Talking money with kids

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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.

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.

Kids are big fans of family rituals, so they notice even the smallest change in routine, and a lack of explanation will have them concerned.

If you traditionally stop for ice cream after soccer games, they’ll immediately wonder why you drove past the store. If you have to forgo the ice cream, suggest a snack at home instead as a way to save time and money.

“Initiate some dialogue so kids can understand the changes,” Palmiter says.

“The underlying subtext of kids’ questions is ‘Are we safe?'” says Gallo. “Talk about financial turmoil in terms they can understand, and help that along by asking them what they’ve heard on the news and in school.”

2. Be open and honest to a point

If you’ve never talked money with your kids, sitting them down to discuss financial challenges may be overwhelming. But the conversation may have to be initiated if your kids start asking money questions.

If you must have the talk, pick a time when none of you is busy, like after dinner or when weekend chores are done. Have it in a comfortable setting, like the backyard patio or dinner table, instead of the formal, living room setting.

When Heller sat down with son Jonathan, he was open and honest, but spoke at a 9-year-old level.

“I said, ‘Yes, Jonny, stocks went down today. We go through periods when they go down, but they also go up again. We don’t want you to worry about it, because sooner or later, stocks will go up again,'” Heller says.

Palmiter recommended this selective truth-telling, in which parents choose information to share based on the child’s age and mental development. The younger the child, the more psychologically vulnerable he or she is, and the less information you should share.

“Younger children may accept one sentence as an explanation, like, ‘I’m not going to work right now because there’s been a change at my company, but don’t worry, I’ll get a new job soon,'” Palmiter says.

But older kids will want answers to questions such as why there’s no family vacation or new car. Parents can be more open in sharing information and also can ask them questions, Palmiter says.

“To an adolescent, I’ll say, ‘I was downsized at work and it got me worried, but I’m confident things will turn out fine. How do you feel about it?'” he says.

Palmiter sees it as an opportunity to get closer to his children and help them deal with stress.

3. Decide what to keep confidential

Should you show your checkbook and mutual-fund balances to your kids? That’s up to parents to decide, say financial experts. It’s OK for you to determine how much you want them to know about your money-making abilities.

Heller doesn’t talk salary with the kids. “My parents never told me how much they made, and I don’t see the need for my kids to know,” he says.

However, Leitz chooses to tell her three teenagers nearly everything. “They know my salary, our house’s value and mortgage payments. However, they’re not to share that with their friends,” she says.

Still, she doesn’t share her personal-spending or career decisions. “My kids don’t need to be making age-inappropriate decisions about whether I earn too little, spend too much or made the right career choices,” Leitz said.

“When they decide what they want to do with their lives, I’ll explain what my lifestyle is and what I earn to achieve it so they can match their career and lifestyle goals appropriately.”

4. Let them have a say

After you’ve had the tough talk, ask them what they think and let them express their thoughts. “Listen to them, accept their feelings and empathize,” Gallo says. “Then put your heads together and decide how you’ll work together to tighten your belts.”

Instead of saying, “We can’t do that anymore,” let kids have opportunities to decide how they can economize, Leitz says. “Don’t make it about what they can’t have, make it about choices they can have.”

You can also offer choices for everyday decisions, based on their age. Say you have to reduce their lunch money. Or, tell younger kids they’ll have to bring lunch from home, but make it fun by asking what favorites they want and have them create menus.

“For teenagers, say you can no longer pay for greasy cheeseburgers, but you’ll help them buy what they want to take to school,” Leitz says. “Or if they have a job, suggest they use their earnings for any school lunches they want.”

5. Explain money doesn’t grow on trees

Whether you feel you’ve spoiled your kids isn’t an issue, but making them understand that money doesn’t just appear is. Explaining how money is earned and spent may be too much for kids to digest during the “tough times” sit-down, but it’s pervasive enough an issue for a routine discussion.

Leitz used one opportunity — when her daughter finished a chore and wanted the money immediately — to explain that because she didn’t get a paycheck till Friday, neither would her daughter. Leitz admits she has spoiled her kids, with each having an iPod, but she has been candid about what each purchase costs.

“Now, given what’s going on, I say, ‘I’m not going to make a big purchase like that, and here’s why,'” Leitz explains.

With a cell-phone plan, she explains how much of a child’s pay from working a part-time job or doing chores would match up against the monthly fees. “When they realize their phone costs six hours of allowance, it puts it into perspective,” Leitz says.

6. Ask them to help out

Now is the time to ask your kids to help reduce their expenses and save more of their money. Psychotherapist Gallo recommends asking kids for their money-saving ideas. “They often come up with good cost-cutters, like washing the car or doing the gardening themselves,” she says.

Also consider having a regular “family money night.” Pick a regular time slot for a sit-down to discuss all financial issues from planning holiday gift-giving to what credit-card charges to make. All these decisions involve the kids. So increasing their awareness level will make them better understand why you keep saying, “We can’t afford it.”

Even in these tough financial times, it’s a great opportunity to teach your kids about the values — and limits — of money.

“Parents used to put off money talks, saying, ‘I’ll do it when they’re older.’ But now it’s a necessity,” Gallo says.