How Can We Talk To Boomers About Money?

Katie: Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly discussion of The Money with Katie Show. I'm your host, Katie Gatti Tassin. And every Friday, my executive producer, Henah, and I are gonna dig into an interesting, relevant topic based on a listener question that feels like it lends itself to some healthy discussion. So we used to tack these onto the end of every episode, but our episodes were getting quite long, and it made the individual questions harder to search in the podcast apps. So I hope you enjoy this new format. Let us know what you think. And before we dive in, here's a quick message from our sponsors of this segment. This segment is brought to you by Betterment, the online investing platform that gives you the tools, inspiration, and support that will help you become a better investor. Investing involves risk. Performance not guaranteed. 

Henah, good morning. How are we doing this week? 

Henah: I'm good. It's been a busy, busy week, but next week's gonna be a big week for us. How are you feeling? 

Katie: I'm feeling good. I'm a little bit tired. Like you just said, we had seven recordings this week, and this is actually our second attempt at taping Rich Girl Roundup. So we're a little bit fried, but I am excited to talk about this topic. I think it's gonna bring me back to life. 

Henah: Same. I think it's a really relevant one for both of us, so I can get into it. This week's question is from Fatima. 

“How do we navigate money conversations with boomers who still are stuck on age-old concepts of how to make money? For example, buying a house, that kids are your biggest assets, real estate is the best investment, et cetera.” So I think, Katie, you might have a very strong opinion on this one. I know you've had debates with your own parents, so let's start there. 

Katie: I think I should couch everything I'm about to say in the caveat that it's important to remember—and this is what I always tell myself—that each generation's perspective on the best way to build wealth for them was correct and was true, but it does change over time, right? And so I think we are seeing kind of an interesting generational shift when we talk about the boomers, because for many of our parents who were born in the Baby Boom economy of World War II—and I'm sure there are boomers that listen to this show, so hello, welcome—buying a house was the best way to build wealth, at least in the US, because the government was trying to make it cheap and accessible. And having multiple children probably was not as financially taxing as it is today because the cost of living—and I'm thinking specifically of childcare and housing and education—was not as high, and you could pay cash and send multiple kids to college on one middle-class income. So those things, though, are for the most part not true anymore. And I think that's probably the crux of where this question is coming from, is like, how do I convince my parents that the things that they're trying to tell me to do, or the keys to success that they're trying to hand me, look a little different today? 

Henah: Yeah, I mean there are points of view that my parents had that they are definitely right about: maxing out a 401(k), putting a certain amount of money from your income into savings. But there are definitely ones that feel outdated that I have now challenged them on. So for example, the rent versus buy equation, the one you just talked about. I think there's also just a lot of cultural norms tied up in this too, in the generational gap between you and your parents. So I think one thing is asking them what they felt was wrong from their parents when they were growing up, and how that might be similar to how you're feeling today. But yeah, I mean you and I have talked about this. My parents have always said “renting is just throwing away money.” And I think after listening to your episodes, they've kind of come around on maybe buying a house may not be the biggest wealth-building tool. So I don't know if you have an example, like do you wanna get into… 

Katie: Oh, you know, I have numbers, Henah, you know I came with numbers. I brought the receipts. Of course, I always feel so weird talking about this because I am very aware that I come off as like the precocious 13-year-old that's like, “Well, actually,” so I guess I just wanna say, like when you're talking about asset returns on anything, the price that you pay for something is always going to be a major determinant of whether or not it becomes a good investment. Your cost basis matters. And this is especially true of real estate. So getting into the numbers, I was trying to think of a way to kind of equate boomers and the age that millennials are now, and maybe to some degree Zoomers are now, with kind of the situation that boomers were in when they were that age. So when we talk about baby boomers, typically we're referring to people born between 1946 and 1964. So that would put that key year around 1985, when boomers were between 21 and 39 years old, okay? 

Henah: Following. Got it. 

