Kids are surprisingly resilient in the face of a crisis. But even so, serious family money troubles can potentially affect their 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. On the other hand, some kids notice money problems only when they're directly affected in the way of a cutback in treats, toys or entertainment, for example.
How can you be honest about your finances without spreading confusion or stress to your kids? The American Psychological Association (APA) points out that kids can often deal with a crisis fairly well but most aren't yet keenly aware of tension in the household. Here's an overview of the APA's advice in addition to other ideas you can use to share money problems with kids:
•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 okay 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 during 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. Generally, the older the child, the more information he or she can process. Teens may be aware of financial circumstances because they can spot different behavior at home or because their friends' parents might be going through similar circumstances. Younger kids, however, might not have as much knowledge to go on, requiring a more protective approach.
•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. However old they are, kids should get regular lessons in the relationship between money and the things in their lives. The Practical Money Skills website offers a collection of games 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.
•If college funds are in jeopardy, start the conversation early. In some families with college-bound teens, a long-term period of unemployment or illness can alter a teen's path to college. Work with your college-bound students to find alternatives to financing and school choice that can keep his or her education on track.
•Introduce the emergency fund. As one of the essential building blocks of personal finance, an emergency fund protects savings. Older children might embrace the value of an emergency fund as a way to offset the financial loss of a lost bike or smartphone. The general rule of thumb for emergency funds is to have at least three to six months of necessary expense costs set aside as savings in case of a lost job or expensive repair. The key is to talk with your teen about the parallel financial risks that might benefit from the existence of emergency savings.
•Focus on things more important than...things. 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 an essential element 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 perspective.
•Volunteer. Even when things are going wrong, it's important for children of all ages to know that there's always someone else in need. That's why taking some time to do something for the less fortunate with your kids might provide some of the best lessons during this rough patch. Connect with local schools, groups or organizations to see what they need, or check out a clearinghouse website like VolunteerMatch to see what volunteer opportunities you and your kids might try.
Bottom line: In a family financial crisis, consider how your kids will be affected and use the situation to teach them some very important money lessons.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.