One of the most common questions I get asked from readers is how exactly to talk to others about money. I get emails from angry individuals whose spouses have made terrible financial moves. I get emails from worried parents who don’t know how to talk to their children about getting their financial house in order. I get many emails about children worried about their parents’ financial state.
Talking about money was very uncomfortable for me once upon a time – this site has forced me to talk about it in a very public fashion and as a result, I’ve actually become very comfortable talking with money. An interesting side effect is that family members are starting to come out of the woodwork to ask me for advice.
This meant that I had to make the transition from just writing about money to actually being able to converse about it, something that’s not just uncomfortable for me, but uncomfortable for a lot of people. It Pays To Talk focuses on this uncomfortable aspect of personal finance – this book isn’t about pinching pennies, budgeting, and investing (though they play a role), it’s about how to talk to the people around you about these issues.
It’s an unusual tack for a personal finance book to take, that’s for sure, but does it pay off with a book full of useful advice? Let’s dig in!
The Big Conversation About It Pays To Talk
This book was authored by Charles Schwab and his daughter, Carrie Schwab-Pomerantz (a nice familial connection that brings to light the entire purpose of the book) and it starts off with the key question that underlies the whole thing. From the very first sentence of the prologue: “We have a question for you: Does your family talk about money?” More often than not, the answer is no, and even where the answer isn’t no, it’s often buried under an avalanche of emotion and defensiveness. The book aims to break through all of that.
One major feature that I liked about this book is that each chapter ended with a huge list of potential discussion topics that you can have with your loved ones on these issues. Most of these aren’t confrontational at all, just good topics to make all involved parties more comfortable with respect to talking about money. Not all of these will work for everyone – I found that some work well for my wife, while others work well for my parents, and still others worked well with friends that I was worried about – but most of them are quite worthwhile.
1. Starting the Conversation
It Pays To Talk starts off with the astute observation that most of the pressure and angst that we feel about discussing financial issues is emotional in nature, but it goes on to say that this emotional aspect is the very reason why we should talk about our finances. Addressing these emotional issues with others helps us blow off this emotional steam, step back, and see the situation for what it actually is.
This chapter is loaded with good tips, but a four page section in the middle of the chapter really outlines the mechanics of having a financial conversation (pages 23 to 26 in the hardback version that I read). The most useful tip of all is simply setting an actual date to talk about a specific subject. If you want to talk to someone about a financial issue, let them know what that issue is and set up a block of time to talk about it in advance so everyone can be comfortable going in (or at least as comfortable as possible). Another good tip is to start off focusing on the positives: for example, if I were going to talk to my parents, I would mention some of the good money values they instilled in me.
2. The ABCs of Investing
It Pays To Talk isn’t really an investment book; this chapter covers very basic investment topics mostly to make people who are really uncomfortable with investing familiar with the basics of how to invest money. While I see the purpose of including it here, if you’re familiar with investing at all, this information will seem extremely basic, along the lines of “What is a stock?” and “What is a bond?”
Ordinarily, I would heavily brush off material like this in a personal finance book and try to quickly dig for more interesting points, but the material here is written very clearly and simply and can be a great source of information for starting conversations, which is the entire point of this book.
3. Building Your Family’s Wealth
So what do you do with that information from the previous chapter? Basically, take that knowledge, figure out your own financial comfort level, discuss the information with others, and begin constructing a plan to build your family’s wealth. The chapter leads off with a questionaire that can help people figure out their comfort level with investments; the questions are elegantly written and I actually asked my wife the questions from the quiz out loud. The results from the quiz help you to identify an appropriate investment portfolio for you – risky or conservative – and luckily my wife and I wound up with the same portfolio, though she was slightly more conservative than I was.
The remainder of the chapter is the basics of implementing that portfolio. Although the tone continues to be conversational here and it does offer a ton of leaping off points for discussion, I would turn to something like The Bogleheads’ Guide to Investing for a true guide for investments. This chapter’s role is mostly helping you move through the concepts in a conversational fashion; an investment guide is better for real concrete advice.
4. Joining Forces
This chapter focuses on financial conversations associated with marriage and right on the first page it brings up a very interesting point: every couple should at least discuss a prenupital agreement. It provides a splendid opportunity to really lay down the financial philosophies and expectations of both sides of a marriage, even if both are poor (or relatively so). The chapter gives a nice checklist of things to talk about before marriage even if you decide a formal prenup isn’t right for you. The remainder of the chapter focuses on specific financial situations and issues that will arise throughout a marriage.