Katie: Following. So in 1985, the median sale price of a house in the US was $82,800, per the St. Louis Fed. Now that's not adjusted for inflation. So if you seasonally adjust it, it'd be like a house that's worth $229,000 today. Now I would love for you to guess what the median home value is today. 

Henah: Obviously it depends on where you live, because if I were back home it would be four times as much, but I'm gonna average it out. Maybe twice as much as that? 

Katie: Okay, so around what, $460k? 

Henah: Yeah. 

Katie: Okay. You are astoundingly close. It is $454,900. So that is a real difference in the median home value of about $225,000. However, and this is usually the big pushback piece that I've gotten from my own father, to like people my father's age online, is that 1985, the interest rates were bananas. So it was around 12%...

Henah: Oh my god.

Katie: …in 1985, I know, which I can't even really wrap my head around. Today, it's around 6.5%, which feels really high compared to the last 10 years, but historically speaking, is still pretty low. So if we're calculating the difference in monthly payments, in real terms, assuming you put 20% down in both cases, and using the real interest rates, it would be around $1,800 per month in 1985 that you would pay around $2,300 per month today, all else held equal. So it's a real difference in affordability of about $6,000 per year. However, there is a big piece of this puzzle that we kind of glossed over.

Henah: I was waiting for this. 

Katie: Yes. So I know you and I have talked about this, that it's not necessarily the monthly cost that's a non-starter for buying, like for you, Henah. And you know, you guys are kind of interested in buying. It's that the down payment is so freaking high. So a 20% down payment on $229,000 is $45,000. But a 20% down payment on $454,000 is $90,000. So it stands to reason to me that what a boomer of equal financial footing in the eighties could accomplish in a specific amount of time, it would probably take someone today in that same financial position roughly twice as long, if the down payment is twice as large, right? 

Henah: I mean, that tracks for me. I live in California now; I'm hoping to move back to the east coast, but these are very high cost of living areas. So $450k is also the very low end of the spectrum. 

Katie: Bargain!

Henah: Yeah. If I saw a house for that much that I really liked, I would jump on it. Right now it's a steal. So yeah, you know, $91,000 is still really low comparatively to what most 20% down payments look like where we're looking. But to your point, can real estate be really valuable as a wealth building tool? Sure. But I think that the big difference now is that our generation, we may not be able to afford the house, but we do have access to financial tech, which you've talked about on the show before. Like it was never possible for our parents to hop on their phone, find an app with a green logo, and buy ETFs for free. So they might have had more affordable shelter, but I think we have wealth-building in a different way. 

Katie: Totally. And I think that has been kind of the key piece of it for me in those conversations, is like maybe my building wealth does not look the way yours did, but it's just 'cause I have access to something different. Like I don't really have as much readily available access to the thing that you built wealth with, but I have access to something that you didn't, even though on the surface, you can't see my wealth-building because you can't see me buying a house. I'm still behind the scenes dollar cost averaging every month into the relentless wealth-building machine that is the stock market. 

So I guess I would assume that a lot of these conversations are probably happening with parents, or people that are older than you in your life that care about you, that are probably just wanting to make sure that you are setting yourself up for success. So I think there's maybe some reassurance there that like “No, no, no, I'm also planning for the future; it just looks different for me.” 

Henah: But I do think, you know, having those conversations intergenerationally is really important for this reason, too. And I was reading, I think it was a New York Times article, that millennials are the most open to talking about finances. And I think it's because of the position we've been put in, where a lot of the traditional advice no longer applies. And we're either having to lay out boundaries about our financial perspectives and say, “If you don't agree, that's fine, but this is my reality. Or let me talk to you about what my day-to-day is,” so that people are understanding how our reality’s changing decade after decade. 

Katie: Yeah. And there's probably some mutual respect and trust on both sides of it too that we will probably have to contend with when our children's generation is like, “No, Mom, you don't get it. No one invests in the stock market anymore,” and we're gonna be like, “What are you talking about?” So it's probably a cycle. Well, thank you for listening to this week's Rich Girl Roundup. We will be back next Friday on the topic of giving back: How do we balance our money goals with also giving to charitable causes?