Throughout one's adult life, the chances of experiencing a financially stressful situation are high. And knowing how to manage it, whether it's a national recession or a personal circumstance, is extremely important. But just because important financial decisions are typically made between adults, doesn't mean kids should be left completely out of the loop.
Economic stress is real and can take a toll not just on you, but on your children as well. In 2010, the American Psychological Association (APA) found that during the Great Recession, 91% of kids were aware that their parents were stressed by how their parents behaved.
And during financially stressful years like 2020 and 2021, for example, the same statistic may hold true. As kids listen in, many families have the opportunity to talk about money in a way they never had before, according to Tim Sheehan, co-founder and CEO of Greenlight, an issuer of debit cards for kids.
“It opens the door to an even bigger discussion on saving money, giving to charitable organizations, spending wisely, and having emergency savings funds," Sheehan said in an email to The Balance.
To make sure those conversations and money lessons are effective, there are certain things you need to do. In this article, you'll learn how to define financial problems to your children, time the conversations right, and make sure the money lessons you teach stick with your child.
- Studies show that kids can tell when parents are stressed, so it may be wise to explain financial problems to children as they arise, and use these moments to teach important lessons about money.
- Create a plan about when and how you’ll talk to your kids about your financial hardships.
- Choose a time when you have your child’s full attention and be mindful of your tone.
- Tailor what you say to your child’s age, and don’t be afraid to allow older kids to participate in parts of your financial life, like budgeting.
When To Talk to Your Kids
Talking about financial trouble within your family isn’t something to do on a whim. Consider a time and place that shows the severity of the situation, but also keeps your child comfortable. Carefree mornings before school or storytime before bed probably aren’t the best times to talk about money.
Instead, think about doing it over the weekend when your kids aren’t rushed from the bustle of school or activities. For example, when you sit down for dinner as a family, are about to settle in for a game night, or are on a long drive together.
Even with careful planning, your kids may not be in the right mindset to hear what you have to say. If they’re upset, working on a project, or are otherwise distracted, consider bumping the conversation to another time.
How To Talk to Your Kids
While being stressed about money specifically is challenging, it's important to be aware of the general stress levels of kids and teens. Depression and anxiety among kids and teens has increased overtime. According to the Centers for Disease Control and Prevention (CDC), 7.1% of children in the U.S. aged 3 to 17 years (approximately 4.4 million) have diagnosed anxiety.
For this reason, when approaching a subject like financial trouble, it's important to proceed with caution.
- Understand the information you are sharing: Before talking to your children about financial hardship, it's important to make sure you really know what you're talking about. For example, if you're discussing volatility within the stock market and how that's currently impacting the country, you should do your research ahead of time. Or, if a family member just lost their job, make sure you understand the circumstances and are prepared to relay them in terms your kid can comprehend.
- Be mindful of language: The words you say are impactful. If you’ve been stressed because of money, share with them what’s caused your stress and how it’s affecting your family. While kids can tell when something is up, they don’t always know what is up. Use this time to explain what’s been going on in a clear way.
- Consider your tone: Sometimes serious conversations can scare kids into thinking they’ve done something wrong. Be kind and inviting so your kids feel comfortable asking questions. Reassure them that even though you’re being serious, they aren’t in trouble and what’s happening isn’t their fault.
- Keep the conversation going: If you’re going through prolonged financial trouble, one conversation might not be enough. If you’ve lost your job and shared that with your children, celebrate a victory when you get a new job. If you have to relocate because of a job or opportunity, inform them of that, as well. Don’t stop at one conversation: let them learn to trust you as you share important information.
- Open up for dialogue: Let your kids ask questions and don’t be afraid to answer them, even if you don’t know the answer right away. “Kids learn by doing, so make them part of the solution,” Sheehan said. “Make it fun and hands-on. They’ll take these lessons with them throughout their lives.” Your children will feel engaged and you’ll have a chance to grow together. It’s also perfectly fine to say, “I don’t know”—sometimes it’s all you have, and they’ll know it.
