How to Talk to Your Kids About Money Troubles

Filed under: Work Life, Expert Advice: Big Kids, Expert Advice: Tweens, Expert Advice: Teens, Expert Advice: Home Base

Be honest and open when discussing financial hardships. Credit: pfala, Flickr


Very few families are immune to the problems that come with a difficult economic climate. Job loss and cutbacks are making it harder and harder for some parents to make ends meet, and experts say talking to your kids about financial troubles is important to their future relationship with money.

Rick Kahler is a fee-only financial planner and co-author of "The Financial Wisdom of Ebenezer Scrooge: 5 Principles to Transform Your Relationships with Money." He says being honest with your children when money troubles strike will pay dividends in the future.

"Parents need to understand that what individuals think, feel and believe about money -- 'money scripts' -- influence the financial choices they make every day," Kahler says. "Money scripts are tied to past experiences around money, often starting in childhood. During tough economic times, children can develop fearful money scripts that may keep them from managing money successfully as adults and lead to destructive financial behaviors such as over-spending, excessive debt or financial infidelity."

Sounds scary, doesn't it? But so is being open and honest when cash flow is tight or when Mom or Dad loses a job. No one wants to frighten their kids. So how should parents open a dialog about financial crisis? Simple, says Kahler: Be honest.

"Tell kids the truth, but don't be alarmist," he says. "Those who still have jobs may not get the raise or bonus expected, or higher costs may force lifestyle changes. Don't hide that information from your kids. Not knowing what's going on will only make them more fearful."

Be aware of your tone, and try not to panic, he adds.

"At the same time, assure kids that the family will be okay, that you as parents are taking care of things," he says. "If you don't panic, they won't either."

Kahler also advises parents to be honest when they lose a job. He adds that it is important to strike a balance between not being overly protective of children and burdening them with too much responsibility before they are ready.

"In case of a severe crisis like job loss, it's perfectly appropriate for older kids to pitch in and help," he says. "They may need to give up luxuries they're used to, provide more help with chores or possibly even contribute earnings from part-time jobs to the family treasury."

Last but not least, Kahler urges parents to lead by example; deal with your own fears, seek advice and cut out all extras.

"Make your own financial sacrifices first," he says. "It's easier for kids to give up ballet lessons if you've already canceled your spa membership and cut out your morning visit to the coffee shop."

Related: Recession Gives Parents Chance to Instill Work Ethic, Families Learn New Ways to Cope with Recession

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Start by teaching him that it is safe to do so.