It doesn’t matter how you slice it, parenting is an extremely difficult job. Which isn’t made any easier by having to discuss difficult topics with your children. Finances and financial hardship are just a couple of these topics that fall into that category. However, when you find ourselves in a state of financial hardship, that can be the best time to teach your children.
How you teach our children about financial hardship can look very different depending upon their ages and maturity level. So, before you begin giving an in-depth lesson about financial hardship to your children, please read on.
I get into the nitty-gritty of what sorts of lessons may be appropriate for each age level for the best understanding and long-term retention.
Why should you talk to your children about financial hardship?
There are many different reasons why you could choose to discuss financial hardship with your children. But, the main reason should be to help educate them now for their potential maximum long term financial wellness. Since we, as parents, only want what’s best for our kids and for them to live a better life than we have had, teaching them about finances falls right in line with that ideology.
They’ll learn how finances affect credit scores
One of the first lessons you could teach your children about financial hardship is how it directly affects your credit score. While a lot of children have never even heard of a credit score yet, this would be a good place to begin. An easy way to break this down to your children is to explain:
- A credit score is a rating of your responsibility with credit.
- Your credit report begins the first time you take out any credit in your name (such as a credit card, loan, rent/mortgage, etc).
- A credit report tracks when you make an on-time payment, a late payment, apply for new credit, overdraw your account, use too much of your revolving credit, etc.
- The more mistakes you make with your credit, the lower your overall credit score.
- The lower your credit score, the harder it is to get any future loans.
Once they grasp the concept of a credit report and credit score, then you can go on to explain how your financial hardship has affected your credit score. This is the point where you want to be as blatantly honest as possible. Since children learn best by example, your own credit score, and things that have affected it, will carry more weight with them.
Open up your latest credit report and go through everything line by line with them. If your children are much younger, they may not be able to grasp the more intricate details you want to convey, so stick with a broader description. But, if they are older, they will more than likely be able to understand the full credit report diagnosis.
While being this open and honest with your children may make you feel shameful, it shouldn’t. This is the prime opportunity for a true life lesson that directly affects their life right now.
They can understand how financial hardship directly affects day-to-day living
Most children won’t have a concept of how financial hardship can affect our day to day lives. But that is because they aren’t living in an adult world full of responsibility yet. Of course, you want them to be kids as long as they can and fully enjoy their childhood. But, it’s also a great time to teach them about financial consequences while the stakes aren’t as high.
Since most children want everything right away, this is a good time to dive into this lesson with them. Explain to your children that most of us don’t get to have everything we want as soon as we want it because things cost money. And if you’re in a position of financial hardship, you probably don’t have any to spare. This can lead to a great discussion about disposable income, and lack thereof.
When you are living in a state of financial hardship, you are playing a juggling game every day. A great way to explain this to your children is to show them exactly how much you make for the month. Then, break down your monthly living expenses for them. These should include:
- Mortgage or rent.
- Homeowner’s or renter’s insurance.
- Car payment(s).
- Car insurance.
- Streaming services (if any).
No matter what their age, you can help them do the basic addition and subtraction math to figure out how much money is left, if any. Next, you should go through any other loan or credit card payments you have to make each month also. Once they see these numbers, they should be able to understand that there is simply not enough money to cover everything.
After you have laid everything out for them in this way, then it’s time to explain how all of these bills happened. You should give them as much detail as they can handle, based on age and maturity level. This way they can see how easily a situation like this can, and does, occur.
They’ll know how financial hardship affects relationships
If you are in a position of financial hardship, it is likely that this has affected a lot of your personal relationships. When you find ourselves in this position, you don’t always like to talk about it with others. So, instead, you avoid the topic and pretend like everything is just fine.
But, you know that you can’t do a lot of the things with our friends and family that you may have previously been able to. Which, therefore, begins to affect our relationships. I can tell you that when I was going through my own period of financial hardship, most of my friends didn’t understand. They wanted me to go meet them for coffee, dinner, or a drink to socialize. But I didn’t even have enough money to pay for the gas to drive there.
Sometimes friends and family will foot the bill for you just so you can join them. But, for a lot of us (me included), that creates a feeling of guilt during the whole experience. So, it’s just easier to turn down the offer instead. But, that means weakening the bonds of your relationship because you are distancing yourself.
It can be a slippery slope which could potentially lead to a further downward spiral. Therefore, as painful as it may be, it’s much better to be as honest with your friends and family as you can be about your financial hardship situation. Instead, give alternatives to spend time together that don’t cost any extra money. Some great ideas include:
- Watching movies/documentaries at home.
- Game night.
- Swimming in a local lake or river.
- Having a potluck meal at your house.
- Listening to music and catching up at your house.
Whatever you choose to do, get creative, and just focus on keeping your relationship bonds strong. The message you should try to convey to your children is that a good support system can really help you get through the financial hardship.
When should you talk to your children about financial hardship?
There may not be a right time to discuss financial hardship with your children. But, the best time to begin discussing it is as soon as possible. Before you approach the subject with them, though, you need to make sure you are in the right state of mind. Figure out what you want to convey to your children before you ever begin a conversation about your finances.