When talking to your children about economic distress or financial problems, it's important to share that every family's financial situation is different and that's OK. If they do talk to other kids about money at school, they should know to refrain from judgement and approach the conversation with empathy.
What To Say to Your Kids Based on Their Age
What you say to your child may depend on their age and level of comprehension when it comes to personal finance and the economy.
“Your 5-year-old will have very different questions from your 17-year-old,” Sheehan said. “So be ready for different conversations depending on their age and experience handling money.”
Preschool and Kindergarten
Younger children may not understand the nuances of money trouble, but they likely can understand the concept of money.
Explain what not having enough money means for your family. Maybe this means no vacations this upcoming year or fewer presents during the holidays. For some families, it could mean moving out of your home. When your kids ask questions, be clear in your explanations and try to break down things as much as possible. It's also best to avoid using figures of speech, as younger kids may take them literally.
Your older, elementary-aged kids may know a little bit more about money than younger children do. For example, if you don’t leave the house to go to work anymore, they may understand that this means you no longer have a steady income.
Share what the issue at hand is, like if you have to pay for a large bill or why you don’t drive anymore. It’s important to be detailed without being overwhelming. Your child might not get why hospital bills or owning a car are so expensive, but they will understand that you need money to pay for those things and you might not have it right now.
“For younger kids, put it in their world,” Sheehan said. Instead of sharing hard facts with younger kids, Sheehan recommends relating it to big-world events, like the 2020 recession, and explaining how these events have a direct impact on the way people handle their money.
Depending on your child’s age and maturity, you may even want to share what your plans are to solve or manage the financial trouble. Or, even further, you may want to bring a financial therapist into the conversation. These professionals blend the services of a therapist and a financial planner to help people address the emotional aspects of managing their money.
Middle and High School
Most older kids have the ability to understand a lot more than we might give them credit for. While it’s a good idea to explain what’s going on, you can also use them as a sounding board.
“If they’re old enough, you can share high-level facts,” Sheehan said. “[Like] how you or members of your community may be affected by losing work and what that means for spending (for) the next few months.”
Share with them how you plan to pay for things or get out of this financial hole. If you’ve lost your job, share that you’re looking for a new one. If you need to pay a large bill, explain you’re working out a payment plan. Engaging your kids gives them a sense that what they say and do has an impact on your family.
How To Involve Your Kids in Your Finances
Kids don’t need to be oblivious to money concerns. Even after you’ve explained the financial pickle you’re in, you can build up their financial know-how.
Teach them about how you earn money, where it goes, why you need to pay for things, and what happens when you don’t have enough money to cover your bills.
If you have the means, walk them through saving their money—whether through a piggy bank or a bank account—and show them how to pay for things they want. For example, younger kids might want a toy or video game. If they don’t have enough money for it, teach them how they can save for it or buy something else that they can afford instead. This also shows them patience and value—maybe the item they originally wanted won’t be such a hot commodity when they do have enough money.
“Work together to set savings goals or talk to them about a big-ticket item you’ve needed to save for in the past,” Sheehan said. “As kids, they’re in a fortunate position to be able to learn about money while mistakes are just mistakes.”
If you don’t have a budget, involve your older kids in helping you set one up. Show them how much money is coming in, where it all needs to go, and what happens if you have any extra cash that you can put away for later (like in a savings or investment account, college fund, or something else).
You can also help your teen set up a bank account, and if they have a job, show them how to deposit checks and take out cash. Don’t forget to explain the nuances of fees and a lack of funds. For instance, if they withdraw too much money, they can get hit with an overdraft fee. You may even want to have them start paying for their own clothes or bills, such as gas for their car or their phone bill.
Whatever you choose, teaching kids about financial trouble now—as well as solutions to those problems—may help them learn important lessons about money that they can apply in the future.