Many parents have lost their jobs or have had their hours cut and are bringing in reduced earnings. Others might have lost money due to the stock market plummeting. These changes can obviously have an effect on their children, but money can be a difficult thing to talk to kids about. Even if you haven’t felt adverse effects from the coronavirus pandemic personally, it’s still a good time to have an honest conversation about money with your kids.
It’s Always a Good Idea To Talk To Kids About Money, No Matter the Circumstances
“First and foremost, I think it is a common mistake among parents to either wait until there are challenging financial times before they have the money talk with their children or never talk about money at all,” said Kristina Morales, an MBA in banking and finance with more than 20 years of experience in commercial banking. “This is so important because it will help kids to better understand when parents need to make changes to their spending or lifestyle when difficult times arise. If they have no understanding or appreciation of where money comes from and how it works, they may have a very difficult time when times call for change or sacrifice.”
Parents Now Have Time To Do It
“When financial literacy is not taught in schools and we have some important quality time available these days, it makes all the sense in the world to talk to your kids about something as important as finances and money,” said Sandra D. Adams, CFP, partner at the Center for Financial Planning, Inc. in Southfield, Michigan.
Kids Will Be Seeing the Impact of Job Loss in Real Time
With parents losing jobs and assets, having open communication with your children about the new reality is important.
“This is a time when families are all together and when kids of all ages will have to see in real terms how the impact of job losses, job furloughs, asset losses and the need to cut back on expenses affect the entire family,” Adams said. “The ‘we are all in this together’ motto here can make this a family affair, and they can be part of figuring out where the household can save on costs, cut back on expenses, etc. Lessons learned during these lean times will benefit children and parents alike, even when times get better and as children grow into adults.”
Honesty Helps Children Become Comfortable With Talking About Money
Money is often seen as a taboo topic, but now is a good time to open up the lines of communication and encourage your kids to talk freely about financial matters.
“Right now are very tough times for so many families around the country, but it’s important to tell children about the circumstances that have occurred, be it a layoff or a reduction in pay or a loss in savings because of stock market trends,” said Brent Weiss, CFP, chief evangelist at Facet Wealth. “Being honest helps children start to feel comfortable talking about money and learning about the importance of difficult decisions.”
There Are Examples of Generosity and Good News Around Finances Now, Too
“It’s also a good time to also show children how so many people are coming together during a time like this,” Weiss said. “Personal finance plays a role in that, with examples being the stories of landlords allowing tenants to delay making rent payments and the like. Be honest, but balance it with good news.”
Your Children Might Already Be Feeling Your Financial Stress
“Financial stress is amplified by a reduction in income or a job loss, and our children may be more susceptible to the emotional effects of financial hardship,” Weiss said. “As parents, we have a responsibility to be honest, yet strong and resilient. If you share some bad news, make sure they see you as confident in your family’s ability to get through this and someone that they can come to if they need to talk. It’s a delicate balance, but one we must carry as adults and parents.”
It Can Help Your Kids Feel More in Control
Just as this may be a time of adjustment for you, it is also a time of adjustment for your kids, who are unable to go to school or spend time with their friends.
“Educating children about finances allows them to have the confidence and skills in place to react appropriately when unexpected challenges like this arise,” said Jennifer Dempsey Fox, CFP, president of Bryn Mawr Trust Wealth Management. “For older kids, have matter-of-fact conversations about what these global events could mean for them. If parents have these conversations about financial implications, it can help children take back some sense of control.”
It Can Relieve Your Stress, Too
“In trying times like these, many parents may feel obligated to maintain the lifestyle that their children have become accustomed to,” Morales said. “This can delay parents from making the necessary adjustments they need to make in their spending as they respond to these uncertain times. If children are aware and are able to be part of the conversation, when sacrifices need to be made, having their participation and understanding can help alleviate unnecessary stress.”
You Many Need To Manage Expectations About Contributions To College
If you’re no longer in a position to financially help your child pay for their college education or will only be able to contribute less than expected, this is something you need to talk about.