I actually felt that this chapter is a good complement to Smart Couples Finish Rich rather than a replacement. By focusing strictly on issues of conversation and relying on conversation-starting points, it’s not as strong of a “what to do” guide as the other book, but it is very good at getting both people on the same page with regards to financial issues.
5. Raising Smart Kids
This was the most surprising chapter in the book for me. I was expecting for some pointers on how to have money conversations with your children, and there is some of that throughout, but the primary focus was on discussing with the other parent how to make appropriate parenting choices. This was actually a useful tack, as it helped my wife and I get on the same page.
The chapter includes extensive advice on how to handle your children’s relationship with and understanding of money at various points in their growth and provides many great talking points for conversation with them. It mostly subscribes to the theory of having a very small allowance without requirements, but also allowing them to do household chores for more pay, something I’m not entirely sure I agree with.
6. Investing in Your Children’s Future
This book basically assumes that you’re going to save for your child’s college education (a premise that’s been debated on this site before). Given that, how should you start and when? There are a lot of potential options, and this chapter moves through a lot of them, bringing up discussion points related to each one.
One interesting concept brought up is the idea of building a nest egg for your child after college, perhaps to use as a house down payment. This topic spurred discussion with my wife where we largely decided that this would be a solid use of money for the long term provided our retirement was taken care of, but it’s a pretty low priority.
7. Investing for the Second Half
From here, It Pays To Talk moves on to retirement issues, where the big key is to focus on making sure your retirement plans are in sync. For example, in our situation, my wife and I are essentially each planning for full salary replacement at age sixty, even without Social Security. It’s an impressive goal, but something we’re both committed to – we both have pension plans and we both also have 401(k) plans that are receiving contributions well above 10%.
The chapter is loaded with some wonderful simple retirement calculation worksheets, quite useful for spurring on conversation (if you haven’t noticed, that’s the big theme here – opening up avenues of conversation about money). In fact, this chapter uses an inflation adjustment factor that assumes inflation at a 3.5% rate, another specific point that got my wife and I talking about the role of inflation in our planning. We’re actually assuming higher inflation than that (4%, to be precise), so each year with sub-4% inflation puts us a little ahead of pace.
8. Estate Planning for You and Your Parents
The advice here turns to parental issues, something of deep interest for me as I’m beginning to be concerned about my parent’s financial planning. I have been rather uncomfortable with discussing this topic with them, so this chapter became the real home run of the book with me. I literally sat down and made a list of every relevant discussion point from the chapter that could be applied to my parents’ situation and used that as the basis for a series of serious money conversations with them.
In a nutshell, if you don’t have a $1 million plus estate, estate planning is pretty easy and can mostly be resolved through some sincere conversations. I know that it didn’t take real long to codify my own wishes, those of my spouse, and those of my parents once we actually began to dig into the issues. There are a lot of things to discuss, but they’re all little things.
9. Expect the Unexpected (and Protect Your Finances)
The final chapter of the book covers insurance, another issue that’s loaded with potential discussion topics. I happened to be reading this book at the same time my wife and I were switching auto insurance and buying house insurance, so we literally used the discussion topics from this book to talk through our decision making process.
The end of the chapter deals with windfalls, an issue I’ve been pondering some lately. Basically, it says to pay all of the taxes, put the money in a safe place, and a financial professional guide you, but that you should carefully talk out any choices you might make. Simple advice, but it’s spot on with what seems right in my heart and with what others advise.
Buy or Don’t Buy?
Up to this point in my 52 books series, there have only been two books that I have actually asked that my wife read: Your Money or Your Life (the best one I’ve yet read) and Smart Couples Finish Rich (because it spoke so directly to our situation). After reading It Pays To Talk, I’ve added a third to that brief list.
This is also one of the few personal finance books that I’ve been able to directly apply the information found within almost immediately; I was able to start a conversation with my parents about their financial situation, a matter that has been troubling me for some time. In broaching that subject, I basically used most of the ideas from the eighth chapter of this book and I think I’ve built a framework where we can continue to move forward in the coming year or two.
In short, It Pays To Talk is an amazing book to read if you are having difficulty communicating with someone in your life about financial issues. It is this difficulty that this book speaks to and speaks to well. If communication isn’t the problem, then I can largely guarantee you that this book won’t help you solve your financial problems.
It Pays To Talk is the thirty-fourth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.