There are admirers of Elizabeth Warren, and then there are the Warrenites. An admirer nods approvingly as the senior senator from Massachusetts fights to bring accountability to the banking sector and level the playing field for ordinary Americans. A Warrenite works out to the audiobook of Warren's New York Times bestseller A Fighting Chance and sometimes even tells the barista her name is "Elizabeth Warren" just so she can pretend she's drinking the Senator's latte.
Warren took a break from laying waste to a certain Republican presidential hopeful on social media and fending off rumors that she's on the veep shortlist to chat with me about the personal side of personal finance. Because, sure, she's a former Harvard professor with an encyclopedic grasp of the global economy, but this Oklahoma native has no problem turning wonk-speak into practical wisdom for parents struggling to teach their kids fiscal responsibility. (Along with her daughter Amelia Warren Tyagi, Senator Warren wrote one of the best money books out there, All Your Worth: The Ultimate Lifetime Money Plan.) Here, she serves up her four rules to get your finances in order, tips on shopping with grandkids (she's not just a tireless crusader for financial justice, she's a grandma!), and the final score in money versus love.
Get ready to upgrade from admirer to full-scale Warrenite.
Beth Kobliner: Your dad and mom were so supportive of your career. But here you are a stalwart consumer financial advocate—and yet you say that growing up your dad never once talked about money. How did your upbringing inform the way you think about personal finance?
Sen. Elizabeth Warren: I saw at a young age that one bad break can turn a family's financial life upside down. And it has affected everything in my life since then. My parents and I were all afraid of being poor—really poor. My daddy's response was to never talk about money or what might happen if it ran out. My response was to study contracts, finance, economics, to plan, to have a goal, to work on that goal. To learn everything I could. I always poked at the things that scared me most.
BK: Is money something that you talked about with your own kids when they were young?
EW: Yes. I can remember riding in the car with [my daughter] Amelia, when she was very small, and we'd talk about money the same way we'd talk about sparkly shoes or what had happened at school.
BK: Now you've got a whole crop of grandkids to teach about finance. What's the one piece of advice you'd give them now?
EW: Well, they're 5, 10, and 15. While they're young and still at home, I think it's all about learning the value of money. All three earn money around the house, and all three spend their own money. Now I've noticed that when they have to spend their own money on birthday cards, they have decided that homemade cards are so much nicer.
BK: But how do you teach money lessons without boring their pants off?
EW: Both [of my granddaughters] Octavia and Lavinia have May birthdays. I've just been birthday shopping with them. But the shopping has a budget. I say, "Okay, if you pick this out, then you'll have how much left?" I wait for them to do the calculation, and they'll say, "$18." And we stand there and talk about, hmm, is that sweater really worth that much? And the girls work it through.
Doing that takes away some of the magic of money. There's a limit here. This is how far we go and we don't go further. And I also think by talking about it that way, it avoids the unspoken idea that money is the expression of love. Money is bounded; we only have so much of it. Love goes on forever. So when Gammy takes you shopping, there's only so much money to spend, but there's plenty of love. And hugs and kisses.
BK: So it's more than a finance lesson. It's a life lesson.
EW: Ultimately, the point of getting it right on money, is not to have to think about money.
BK: What do you say to young adults—people in their early twenties?
EW: Once kids get older, the list is longer. So here goes: Stay out of debt. Sometimes debt is necessary, to buy a home or to get an education, but not to buy a sweater or to eat out. If you have a choice between buying something and paying down your credit card, pay down your credit card. My mother said, if you don't have the cash, don't buy it. And on that, my mother was right.
My second: Get your money in balance. One rule of thumb is 50/30/20. Spend about 50% of your money on must-haves—things like rent, car payments—and about 30% on wants, while 20% should go toward savings and paying down debt. Once you've gotten your money in balance, you know how much you have to spend on things that are just fun.
My third: Goals work. Pick one debt, and then put every dime into paying down that one debt. Once that debt is paid off, start paying down the next debt. Pretty soon it's time to move from paying debt to building savings.
And the last one I'll mention: Count dollars, not pennies. Look at the big-ticket items, in your budget. Your home or apartment. Your car. Your insurance. If you are overspending on these big monthly bills, then money's draining out of your pocket a lot faster than you can replace it by clipping coupons or buying cheaper coffee.
BK: Personal finance was once part of the math curriculum. And then it was introduced through home economics. In the last few years, though, it's disappeared from the classroom. And now there are behavioral economists saying, well, there's no evidence that it even changes behavior, so why bother teaching it?
EW: It's powerfully important that our kids get an education in personal finance. Both from their families and in school. And that is especially important as more young people must take on huge debt loads to go to college. We have to rethink how to teach financial education in the 21st century. You know, the old version was about balancing a checkbook. The new version is about the risks of debt, which is so much more widely available. So I think it's important that we design relevant financial literacy courses, and teach them starting early in grade school.
BK: So what can we do to get financial literacy back in the classroom?
EW: I think the best way it happens is if parents say, this is important for educating my child. It's pretty much how we get anything added to the curriculum. When parents said children needed to be computer literate, the schools started responding. The same thing is true of basic financial literacy.
But no one should have to get a PhD in economics to survive in this economy. It's critical to level the playing field, to make prices and risks clear up front, so when someone signs on for a student loan or a mortgage or a credit card, they know the tricks and traps hidden in the fine print. That's why the Consumer Financial Protection Bureau has been working on a new financial aid shopping sheet. A shorter, two-page credit card agreement, a simpler mortgage disclosure form. All those are aimed toward helping people understand the basic bargain.
And I hope you're writing a lot about the [CFPB] complaint hotline. The other day, Rich [Cordray, CFPB Director] told me there are over 850,000 complaints! Just fabulous!
BK: All due to you. Impressive.
BK: Okay, one more. Warren Buffett has been quoted as saying that his best advice for a young person is to never get a credit card. What do you think?
EW: Good for Warren Buffett that he can afford to do that! Some people, sometimes, need to finance a purchase or rent a car, and a credit card becomes a necessity. I don't like credit cards. Let me triple underline that. I don't like credit cards. They make overspending very easy. They can make life a lot more complex and stressful.
My advice is to treat them like what they are: little plastic grenades that must be handled very carefully.
This interview has been edited and condensed.
Beth Kobliner is the author of the New York Times bestseller Get a Financial Life: Personal Finance in Your Twenties and Thirties, and the forthcoming book, Make Your Kid a Money Genius (Even If You're Not), to be published by Simon & Schuster. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.