If you are like most people I know, you go through financial ups and downs. When this happens, do you talk about it with the kids or pretend nothing is wrong? If you decide to share it with your children, how? And how much do you share? I faced this dilemma a few years ago.
I’ve been pretty diligent about my finances for years. I save, invest, and (most important) track my spending. But, like a lot of people, I took a huge hit in 2008. My income plummeted at the perfect time – just when my middle daughter was about to start college. We had saved for college since the time she was born, but the investments were crushed at the same time that my income withered. The perfect storm. We weren’t in danger of losing our home or our good credit, but we were facing some difficult decisions.
We could either borrow money to pay for an expensive school my daughter got accepted into and live as if nothing had changed, or we could adjust our lives to the new reality.
My children were money savvy. They knew what was going on in the financial world by just seeing my face. And they knew my business was hit. They just didn’t know how bad things were and what it all meant.
I understood the anxiety my kids were feeling. I personally lived through very tough financial times growing up. My parents didn’t plan well at all and we paid the price for it big time. I wasn’t about to repeat their mistakes.
As a family, we talked it through and decided (I convinced them…) that borrowing money was the worst alternative, and that going to a lower-priced college was the way to go. In order to get their support, I had to be very frank about our financial situation without being needlessly gloomy. Here’s the way I approached it.
1. Honesty
As I said, everyone knew what was going on and they could see I was very concerned in a way I hadn’t been before. It never occurred to me to try to hide what was going on. But I knew that it was important for the family to have the facts.
I shared the numbers. What they were before the hit and what they were likely to be in the foreseeable future. My wife and I didn’t hold back anything from our oldest two children, but we didn’t share the numbers with our youngest, who was nine at the time. She couldn’t possibly understand what the numbers meant so we just skipped this step with her.
2. Meaning
Numbers without context have no value. We explained what was going to stay the same and what would change. I told them we were not moving and that we were secure. That’s all they cared about. I did explain that we’d be cutting back on lots of discretionary items and they seemed more than OK with that.
Without explaining what was going to change and what was going to stay the same, they would probably have assumed the worst. In retrospect, by talking about this in detail, we actually relieved their anxiety.
3. Options for school
We spoke openly about all the options for college – including borrowing. While I was dead set against taking on debt for college, it was important to discuss it. I wanted my kids to understand the pros and cons of borrowing. I wanted them to see that we could survive just fine by tightening our belts and didn’t have to solve all our problems by borrowing. Sure we’d give up some experiences – but we’d gain others.
4. Unintended payoffs
I believe that involving our children in this difficult financial process was by far the best financial lesson my wife and I could possibly provide. They learned how much it costs to live and they don’t take their lifestyle for granted. I don’t think they live in financial fear but they are financially sober. They don’t think money grows on trees anymore. They understand that they are expected to support themselves when they get out of college so they study in areas that will help them achieve that objective.
My middle daughter went to a state college and thanks us for sending her there. She is super-involved on campus and is doing great. She actually has more opportunities to shine at the state school than she probably would have had at the expensive school that she first wanted to attend.
I believe the kids got another really important message. They saw that being self-employed provides (at least in our case) more security than having a job. Many of their friends families were faced with much greater problems. If I was an employee, I could have lost my job and thereby lost everything. Unfortunately, that happened to many people.
By having my own shop, I didn’t have to worry about being fired. My kids saw the value of being self-employed (which I am a huge fan of) and the absolute necessity of running the business well.
Why is this an important issue to you?
It’s been almost three years since the financial melt-down. Many people are struggling now more than ever. Even if you are fortunate enough to have escaped that catastrophe, it’s really important to involve your entire family in your finances.
Remember, nobody taught you about money. You had to learn the hard way. Do you really want your kids to go through the same wringer that you did? If you do want to educate your children about money, what better way than to involve them in your daily financial life?
Let them see how you make decisions. Let them participate in the process. Have them experience making financial trade-offs – saying YES to one thing and having to say NO to something else. Teach them that decisions have immediate and long-term consequences. You can talk about these things and that’s fine. But there is no better way to have them integrate that education than by inviting them into your process.
What’s your experience? Do you think that sharing your finances with your children is too much of a burden? Or do you think it’s a good idea? How much do you share, and how?
When bad things happen, we want to protect our kids from that. And so it is tempting to pretend to them that everything is okay. I much prefer letting the kids know what’s going on–which things really are okay no matter what, and which things may change, and even what we don’t know yet. When we can’t protect them from something, at least we can protect them from being blind-sided later, by giving them as much time to get used to the news as we have. Plus even very little kids want to help.
I used to work at a summer camp. There I learned that a lot of kids get sent to summer camp while their parents are moving or getting a divorce, and they have no idea about this until they get home and start asking questions. That’s so sad. As Heather says, kids are made out of people.
Excellent article. I too hold that “financial sobriety” and not fear is the lesson we all need to not only learn and to teach our children, but also to apply as mature adults to our perceptions of “wants” versus “needs.”
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By profession I am an Enrolled Agent/tax forms preparation and taxpayer representation is my work. I have lost 21 tax clients (all middle and senior males) to suicide over the past 36 months’ time…and every “event” was rooted in confusion and consequences of the ongoing recession. Your article just may save lives! God bless you and keep you in your efforts to educated the American consumer/taxpayer.
Respectfully submitted,
Thomas Avery Blair, EA
This was a great topic especially in this day and age. I think it is fair to say that you need to be frank with your kids regarding your financial situation. You need to tell them enough so that expenses can be discussed but not too much to scare them.
My parents shared *nothing* with me about finances, except for this:
“People say a boat is a hole in the water that you throw money into. A car is a land yacht.”
That’s all. My dad is a CPA.
It took me about 10 years out of the house to stop making really bad financial decisions and another 5 to start making good ones. My only saving graces have been awareness of credit card debt (and not to incur much … though none would have been better) and a lack of interest in shopping most of the time. If I was a clothes/shoes/purse/jewelry person, I’d still be digging myself out.
Adults forget that kids are people. They, like we, make up details where details are missing, and most of the time, fiction is worse than reality. They’re not stupid — they know when something is wrong — but we don’t give them credit.
In addition to giving them peace of mind (or perhaps just less anxiety than they would have had), it also fosters trust. And you can’t put a price tag on that 🙂
I think it’s a good idea to share up to a certain level, provided they’re old enough to understand and even conceptualize what’s going on.
Really, money is still a taboo subject in a lot of families. It’s no wonder so many people grow up financially illiterate, because they don’t truly get the proper training or even exposure to important learning opportunities.
Best to expose them to things early in life so they can be prepared for the rest of their lives.
My kids are way too young right now, but when older, they’ll be taught/told a lot more.
I absolutely think it’s a good idea. I don’t think we prepare our kids enough. I certainly wasn’t very prepared and had to learn it the hard way.
And my husband got no help from his parents for college. Zip. Zero. Nada. He had to work a full time job to put himself through college because he was against borrowing for such an expense. It took him almost 8 years to graduate, but he did it without any debt.
You won’t be doing your child any favors by protecting him from such discussions.