Telling Children About Financial Problems

Many families are facing difficult times as news of more layoffs hit daily headlines. How much should children be told about a family's financial situation?

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Fashion designers aren't the only ones affected by this recession. Just about all of us are dealing with the financial downturn. And if you have kids, there's a good chance they're picking up on it. So what do you say to your children when money is tight? Madeleine Brand recently put that question to Day to Day's personal finance contributor, Michelle Singletary.

MADELEINE BRAND: So, Michelle, how should you begin a conversation with your child?

MICHELLE SINGLETARY: Well, you really need to determine where they are. I mean, obviously, smaller children, you know, six and younger, they aren't going to really understand what's going on. The older children, they're going to know if there's some tension in the house, and things are - you know, you hear whispering, and daddy or mommy has lost their job. The thing you don't want to do is panic your children.

These are adult issues, and they should stay a part of your adult world. I certainly want to be honest with them, but you don't want to involve them with telling the creditor to, you know, call mommy back, that kind of thing.

BRAND: Well, what should parents say to their children when they - they're in the store, and they say, oh, I want to get that. I want to buy that. What would be the appropriate response?

SINGLETARY: I think you shouldn't say, oh, we're broke, and we can't afford this. Put it back. You know, say in positive terms, honey, we are budgeting, and that's really not on our budget. And that's really how I handle it for my children. I say, listen, I'm saving for your college. We, you know, have other expenses, and so that's really not in our budget to buy. Now, if they still get on my nerves, I'll say, look, you can't have that.

(Soundbite of laughter)

BRAND: You say, go out and get a job, and then we'll talk.

SINGLETARY: I do, actually. I say that quite a bit. I say, well, you know, if you want that, you need to get a job.

(Soundbite of laughter)

SINGLETARY: I use a lot of humor with my children. I really do because, you know, children will beg you and nag you and get on your last nerves, especially at a time like this when you know you don't have it, and you don't want to lash out at them, and you can because you're so tense and you're so scared. But you want to try to not do that because, you know, they're only kids for a little while, and you don't want to stress them out.

BRAND: Well, I mean, it brings up a good point that you can scare kids or you could turn it around and make it a learning opportunity. I mean, you could say, OK, this is what finances are, and this is how we budget, and why don't we learn something from this?

SINGLETARY: That is exactly what you do. And if you've lost a job, oryou know, God forbid, you're going to be put out of your house for foreclosure because that is happening to people. You sit them down, and you say, listen, we've had some financial difficulties. We have to move. We love you. We're going to get through this. The most important thing is our family. You want to assure them that you're going to do the best that you can to take care of them. You don't want to go and say, oh, they're going to take our stuff. I don't know what we're going to do. You know, that's not their issue.

And even if that's how you feel, and you feel like crying, wait until after that conversation and go in a room. And as far as budgeting, for example, I always tell my kids, now, if you want all of this stuff, we can't have the things that we value in this family. Like, we take a two-week vacation every year. And so I say, listen, in order to save for that vacation, we defer or we don't buy all this other stuff. Which would you like?

But don't scare the kids. Don't stress them out. Be honest with them. And let them know if you're losing your job or you have to move, but say it in a positive way that they know that they're still going to be taken care of even if that means you're moving in with another relative.

BRAND: Michelle Singletary, Day to Day's personal finance guru. She writes the Color of Money column for the Washington Post. Michelle, thanks.

SINGLETARY: You're welcome.

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