’s) I would really appreciate the help. I hear ING is a good company to invest with and would love to hear anyone’s thoughts. I am just trying to live the “American Dream”, not fall into the pitfalls of my predecessors-ha! Thanks guys!-Lauren