Cashing In Q&A columns

How to discuss financial woes with children


How much should you tell your children about your financial difficulties? Experts say parents should let children know when the family is facing hard times, and maybe get the kids to help out.

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How to talk to your children about financial problems
  • Avoid keeping children in the dark. Kids will pick up on the tension in the home and wonder if it’s their fault.
  • You don’t have to go into specifics about your finances with your kids, but be honest with them about the fact that there is a problem.
  • Reassure them that you are working to solve the problem and ask the kids to help you manage costs and suggest ways to cut back.
  • Talk about the difference between things they need versus things they want.
  • Get the entire family involved by asking everyone to make suggestions for their favorite free family fun thing to do.

You may be deep in credit card debt, about to lose your house to foreclosure or facing other financial difficulties. How much, if anything, should you tell your children about your financial difficulties?

Credit counselors, financial advisers and family therapists say adults facing hard financial times during the current economic slowdown should resist the urge to shield their children from their money problems. Experts say children are not blind to events happening around them, including arguments, job loss, whispered conversations about finances and foreclosure or tense calls from debt collectors.

“What parents have to be aware of is that kids are listening,” says Robin F. Goodman, a licensed clinical psychologist in New York City. “When there is a significant event in the family’s life, kids pick up on the tension.”

Scary situation for kids
Goodman says not sharing information with children may do more harm than good. “If they think their parents are keeping secrets, it’s often scarier. Kids always think that whatever is going on it has to do with them. They think it’s their fault, they’re responsible for either why it’s happening or for not solving it.”

She adds: “Once it’s out in the open, you can talk about it and deal with it.”

Experts recommend tailoring your talk to match the child’s age. Teenagers who have access to the Internet and the news and may be more aware of what’s happening in the economy can handle more detail whereas a 6-year-old would require reassurance that you are working to make sure their needs are met and they are safe. A teenager may want to help out by baby-sitting or working part-time to bring in extra cash. If you have multiple children spread across several age groups, experts recommend talking to them separately to tailor age appropriate messages.

“Parents have not wanted to be open and have conversations with the children in their house about where they stand financially,” says Lynne Strang, vice president of communications for the American Financial Services Association.

When they start asking about money, it’s time to start teaching them about it. Start when they are very young.

— Lynne Strang
American Financial Services Association

How young is too young to talk to your children? Says Strang: “When they start asking about money, it’s time to start teaching them about it. Start when they are very young.”

Adds Goodman: “It’s never too young. The age is whenever they start asking for things and you don’t have as much money as you used to.”

What to tell them?
Dr. John Whitcomb, author of the book “Capitate Your Kids: Teaching Your Teens Financial Independence,” says parents don’t have to tell their children everything about their finances. “I don’t think it’s appropriate to tell them you are $50,000 in debt and have negative equity in your home. Instead, say, ‘The housing market has fallen so far that we can’t afford this house anymore.’ ”

He suggests saying this for openers: “‘We’re in a tough spot at the moment as far as money goes. We’ve got problems and we all have to work together to solve them. You’re the most important person in the world to us. Let’s do this together and we’re going to figure it out.’ ”

Whitcomb, an emergency room physician in Milwaukee and author who has taken his message about educating children about financial health to the Oprah Winfrey show, recommends parents make a contract with kids ages 10 and older to help manage the family budget. The contract spells out how much the child agrees to spend on things like clothing and how much to save each month.

  • Under age 6: Children in this age group need to be reassured that parents are working on solving the problem and that they are safe and secure. They want to know what specific things they can do to help.
  • Ages 6 to 12: Adolescents and preteens want to feel like they are part of the team as well as be reassured. They are eager to please and want to know their parents are in control. Ask them to make suggestions for free things to do as a family, find things for a yard sale or carpool with friends.
  • Teens (13 to 17): Teens can understand a great deal about what’s going on. They think of themselves as independent, but they want to be part of the team too. Enlist their help, possibly asking them to take on part-time jobs to help pay their own expenses. Ask them to create budgets and track their spending.

“Our children love to be included,” Whitcomb notes.”When kids get included in that, when they believe it’s their own budget and money, they become amazingly frugal.”

“Kids can spend a lot of money. A family in serious economic stress should not keep the children unaware,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, a nationwide group of nonprofit consumer credit counseling agencies. Getting the children involved can pay off in several ways, Jones says. “The whole family can pitch in and resolve this issue for the benefit of all. It’s amazing how kids respond. It’s amazing how they can help.”

Answer their questions
Children may not understand how the family financial crisis will affect their lives and may have questions. “Answer their questions,” says Goodman, the psychologist. “The best thing is to find out what their questions are: ‘Are we going to have to move?’ versus ‘Can I still go to summer camp or college?’ ‘Is dad going to lose his job?’ or’ Do I have to give up my dancing lessons?'”

She says children need concrete examples of how their lives may be affected “so kids get a sense of what’s happening and the things you are doing to manage it so they don’t feel hopeless.” She recommends saying: “How can we cut back on energy costs? Everybody has to turn off the lights. We’re not going to eat out as often.”

A teenager who is an authorized user of your credit card will likely need to curtail his or her normal spending on the card. In some cases, parents may need to take the credit card away. It may be difficult for children to understand why they can no longer go to the movies or participate in other activities with their friends because the family is on a tight budget. Weekly trips to nail salons or hair dressers, expensive coffeehouse fare, satellite television or cell phone use may have to be cut back significantly or eliminated altogether to save money. Experts say children will better understand and cope with these changes in their lifestyles if they have been included in the discussion about how best to cut costs.

Tell us your story
Are there any techniques you’ve tried to get your children to help cut costs? Share your ideas on how to talk to children about family financial problems. Write to

“If you tell them they can’t have the iPod or go to the movies, that’s one thing, but if the kids make the decision even better,” Jones says.

Some children may see removal of these activities as punishment. There may be tears or tantrums. Many parents may cave in to feelings of guilt, but counselors say they should stick with their plans. They encourage parents to seek counseling and therapy to help them cope with their own feelings of guilt, inadequacy, shame or depression.

“It’s tough to say no,” says Goodman. “It’s even tougher when you’re saying no because you don’t have the money. Parents have to be careful about their feelings of inadequacy.”

Life lessons
Whitcomb and others say opening up to children is a valuable life lesson to pass on to the next generation. “Financial problems are basically your opportunity to demonstrate how you are showing personal economics,” Whitcomb says. “It’s a terrible thing to have your home repossessed, but how do you rephrase this for your children so that when their turn comes 30 years from now they can handle it. Kids are going to need those tools down the road when they get downsized or the economy goes bad.”

Adds Strang: “It’s preparing their offspring to be financially independent and able to make decisions when they’re out on their own and learning how to budget and manage their own money.”

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See related: Poll: Credit card debt the new taboo topic, Preparing kids for credit card management, Teaching children about credit, debit cards, How young is too young for credit cards?

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