smart spending

Talking money with kids

Highlights
  • Watch what you say and how you act
  • Decide what to keep confidential

Of Jon Heller's three children, it was his youngest, 9-year-old Jonathan, who had the tough questions about finances.

Young Jonathan would grow concerned about his dad after hearing the daily drone of doom and dread on financial-news networks over the last few months.

"He started asking every night, 'Did the stocks go down again, Daddy?'" says Heller, a financial planner in Newtown, Pa.

While Heller is a money-management professional, he's in the same quandary as any parent when it comes to talking money with his children. What information do you give them about your finances? How do you explain that a layoff may be looming? How much input should kids have on family finances?

In the Age of Information, this recession seems scarier than others. While growing up during the recession of the 1970s, Heller says, "I wasn't bombarded with news about the stock market all the time. Kids today are constantly surrounded by the Internet and 24-hour cable channels."

In these troubling economic times, it's no longer an option to spare your kids the money talk. They notice any signs of increased stress you're feeling. Being honest and giving need-to-know information can relieve their fears about going to the poorhouse. And the more they understand about money, the more they'll know how to handle it wisely at any age.

1. Watch what you say and how you act 

Kids take verbal and physical cues from parents, so they quickly sense when Mom is acting differently and Dad is keeping his emotions hidden.

"It's a myth that parents can create an invisible wall of protection, because kids can read them like a book," says David Palmiter, professor of psychology at Marywood University in Scranton, Pa. "Even young kids notice irritability and fatigue, and they blame themselves for things gone wrong if they're not getting any information."

That's why off-the-cuff comments like "We're in the poorhouse" are a bad idea, says Eileen Gallo, a psychotherapist in Los Angeles who co-wrote "The Financially Intelligent Parent" with her husband, John, an estate-planning lawyer.

"When parents say, 'Great, we have no money,' they may just mean they'll have less to spend this month. But their kids may hear that, take it literally and think, 'Oh no, we're going to be homeless,'" Gallo says.

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Linda Leitz, a Certified Financial Planner in Colorado Springs, Colo., and the author of "The Ultimate Parenting Map to Money-Smart Kids," has learned to alter her comments based on her kids' reactions to them.

When she turns her children down without explanation, it can make them tense and confused. "Instead I say, 'I don't think I want to purchase that item now based on our current expenses,'" she says.

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