Kids are surprisingly resilient in the face of a crisis. But even so, serious family money troubles can potentially affect a young person's home life, education and outlook on money management down the road.
While my wife and I don't have kids, children under the age of 10 who are particularly mature – and particularly observant – often can immediately pick up on a parent's stress over money or other issues.
How can you be honest about your finances with a child under the age of 18 without spreading confusion or stress? The American Psychological Association points out (http://www.apa.org/helpcenter/children-economy.aspx) that kids can often deal with a crisis fairly well but most aren't yet keenly aware of tension in the household. When sharing money problems with your kids, here are a few ideas from the APA and other resources you can use:
- Tell the truth, but watch how you tell it. You want to spare your child from hardship and worry, but it's important not to say things are great when they're clearly not. Try to explain in brief but truthful detail about what's happening and leave time for questions. Any child, no matter how sophisticated, can become worried if his or her parents reveal extreme fear about money concerns. Keep in mind there's a great opportunity in these conversations to understand your child's thoughts and attitudes. Make it a kind, understanding conversation, and listen for clues.
- Keep the discussion age-appropriate. Teens may be more aware of general financial circumstances because they can spot different behavior at home or because their friends' parents might be going through similar circumstances. However, younger kids generally have less knowledge and experience to process what's going on. Tell kids what they need to know, but don't overload them with information.
- Set an example. It may be difficult, but demonstrate grace under pressure. Be calm and reasoned. If you are looking for work, discuss that with your children and even share what that process is like. Remember, kids learn by example. If they see their parents dealing sensibly with adversity no matter how long it takes to right the ship, that's a very important lesson. Communicate behaviors that they will need to learn if they're going to successfully deal with money problems as adults.
- Introduce or reinforce money lessons. Whatever the problem, reinforce smart spending and savings behavior no matter what the child's age. However old they are, (http://www.practicalmoneyskills.com/learn/life_events/family_life/educating_your_children) kids should get regular lessons in the relationship between money and the things in their life.
- Make it educational. Communicate behaviors that kids will need to successfully manage money in the future. Whatever the problem, reinforce smart spending and saving behavior no matter what the child's age. Teaching kids about money can be fun by introducing educational games. The Practical Money Skills website offers a collection of games (http://www.practicalmoneyskills.com/play) kids can play to learn how to save money. Talk to them about important financial concepts such as budgeting – and bring them to life using real-life examples like planning an affordable family vacation or outing.
- Introduce the emergency fund. One of the essential building blocks of personal finance, the emergency fund exists to protect savings and keep borrowing to a minimum. Older children might embrace the value of an emergency fund as a way to offset the financial loss of a lost bike or smartphone or some other personal item. For adults, the general rule of thumb on emergency funds is to have at least three to six months of savings on hand in case of a lost job or expensive repair. The key is to talk with the teen about the parallel financial risks in their lives that might benefit from the existence of emergency savings.
- Focus on things more important than… things. Parents can use a tough financial stretch to focus on the positive, such as time spent enjoying family, friends and pets, which doesn't cost much at all. Good health and healthy behaviors are essential elements of correcting problems, overcoming tough times and living a full life. In short, use this moment in time to help your child put money in the proper perspective.
Bottom line: A money crisis can truly test the strength of a family. Should you find yourself in a financial bind, use it to teach your kids some very important money lessons.