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What Do You Tell Your Kids When Family Finances Falter?

Most parents try to shield children from bad news, but during times of stress, experts say it might help to talk

By Megan Ryan | Aug. 3, 2020

As Americans struggle with unemployment, job furloughs, extended childcare closures and other worries brought on by the coronavirus pandemic, every member of your family may be feeling the pinch.

In many cases, the changes are obvious. According to a survey by the Urban Institute, 30.6% of adults reported that their families have reduced spending on food, 43.1% put off major purchases, and 27.9% drew down savings or increased credit card debt in response to the pandemic.

Your kids will take notice. They want to know why camps and pools are closed, why they have to wear masks, why the family can’t go on vacation. Candid conversations about the economy in general—and your own household specifically—can help the whole family navigate times of stress.

“When stress or anxiety levels are high around us in our workplace or household and we don’t know what’s going on, it’s human nature to start filling in the blanks,” said David Reynolds, BOK Financial director of product strategy and credit delivery. “It’s important to be frank with kids to eliminate some of the worry they’re experiencing, but it has to be at their level.”

Candor, to a point

Parents sometimes expect kids to be little adults, but their brains are still developing, sometimes until age 24. They can’t always process complex financial topics, but they can almost always sense when something is troubling you or causing stress for the family.

Some level of candor is appropriate, Reynolds said. “It’s important to let them know what’s going on, but don’t take them deeper into a situation than they can emotionally contend with.”

Telling your kids what you’re doing to tackle the financial challenges will help eliminate some of the worry, he added.

Some days will be worse than others, Reynolds said. “Show empathy, acknowledge the struggle, encourage them and give your kids hope that you’ll make it through the situation. The more candid you have been with them, the more they’ll understand and be able to work through the harder days.”

Thomas Hay, director of retail digital strategy at BOK Financial, suggests taking a team approach and including the kids in finding a solution.

“While it’s an unfortunate situation, it’s also an important life lesson to get everyone in the family rowing in the same direction,” he said. “Explaining the situation of having less money coming in sets the stage for a conversation about ways to have less going out. That dialogue involves all family members in finding solutions to help tighten the belt.”

Lessons from the pandemic can also be used to help your children understand good saving and budgeting habits. Emphasize the importance of saving for a rainy day, such as this.

One simple way to do that from an early age is to use special piggy banks divided into a spending portion and a saving portion. When the child is old enough, help them open a savings account and watch the balance grow.

“To set them up for a lifetime of success, you may want to start now by teaching your children to save 20% of their income,” said Kimberly Bridges, director of financial planning at BOK Financial. “The importance of teaching good financial habits in your children’s early years can’t be emphasized enough. Most financially successful adults I have worked with attribute their success to habits they were taught as children—such as the value of hard work, living within their means and saving for the future.”

As you are more open with your kids and include them in some difficult conversations or frank discussions about planning for the future, remind them that these issues should stay private. Talking about financial challenges outside of the family could lead to embarrassment, or worse, fraud.

Gauge the emotional toll

Parents should also be aware of how they deal with their own stress. “If you can handle the stress in a healthy way, it gives your children a good example,” Reynolds said.

Stressful family situations can mold children’s response to money for the rest of their lives.

According to an article from the Westminster School, research suggests that stress during early childhood can physically change the brain. While toxic stress is known to be connected to long-term physical challenges, it can also frame how individuals handle certain situations.

Reynolds shared the story of a woman who grew up during the 1980s oil bust in Oklahoma when homes were being repossessed due to job layoffs. The fear her family experienced about possibly losing their home has shaped her own worries about money now that she’s raising her own family.

“When people are in challenging financial situations where they’re needing to cut cable, cell phones, eliminating subscriptions and anything they can to save money, it takes a toll on the entire family,” Reynolds said. “It’s important to be mindful of the emotional impact on the kids—even if they understand it, it doesn’t mean they won’t grieve the loss.”

While access to cell phones or a videogame subscription may feel like an extraneous expense that can be cut, those activities can be like lifelines for kids to connect with their friends. The emotional component of making your way through a stressful period is real for all members of the family.

Lessons learned

This may also be a good time to teach children some of the basics about how the economy works. Resources such as Junior Achievement and The Balance are full of ideas on teaching your children about money and the economy. Hint: remember to keep it in simple terms they can relate to and use games such as Monopoly to illustrate the principles.

Reynolds echoes Bridges sentiment adding that it’s a good opportunity to teach your children that economies are cyclical, and times of struggle are not necessarily anyone’s fault.

“In general, we have very short memories and we forget that there’s always a down cycle that follows an up cycle,” he said. “We need to be prepared for the worst when we’re in good times, and we can be delighted when things start to look up after we’ve been in a down cycle.”

It is no wonder many of us are experiencing fear as a result of the coronavirus.

“Fear comes from experiencing a lack of control and being thrust into the unknown,” Bridges said. “But, we can use this experience as an opportunity to prepare our children for their futures as adults by giving them good financial habits and an understanding of how money and the economy works. With these skills they will be prepared to weather the storms that will likely come in their futures.”