A 2017 survey by T. Rowe Price found that 69% of parents are reluctant to discuss finances with their children, and 61% will only discuss it when asked. Why is it so taboo? Why is it that such a fundamental aspect of every adult’s life, something that affects everything you can do for yourself or for your family, is rarely discussed with children? Why is it so hard to tell your kids about your finances?
Is it fear of worrying them? Maybe you were simply raised that way and your parents kept it to themselves. Perhaps you’ve made mistakes and you want them to do as you say, not as you do.
Not telling your children about your finances―especially if you’re having some financial problems―is like sticking your head in the sand and hoping it’ll all go away. You can’t hope that your children learn good financial habits; you have to teach them. Parents know how they need to teach kids the importance of brushing their teeth, eating healthy foods, and looking both ways when they cross a street, but most don’t think about teaching them how to handle their finances any further than putting their pennies in a piggy bank.
It doesn’t end with your underage children, either. It’s important that you tell your kids about your financial situation when they’re adults, for their benefit as well as yours.
When should you tell your kids about your finances?
Young Children
When children are young, it’s not so much about your specifics as it is teaching them how you do things.
- Teach them where money comes from, that the money the ATM spits out isn’t free money. The best way to do this is by giving them a job, perhaps a few simple chores they can do to earn an allowance.
- Teach them lessons about the importance of saving their allowance for the things they want. After all, the need for instant gratification leads many people into credit card debt.
- Teach them what things cost. Involve them in grocery shopping and have them read the prices and compare the cost for similar items. Look at store brands vs. name brands.
- Show them how to budget with their own money. Teach them the importance of saving money to buy what they want. Again, the grocery store is a great place to show them how to stick to a budget.
Teens
Teenagers will be able to grasp financial details and understand things such as interest, credit, and wages. Most kids begin working at 16 or 17, so giving them a good foundation of financial knowledge will help them manage their money better.
- Show them where the money goes. Make a chart so they can see the whole picture. Show that the most important things are paid first, and demonstrate how much goes to taxes, housing, food, clothing, etc.
- Teach them about simple interest. If they earn an allowance, tell them you’ll put in a dime for every dollar they have in their savings at the end of the month. Conversely, if they borrow money from you, charge them interest until they pay you back.
- Have them start saving for college. Any amount of money they have at the start of college will mean less they need to borrow.
- Teach them about credit cards. Credit card companies begin sending out offers to kids as early as high school, so if they don’t have a clear understanding of how they work and how expensive they really are in the long term, they’ll be more likely to get into trouble with them. Show them with an online calculator how long it takes to pay off even a small credit card debt when paying only the minimum due. A straightforward calculator can be found here.
Do you tell your kids how much you make?
Even for teenagers, understanding salary may be difficult. It may sound like a lot to them, but they may not be able to comprehend how much of your paycheck goes toward taxes, mortgage or rent, insurance, food, transportation, and other necessities. On the other hand, understanding how much jobs pay will help them as they enter the workforce or choose a college major. Giving them a clear understanding of salaries and the cost of living will allow them to steer their lives in a direction that’ll be financially beneficial.
Do you tell them about your debt?
Most people don’t want to admit to their children that they’ve made mistakes; however, by doing so, they’re missing a teaching opportunity. Everyone makes mistakes; there’s no shame in that. You pick yourself up, learn what you did wrong, and make changes to fix it. This is an important lesson for children to learn. Showing them your mistakes may keep them from repeating them.
However, before you share information with your children, consider their feelings. Will your child be scared? Does your child already experience anxiety? Would it be compounded by the news that you’re having financial difficulties? Some children worry more than others do, so you need to be sensitive to your child’s needs and gauge the right time to talk about family debt.
If you do tell your children about your debt, let them know that the debt isn’t their fault; it’s yours and you intend to tackle the problem and share your plan of action with them. Let your confidence and determination act as an example.
Get everyone involved in solving the financial problem. Set up a change jar and put any coins that anyone in the family gets in it. While you aren’t going to pay off your debt with spare change, it’s a great way to demonstrate to kids that you’re all in this together, and you can all do something to help. Kids want to help, and it’ll show them that if they grow up and have a difficult time, they just need to keep chipping away at the problem. Asking for their input on how to cut costs is another way to get them involved.
Adult Children
At some point, you should tell your kids detailed information about your finances. You don’t want your adult children to worry about you. Being realistic about your finances with your grown children may relieve some worries they have. Alternatively, if they know you’re heading toward a financial crisis, they can be prepared instead of being caught off guard. They may also be relying upon you to back them up if they need help, so it’s better if they have a realistic understanding of how much, or how little, you’ll be able to help if they need it.
They should also know some of your basic finances in case something happens or you suddenly can’t make decisions on your own.
If you have a will, trusts, or a medical directive, they should know the location of these documents. If you wish to have one of your children be the executor of your estate, you should discuss it in detail first. The name of your attorney and any decisions on funeral plans should also be disclosed.
Additionally, include a list of bank accounts, life insurance policies, real estate holdings, investments, and similar things. If you’d rather not give all this information to your grown children now, give it to your attorney and tell your kids they can obtain that information if you become incapacitated or upon your death.
Being open and honest with your children when it comes to your finances will help them be prepared not only with their own finances, but will also allow them to help you with yours if you ever need it.