“For kids in high school, it is always important to have conversations about college planning,” Dempsey Fox said. “At this time, revisit what expected contributions are.”
Use This as an Opportunity To Talk About Your Mistakes
If you were unprepared financially for the current circumstances, be open with your kids so they can learn from your mistakes.
“For parents who have experienced financial strain, it is an opportunity to educate their children about the importance of an emergency fund and planning for a rainy day,” said Tim Bain, president and chief investment officer at Spark Asset Management. “While that type of discussion is certainly challenging, the ability for our children to learn from our mistakes is invaluable. The thing to remember as a parent is that one of our primary goals is to raise fully functional adults who can take care of themselves, and learning from our real-world experiences — positive or negative — is a great way to accomplish that.”
How To Talk To Your Kids About Money
It’s hard to know how to go about starting these conversations, or what topics you should cover. GOBankingRates spoke to financial planning experts to get their best advice.
You might think your kids are too young to talk about finances with, but it’s never too early to start.
“Having conversations in general about money should start as early as preschool age,” Weiss said. “Having control over spending just one dollar teaches us its value in ways that simply watching cannot. Be prepared for them to make mistakes, and encourage your children to talk about both the good and bad experiences of spending money. Most importantly, you can also share your own experiences and use your current situation as part of the learning experience.”
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Start With the Basics
“Earning money, budgeting, counting, saving and spending, and giving back are all opportunities to teach your children the value of money and how to use it,” said Heather Ellison, senior vice president of retail banking at OneWest Bank. “No matter how old your child is, start with the basics and focus on establishing healthy habits. These small steps early on will give your child the confidence and knowledge to give them financial peace through each future stage of their financial lives.”
Make Sure the Conversation Is Age Appropriate
Although it’s good to start talking to your kids about money when they are young, make sure that the way you approach the subject is appropriate for their age.
“Consider what your children are most concerned about,” Dempsey Fox said. “For children in grade school, they are likely worried about the basics. Will they be able to eat their favorite foods? Reassure them and let them talk about their fears to start that financial conversation.”
“With older children who understand more, have a frank conversation about what is happening,” she continued. “Ask them what they are worried about and talk about how current events may impact them. For example, will they have to take a gap year before starting college or attend community college for a year or two?”
Model Good Behaviors
Don’t just talk about responsible financial behaviors with your kids — show them.
“The most important thing parents can do to help their children develop good financial health at an early age is to be good role models,” Weiss said. “If you do nothing else, show them how to be responsible with money and how to have a healthy relationship with finances. This is especially true right now since so many people have concerns about their financial situation. A decision as small as cutting an unnecessary expense to better manage the monthly budget can go a long way in showing your children how to be in control of your finances.”
Include Your Kids in Your Financial Decisions
“Making financial discussions a family affair allows children to engage with the bigger picture of overall financial life,” Weiss said. “This is especially true now as chances are that a child will experience some kind of financial hardship — be it a loss of [a] job, an economic recession, etc. — at some point during their lifetime.”
Weiss said that you can include your kids in deciding which expenses the family can either trim back on or cut.
“Giving them the power to choose what gets cut will help them feel in control of the situation,” he said. “Not only is it a good life lesson, but it will help ease their worry and concern as they feel they can take action to help the family. Even if they are just small decisions, participating in the decision making process can be empowering.”
Teach Them To Give Back
Even if you’re financial circumstances haven’t changed due to the coronavirus pandemic, you should still use this opportunity to have financial conversations.
“It’s also a great time now for parents who have been fortunate enough to not lose work or income to teach children about money,” Weiss said. “One great way to engage children around finances is to get them involved with annual charitable contributions or to participate in some sort of volunteer activities. Showing children that finances are tied to [the] community and can have a personal impact on the lives of others is a great lesson to learn at a young age.”
