How to Talk to Kids About Money When Times Are Tough

The global pandemic that we’ve been riding over the past couple of years has caused a massive physical and emotional impact on people all around the world. Our lives have changed in several aspects, one of the biggest areas to be affected being finances.

More than 50 million Americans have filed for unemployment benefits since March. Insecurity of food and other basic necessities has risen to worrying levels. This feeling may have been amplified for families with young children – for all parties involved. When adults are struggling to grasp the reality of the pandemic, it’s not hard to imagine that kids might also suffer from it.

Fortunately, there are healthy and educational ways to talk to your children about family finances. The first step is to actually talk to them about it so that they are aware of the situation. According to the advice of experts, here’s how you can convey to your children that money is tight right now.

Be Open, But Not Too Open

Children like to be treated like adults; it makes them feel like valued members of the family. Keeping them in the loop about a tough financial situation can help you avoid disappointment, demands, or even tantrums.

However, keep in mind they are not adults, so you should only share age-appropriate information that won’t worry or scare them. Stick to brief conversations about family spending. Instead of telling them, you can’t buy new toys because then you won’t have money for food, tell them you can’t buy new toys right now and that they can put them on the wish list for their birthday, Christmas, etc.

“Regarding any discussion with children, whether it be about the pandemic or financial stress, developmental research tells us that parents should share enough about the current experiences so that a child feels informed, but not overshare to the point of your child feeling additional stress and pressure,” said Katrina Lindsay, a pediatric psychologist at Akron Children’s Hospital.

Ask questions to gauge how much they’ve observed. Children see and hear way more than we ever would have imagined! Lindsay calls these “knowledge checks”, such as asking if they’ve noticed a difference in the family’s activities or moods.

“As I have seen time and time again in my own practice, kids often know more than what parents think, but they often fill in the details with their own fears and understanding, which may be a lot scarier than the actual reality,” she added.

Speak in Calm & Relaxed Tones

It’s your job to set the tone when you converse with children, so it’s important you be calm and collected. New York-based psychologist, Sanam Hafeez, insists on the importance of picking a time and setting that is light-hearted and stress-free.

“Suggest an activity such as coloring or a game to engage them and make them comfortable,” she said. “Trying to sit down for a formal talk with young children is not likely to be as effective.”

Kids who are under 10 may have a difficult time grasping concepts such as budgets, so it’s important to explain them in simple terms. Make sure to use age-appropriate examples that they can relate to, such as mentioning a local ice cream shop that had to close during the pandemic. Hafeez says that after such a conversation, it is up to the parents to set the precedent on how the family moves forward – like not complaining about money when the kids are nearby!

Talk About the Fun Things

This is a good time to teach your children that everything nice or fun doesn’t have to be a result of spending money. “Parents could close on this conversation by working with their child to come up with a list of fun and free things they could do this summer.,” Lindsay said.

Hafeez echoed this, putting forward that instead of focusing on the new toys and games they may get later, parents should get their kids excited about playing new games that don’t cost money. They can also replace monetary rewards for good behavior with other gifts like snacks or stickers.  It is a good time to explain that “not all ‘good things’ come from a store or are bought online and that there are other ways in life to have fun and experience joy without spending money,” she said.

Make Them Feel in Control

Most times when kids act out, it is because they feel that they aren’t in control, so by giving them that little bit of information and responsibility, you would have given them the tools they need to tackle this tough situation.

“Give your child the opportunity to help when it comes to family finances, like helping to track financial goals, talking about creative ways to save, or helping in the kitchen with frugal meals,” says Kumiko Love, a financial counselor, and creator of The Budget Mom.

Hafeez adds that it’s important to make sure that kids understand that you are a constant, especially in times of change. Therefore, it’s good to keep them involved in the decision-making process. “If there are choices to be made, when possible, involve them. For example, ‘Kids, you can buy that new scooter or we can put it toward a staycation, which do you prefer?’”

Children can learn about budgeting and help make simple choices such as what snacks to include in your grocery shopping list. Love says she includes her son in day-to-day finance tasks and encourages him to ask questions.

Hafeez says that teenagers and young adults could play a bigger role in these situations as they may already have some experience handling their own money. You may be faced with anger or frustration about the family’s financial situation, but Hafeez says you should frame it as a positive challenge that you will eventually be overcome. “Do not try sugar-coating anything and be realistic about what you can promise them for the future. If they begin speculating on ‘what could’ happen or ‘worst-case scenarios,’ steer them away and focus on the facts,” she said.

Make Them Understand That They Aren’t Alone

Children face a lot of peer pressure, so one of the major reasons for childhood anxiety comes from feeling like they’re alone or being left out. Therefore, it can be helpful to make them understand that your family isn’t the only one who has been affected.

“Explain to kids that there are over 40 million people across the country whose jobs have been impacted and that your family is part of that number,” said Tim Sheehan, co-founder, and CEO of the family-focused financial literacy app Greenlight.

“This is an opportunity for your family to find strength in themselves and each other, staying connected through conversations about their fears, hopes, joys, and money,” Hafeez said.

Take This as An Opportunity to Teach Money Lessons

Since they’re learning about financial concepts already, this is a good time to teach them money lessons. Sheehan suggests discussing needs – essentials like food, shelter, and clothing versus wants – that new trendy toy or going on a holiday.

“Kids learn by doing, so make them part of the solution,” Sheehan advised. “Talk about how emergency savings can help them through tough times and show them how to save. Work together to set savings goals or talk to them about a big-ticket item you’ve needed to save for in the past. I find that getting as specific as possible when explaining necessities helps kids master the concept and can begin to apply it in real-life trade-off decisions.”

Hafeez agrees, stressing that you should “Remember that you are not depriving your children, but instead teaching them valuable lessons on delayed gratification, earning rewards, and how family finances and budgets work. Food, clothing on their back and rent come before toys and gifts.”