How to Talk to Your Child About Your Money

By Neale S. Godfrey For New York Life

How much should you talk about family finances to your children? How much should they know about the family's overall financial health?

Perhaps more than you think. If you argue at all about money, then there's a good chance that your children have already experienced some discussion of family finances. So that's all the more reason to make sure they hear more than just arguing — that they have the experience of listening to calm and reasoned discussions of the family budget.

It's not necessary for young children to know every detail of your financial life, although they should be included more and more as they get older.

But they should know, in general, how things are going — whether things are good or tight. They have a right to know, and sometimes a responsibility to know, the ups and downs of their family. If children all of a sudden see Mom home during the day when she is usually at work, and she's weeping, it's unfair to say, "nothing's wrong." The kids will think the worst — that Mom is dying.

Explain to your children what happened, whether you decided to quit, were fired or let go as part of downsizing. The most important message to send is that you and the family will be all right,. there may be changes, but you're still together, and you'll pull together as a family.

Here is an exercise that is just what it sounds like — The Family Bill–Paying Project. It is just like it sounds. The family sits down and pays bill together. By the time your children get to be 11 or 12 they are probably ready for this. Don't put it off until they get to be teen–agers.

It is really true that teen–agers, if they're not disabused of this notion early, can start thinking money grows on trees. A responsible 11– or 12–year–old who still considers it a privilege to be given family responsibility is the perfect candidate for the project.

Goal: To pay all monthly bills with the allotted money.

Tools: Total amount of money available for paying bills. Pay yourself in dollars. All your monthly bills–mortgage or rent, utilities, credit cards, cable TV, car, etc.

Rules: Lay out all the bills on the table. If you want to, you can show your children your pay stub so they can see the taxes, Social Security and other deductions taken from your pay. If you don't want to do that, then make sure your children know that a certain percentage of your income is deducted for taxes. Then count out the money for each bill. If there isn't enough money for each, then a decision has to be made about which bills can be paid in full and in part. Discuss this with your children, and explain interest payments. Then discuss with them whether there is any way to economize so monthly bills are reduced.

Winning and losing: Everyone wins if there is money left after paying all the bills, and everyone loses if there isn't enough money. You also can do this in ledger form for the older children. It will look more like a monthly budget by which you plan your payments.

Sometimes parents think their children shouldn't know they're doing well. They worry it might make the children greedy or snobbish. They worry that if the children know the family is doing well, they won't be able to hold out against arguments along the lines of "The Jones's next door have a swimming pool. Why shouldn't we?"

There is a two–pronged answer to that one: First, "Our Rules." Second, you're not only telling your children that you're doing well, you're sharing with them the whole picture of your family's budgeting and goal–setting. Your children must always know there will be families with more than you have, and there will be families with less, and that it's important to try to help those who have less and not envy those who have more.

When you explain this to your children, avoid euphemisms like "less fortunate" and "more fortunate." It's true that good fortune, or good luck, can be associated with having lots of money. But you don't want to reinforce the idea that having or not having a lot of money makes you fortunate or unfortunate.

If things are tight and you need to cut back, your children need to know that, too. You don't want to spare them. Kids don't have a clear sense of proportion, especially when it comes to numbers outside their everyday experience, and they need to be reassured that "we'll be OK — you'll always have food and clothes and a roof over your head, and you'll always be loved, but right now we have to stay on a tighter budget than before."

You shouldn't apologize for things being tight. Don't feel guilty about it. This is how life works. In the long run, being honest is a way of empowering your children, giving the strength to deal with change.

If the family has to stay on a tighter budget, what does that mean for the kid's allowance?

Explain the situation to your children, and ask them if they would contribute part of their allowance back to the general budget. It can be an empowering experience for them, making them aware they are contributing members of the family.

But if they don't want to give back part of their allowance, don't be judgmental.

You've given them a choice: you're making an implied contract that you'll accept whatever choice is made. You should, however, make sure they understand the money has to come from somewhere, be it from spending for a family movie or something else.

Whether you ask your children to contribute back or tell them it has to be that way, it is very important to make clear this is not a punishment. It's part of a family belt tightening that everyone shares.

Neale S. Godfrey is a former bank president and an acknowledged expert on family finance. Her 14 books include a #1 New York Times Best Seller, Money Doesn't Grow On Trees and her latest book, Money Still Doesn't Grow On Trees: A Parent's Guide To Raising Financially Responsible Teens and Young Adults. She has authored an educational program called The One and Only Common Sense/Cents Series which corporations are donating into their local community schools and after–school programs. Neale has appeared on TV on The Oprah Winfrey Show, Good Morning America, The Today Show, CNBC, NBC, CNNfn. She frequently delivers lectures on "How to Raise Financially Responsible Children." For more corporate marketing programs, products, and books go to Neale's Web site www.childrensfinancialnetwork.com or call 908–879–8898.

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