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Talk About the Importance of Saving
“Now is a really good time to show the importance of saving money,” Weiss said. “When children earn money, help them understand how to mentally account for it. Show them how to create different buckets — one for saving for short-term goals, another for longer-term goals (which could include building an emergency fund) — and, if old enough, money set aside to invest in the future. Learning to save money now will help your children in the future if they ever face a situation where they lose work or wages.”
Start With a Piggy Bank
Having a physical piggy bank is a good way to teach younger kids about saving, said Eric Rosenberger, CFP, CFS, partner at Synthesis Wealth Planning.
“Give them a quarter for a job well done on a chore,” he said. “Explain why they are putting money into the piggy bank — to save for a rainy day or to save for a toy they really want.”
Explain How Budgeting Works
Help your kids understand how you earn, spend and save money by breaking down budgeting into simplified terms.
“Discuss how the money earned in the household goes into the bank so we can pay for the things we need, like our house, our car, our clothes and our food,” said Rosanna Guardavaccaro, a financial advisor with Strategies For Wealth and Park Avenue Securities in New York. “It’s helpful to do a budgeting exercise with the child showing them that part of the money gets saved and part of it goes to expenses. Doing this budgeting exercise with a child using markers, crayons, paint, etc. will help the child learn visually and retain the information. If there is going to be a disruption to that cash flow, use this exercise to explain where some of the belt-tightening or cutbacks will happen.”
Teach Them To Differentiate Between ‘Wants’ and ‘Needs’
If you’ve been cutting back on “wants” — or plan to — this is a good opportunity to discuss how you decide what you’re spending money on.
“Emphasize ‘wants’ vs. ‘needs,’ and how right now the family is focusing on making sure you have what you need,” said Leslie Tayne, founder and head attorney at the debt solutions law firm Tayne Law Group.
Use the Cost of an Item They Want To Help Them Understand How Money Management Works
“An effective method for explaining the concept of basic money management to younger kids is taking an item they desire — new bike, video game, etc. — and asking them how many weeks it would take them to purchase the item if they made $5 a week for chores,” said Matthew Trujillo, CFP professional at the Center for Financial Planning.
“Often, this method can be eye-opening when they see how long it would take to earn enough to buy a $200 gaming system,” he continued. “This is also a great way to teach your kids how to prioritize purchases with their money and align how long they’re willing to wait for something they want badly versus spending their money on impulse expenditures.”
Make Grocery Shopping a Game
Whether you do your grocery shopping online or at the store, involve your younger kids in making purchase decisions.
“Be creative in educating them about money and empower them to feel helpful,” Dempsey Fox said. “Make an adventure out of finding sales while grocery shopping.”
Discuss Stocks and Investing
With everyone paying attention to stocks and the market right now, it’s as good a time as ever to teach older kids about investing.
“Explain why it is opportunistic to invest,” Rosenberger said. “Log into your investment account together. Get them involved in the investment decisions you’re making. Talk about companies they are familiar with such as Apple and why it is a good opportunity to own this company right now.”
Talk About Your Financial Values
Rosenberger said that when he meets with new clients, they discuss their values and how they are interwoven in our financial decisions.
“We should have similar conversations with our kids to explain how we choose to spend our money and why,” he said.
Look For the Money Lessons in Everyday Life
Once you start talking to your kids about money, you’ll realize how easy it is to bring up the topic related to a number of everyday scenarios. Taylor Kovar, CEO at Kovar Wealth Management, gave some examples of how to weave money into daily conversations: “We keep the lights off because it saves money on the electricity bill. We buy the cereal in the box vs. the bag because the quality is better. We give to the homeless person on the streetcorner because giving to others keeps us reminded of the important things in life.”
Bring In a Third Party
If you’re still unsure about how to talk to your kids about money — or if they don’t listen to you when you try to — you might want to bring in a third party.
“Your child might be more receptive to hearing these lessons from someone who is not their mom or dad,” Weiss said. “I would even encourage children to speak with their parent’s financial planner if they have one.”
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