Around a year ago I spoke with my friend Lauren Lindsay, a Certified Financial Planner, about talking to your family about money. You can read about that conversation here.
Lauren told me that she likes to begin all client conversations--whether it's people saving for college or preparing for retirement or trying to avoid bankruptcy--with a hypothetical question about budgets.
Imagine you have a $400 dining out budget for the month. How would you divide it? One really fabulous meal a month, and then normal meals at home the rest of the month? Go out on weekends, but watch your spending to make sure you don’t go over? A cheap fast food meal almost every night, and spend the grocery budget on something else? Talk through your answers and your reasoning.
It's a good icebreaker for often-stressful discussions about money, because it gives you a way to think about how you approach money. Lauren says we all have a "money message" and our own way of approaching finances, and this question allows people to become more aware of that. It also lets people discuss their differences in thinking.
I liked the exercise so much that I ask all my coaching clients to have the conversation with their own families. And now I've thought of another hypothetical question specifically for high school students about to take on debt for college. Debt means risk, and it's important to understand your own unconscious and emotional responses to risk before making big decisions. My hypothetical is a little more devious than Lauren's pleasant dining out question:
Imagine that I have three pieces of paper, and you can steal one of them from me without me knowing.
The first is a hundred dollar bill. You take it from me, you have an extra hundred bucks, game over.
The second is a lottery ticket with 50 numbers for the next Powerball drawing (they cost $2 each, so it costs $100 total). The jackpot is $100 million. If you take this, you'll probably get nothing. Or you may get a little bit of money. But you just might (a roughly 1 in 292 million chance) win a hundred million dollars. If you win the big jackpot, there's a risk that I will accuse you of stealing the ticket from me, but that would be very difficult to prove. And that would only be likely if you win the big one. You'd probably get away with it.
The third is a bank statement that includes my account number and password. If you steal this, you'll have access to (probably) more than $100 but (almost certainly) less than $100 million. But getting the money from me will take more work, and it also has an increased risk of me or my bank catching you. If you know the right...or in this case wrong...people, you could probably sell the data to someone else and let them deal with it.
Which would you choose? Why?
I'll tell you my answer. I'd take the Powerball ticket. One hundred dollars wouldn't have a huge impact on my life right now, so it wouldn't feel like losing money to me. But $100 million would have a giant impact. Plus, I like the fun and suspense of it. (I think my wife can confirm that "frivolous but not technically disastrous" sums up pretty well my approach to money. Sorry, Darling.)
I can also see how someone who is behind on a car payment or stressing about family Christmas gifts would want the cash and would see the other options as really stupid. Or I can easily imagine someone saying "all three options are stealing, so don't judge. I'm going to take the bank statement and use my work ethic and ingenuity to maximize my returns." There isn't a wrong answer, but thinking about your answer and the reasons behind it can be illuminating.
Think about your own answer, and ask your friends and family about theirs. I only have two warnings:
1. This is just an intellectual exercise. Don't steal anything from anybody, even if you're sure you won't get caught!
2. This isn't a simple one-to-one correspondence. There's no "if you chose the hundred dollar bill, then you should go to this kind of college" formula here. It's just a matter of understanding your thinking--and feelings--about debt and risk before you have the student loan papers in front of you awaiting signature.