Learn how to talk to your kids about inflation and interest rates

Hi, you know, we've all felt a pinch when it comes to inflation and increasing interest rates, but are your children aware of what's going on? Should you talk to them about finances? Certified Financial Planner Travis Freeman with Monetta here this morning with some tips on money talk. Good morning to you. Good morning, Margie. So my mom always said, you know, money doesn't grow on trees. You probably a lot of kids heard that, but that's not really addressing money issues per se. Yeah, with everything we have going on in the economy right now, it would be a mistake if we didn't teach our children some of these things, right? With inflation and high interest rates, right? Now, every family is dealing with this little differently, right? But regardless of whether it's giving them trouble or not, we have to teach these lessons to our kids. So one simple one that I've used with my kids is how do you explain inflation, right? That's what I was going to say, but this is complicated.

I barely understand it, right? So your viewers will love this analogy. I told my kids, look, imagine if every child in America received double their allowance for the rest of the year, right? And they decide to spend that extra money on candy and video games. What do you think is going to happen to the cost, the price of candy and video games if all of a sudden demand goes up? Right. Well, it goes up, right? It's higher. Although inflation can be caused by various reasons, that's a simple example of how it can work and kids will get it. I tested it on mine. What did they say? They said, wow, dad.

One of them finished my sentence, actually. He understood, if supply stays the same and everybody wants this thing, right, and spend their money on, it's going to drive the price out. Yeah. What about your older kids? What do you do with them? Maybe they're in high school. Maybe they're driving. You're paying their cell phone. You're paying their insurance.

You know, you're paying maybe their car payment. Right. Yeah. Couple things, right? So we'll have interest rates as well as inflation again. So some kids, especially older kids, might say, well, then it's inflation bad, right? I relate it to riding a bicycle, right? If you aren't going forward on the bicycle, if you don't have some speed, you're going to fall over, right? You need to go forward with it. But if you're going too fast, it can be dangerous for you, right? The Federal Reserve Bank wants to see inflation at about 2%. As of March, we were at 5% still.

Last summer, we were 9%. It's too fast on the bicycle, right? So eventually, we do want to get down to 2%. Imagine, Margie, if there was no inflation, kids wouldn't receive raises, right? People may not receive raises at work. It would be harder for businesses to have more revenue or more profit. So for the older kids that are near driving age, let's just say they want to spend $10,000 on a car at 16 years old. You're going to look at 5% to 8% interest rates right now if you're going to finance a car. So imagine taking someone who's 13, 14, teach them how they could save up to buy it with cash and not pay all that interest because at five years on a five-year loan at 8%, you'd be paying over $2,000 of interest.

You're adding 20% to the cost of that car. So teach kids they could save up early and not have to rely on debt later, and you might be really proud of them as they get to their 20s, 30s, and later. Yeah, I mean, schools even now are teaching a lot when it comes to finances. I think when I was in school, we learned how to write a check, which hardly anyone even does anyway. That was all, but they'll show you credit cards and how to figure those out and what an interest rate means. That's right. That's right.

Now, state-by-state, it's going to look a little different. In Missouri, they have started putting more financial education in there, but kids learn from their parents, right? They do, yes. And if you're changing your budget, you're changing behaviors or something's going on, teach your kids. It doesn't have to be taboo. You're going to lose this opportunity to give them really good lessons that could translate into money management skills later on. I love your analogies this morning. I'm going to use them myself.

Please do. Thank you so much, Travis Freeman with Monetta Group.

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