I’m a Financial Expert: How To Talk To Your Kids About Tough Money Situations

Knowing how to handle your finances effectively — especially in challenging situations — is a key to financial success. But people aren’t born with such knowledge. That’s why it’s important to educate your children when they’re young. 

“The journey into financial education should begin when children first show an awareness of money, typically around the ages of 5 or 6,” said Khwan Hathai, certified financial planner and certified financial therapist at Epiphany Financial Therapy.

“Initial conversations might center on the basic value of money and the concept of saving,” she said. “As children grow, the dialogue can evolve to encompass more challenging financial topics, always matching the child’s cognitive development and comprehension levels.”

Here’s how to talk to your kids about tough money situations, according to two financial experts. 

Hathai said explaining impulsive spending to a child can be likened to the temptation they might feel to pick the first piece of candy they see. 

“To combat this, suggest a waiting period before making purchases to help them decide if it’s something they truly need or want,” she said. “Demonstrating this behavior yourself can provide a powerful, practical example, underscoring the lesson that patience in spending can lead to more satisfying choices.”

Debt and consumer finance expert Andrew Housser, co-founder and co-CEO of Achieve, said that parents can start teaching the principle of delayed gratification as early as during the toddler and pre-school years.

“This teaches kids how to plan ahead, which in turn teaches self-control — a skill that pays off throughout life in helping to avoid challenging money situations and in understanding (and avoiding) impulse spending …

“For very young children, this might mean helping them learn they can live with being told ‘no,’ and that they can’t have every toy they want all the time. Instead, perhaps they can select one for a birthday or other special day. For a tween, it could mean allocating an allowance so she can save for a ticket to an event or a new outfit.”

“Debt can be introduced as the consequence of spending money one doesn’t have, similar to borrowing from a friend and the obligation to repay,” Hathai said. “Emphasize the importance of only buying what one can afford and the benefits of saving for larger purchases. This instills a sense of financial discipline and foresight.”

Housser said that the appropriate time to start explaining how interest and debt work is when kids are about 10 or so. 

“Parents can help kids open a savings account and explain how their saved money grows,” he said. “Conversely, if a child wants to borrow money to buy a toy, for instance, parents can offer to lend the money to them, with interest, and explain how that works.”

“These topics can be broached through discussions on the importance of jobs for earning money and what happens when jobs are hard to find,” Hathai said. “Highlighting the significance of savings during times of irregular income teaches resilience and planning. Encouraging curiosity about various careers and the value of adaptability and continuous learning can also prepare them for a future of financial stability.”

Housser said to help your kids find ways to earn money once they start elementary school and then start talking with them about what money is, what it means and how to use it. 

“Help kids allocate that money to spending, savings and charitable contributions,” he said. “Letting them make some spending decisions while they are young lets them learn from mistakes while the effects are harmless.”

Hathai said that even though bankruptcy is a complex topic, you can simplify it for your children by explaining that it’s a situation where individuals find themselves unable to repay their debts and must seek assistance. 

“This scenario underscores the importance of prudent financial management and living within one’s means,” Hathai said. “It offers a valuable lesson on the consequences of financial decisions and the critical nature of responsible money management.”

Hathai said while discussing these tough money situations, it’s very important to cultivate a positive money mindset. 

“This involves portraying money as a tool for achieving goals and creating a life of value rather than just a means for consumption,” she said. “Teaching children to view money through a lens of gratitude, generosity and responsibility encourages a balanced and healthy relationship with finances. Encouraging them to see beyond spending, to saving, investing and giving, lays the groundwork for a comprehensive understanding of financial wellness.”