Help for families navigating a tough economy.
The Great Recession may be over officially, but for many families, recovery continues to be a slow process. Whether you realize it or not, children have felt the effects of the economic downturn, as well. They have witnessed their parents being laid off from work, have given up household amenities and have seen cuts or an end to their allowances — all of which have contributed to a change in the lifestyle to which they were once quite accustomed.
If there is anything positive the recession left in its wake, it’s that we all have experienced a teachable moment. The stories of Americans struggling with job loss, foreclosures, high health care costs and credit misuse have reaffirmed the fundamentals of why it’s important to budget, have emergency savings, protect assets with insurance and limit our dependency on credit.
But what are the lessons for our children? More than from any classroom learning or having their own income to manage, kids learn the most about money from their parents. And adults who aren’t exercising good financial behaviors are unknowingly influencing their kids — because children are watching. Beyond telling your kids that they cannot have the latest toy or smartphone, or that the family will not be able to take the vacation they were planning, you need to have thoughtful, regular conversations with them about money — and the earlier you do this, the better. Here are five ways to speak with your children about family finances.
1 Discuss cutting spending creatively
A 2011 survey by the National Endowment for Financial Education (NEFE) found 39 percent of people feel the quality of their financial life is worse than they expect it to be. If you are struggling financially, it’s time to make some concessions. Cutting areas such as dining out, grabbing fast food on the way home and going to the movies can go a long way toward saving money. Because these are family activities, this is a great time to set spending ground rules for all. Explain to your kids that everyone will be expected to cut back while times are tough. Ask for their input, or have a contest on the most creative ways to cut spending.
If your children offer to defer expensive purchases or to take a small cut in their allowances, let them. While the net impact of their sacrifice may be relatively small, it will help them feel like they’re contributing to the family in a meaningful way.
2 Be honest and transparent, but be appropriate
As parents, we indulge our kids. We want them to have the latest tech gadgets, participate in sports, wear cool fashions, etc.
But this is an opportunity to show them that sometimes we have to make responsible decisions about spending. If you are making cuts, describe foreseeable changes such as eating out less, not going to movies or receiving less allowance. But don’t place a burden on or worry them. Most kids’ prime concern is how things personally affect them. If something’s clearly going on but not being discussed, it can be scary. Share with your children how you plan to handle financial hurdles. Avoiding the conversation might lead them to imagine things are far worse than they actually are. If you’re having financial worries, tell them — on their level — that you’re taking steps to improve the family finances, and encourage them to help.
With more difficult issues such as a job loss, “these things happen, we’ll be okay” is what kids need to hear. Try to present things realistically: “While I’m looking for a new job, we’ll have more time to do things together, but when I get it, things will go back to how they were.” Reiterate this is not only happening to your family, but families everywhere are trying to cut costs and cope with financial challenges.
3 Teach by example
It’s unfair to tell your kids they can’t have a treat because it’s not in the budget, when they see you buying a latte every day. Your kids are learning by watching you, so be a good role model. Take the lead, and your kids will follow.
4 Don’t argue about money
When discussing money troubles with your spouse, wait until you’re truly alone.
Try to appear optimistic, even in the worst-case scenario. Your kids will be taking their lead from your attitude. Your aim is to give your children the impression that you’re confident that everything will turn out for the best — even if you’re a nervous wreck inside!
5 Keep the discussion going
A one-time talk won’t be enough for your kids to absorb what’s happening in the household. Let them know you are available anytime to discuss what’s going on financially and answer their questions.
For more information, visit: www.smartaboutmoney.org.