It might be best to write down some bullet points prior to your first conversation. Tell your children that you want to schedule a meeting with them at a certain place and time. Choose a place that is comfortable for all of you, since this will likely be a longer conversation.
When you begin the conversation, you will need to be as honest with them about your situation as possible. After all, children are like little sponges and will be eager to soak up the information you are doling out to them. Make sure to convey that your financial situation is in no way, shape or form a direct result of them. Because children will naturally take on responsibility and blame that doesn’t actually belong to them. So you might need to reiterate this point, depending upon your child’s personality.
Also, explain that you aren’t asking for their help with solving the financial hardship issue. You just want to use your current situation as a learning tool for them so that they don’t end up in the same place you have found yourself. This is the primary objective for sharing all of this in-depth information with your children about your financial hardship.
And the earlier you can do it, the better. Because then they can go along for the ride and see how you ultimately get yourself out of the situation.
How should you talk to your children in age-appropriate ways about financial hardship?
With different ages and stages of childhood come different financial lessons that will work better. After all, trying to teach a preschooler about investing may be a bit outside their capacity. Therefore, how you explain different topics regarding financial hardship should have a direct correlation to the ages of your children.
Having a toddler can be one of the most challenging time periods as a parent. They are testing all of the boundaries and want to be completely autonomous. It is fantastic to watch their independence and confidence grow and see how fast they learn. But they need to learn smaller lessons in order to retain the information for the long-term.
This means that there are some great smaller, more basic lessons you can begin to work with them on now. Some of the best ways to teach your toddler about finances and financial hardship can include:
- Saving their money in a piggy bank.
- Help them count their money every month so they can see how it grows when they leave it alone.
- Taking them shopping with you and having them use their own money to buy something.
- Lead by example by paying with cash whenever they are around so they can grasp the monetary exchange.
These options may not seem like a lot, especially with regards to financial hardship. But, these are the building blocks of their financial education.
Preschoolers have begun to grasp more complex concepts than they did when they were toddlers. If you didn’t start teaching them about money when they were toddlers, I would suggest starting with the aforementioned lessons first.
However, if you started with your children when they were toddlers, now it is time to build upon those lessons. Some great ways to do this can be:
- Have them split their piggy bank up into three (spend, save, donate) different piggy banks.
- Explain the importance of saving and donating vs. spending and have your child figure out how much to put in each category based on the level of importance to them.
- Take your children grocery shopping and have them help you determine the best values.
- Have your kids help you count out the money and pay the cashier for groceries.
By adding on to previous financial lessons you have already taught them, you are just solidifying the concepts for them. And this will definitely help with mirroring behavior and long-term retention.
If you have been involving your school-aged child in all of these lessons since they were a toddler, then kudos to you! It can be extremely difficult to teach toddlers and preschoolers because of their shorter attention spans. But it gets a bit easier once your children are school-aged.
They have a higher capacity for reasoning and problem-solving now. So you can throw some higher-level financial concepts at them. Some of these can include:
- Waiting to make any purchases for at least 24 hours.
- Make them use a percentage of their own money to purchase any items they want.
- Explain about opportunity costs and how if they purchase an item they want now, they might not have the money needed for another item in the future.
- Pay them for work they have actually done (chores), as opposed to money for nothing (allowance).
At this age, it is good to have them more involved with their own purchases. This way they feel it more deeply and have a more solid idea of how much things actually cost. It also reiterates to them that there is no magic money tree growing in the yard that will fund their every wish and dream. Therefore, it brings the concept of money and how we use it in today’s world into a more realistic space.
Preteens are at the age where they have begun to know everything! While it’s great that they are so much more cognizant of how the world around them works, sometimes you have to bring them back down to reality.
At this age, I like to get each child a checking account that I am a co-signer on. This way they can begin to spend only their own money on things they want. However, I don’t give them access to see what is in their account. They also have to ask permission to make any purchases ahead of time. If they don’t, I revoke the access temporarily.
Besides getting your preteen a checking account, here are a few other great options to help teach them about finances:
- Have them start putting a larger chunk of money away in savings for larger items they may want in the future.
- Dive deep into the compound interest topic. (I wish my parents had done this for me because it would have changed how I looked at money when I got my first real job).
Since they are at the point now where they have gotten into more difficult mathematical equations, compounding should be an easy concept for them to grasp. In fact, we started talking about it with some of our kids when they were a little bit younger, and they still seemed to get it. If you are still having a difficult time explaining here, here is a great compound interest calculator that you can play on with your kids. It has really made a huge difference in our children’s financial mindset!
If you thought your preteen knew everything, then your teenager is a guru. They have surpassed your intelligence level, or so they think, and wonder how you have made it this far. While they are close to being out in the big, bad world all on their own, they still have a thing or two to learn.
The best lessons you can give them now are about how the bigger things in life can really affect them financially. Some of these can include:
- Figuring out how much college might cost them and how much they need to be saving now to help pay for it by creating a college budget.
- Helping them figure out ways to reduce their overall college costs, such as scholarships and grants.
- Determine which car might be the best option for them and how much they need to budget to pay for the car.
- Help them figure out their interests and skills so that they can learn how to diversify their income stream and create more potential financial stability.
These lessons are going to take a lot more work on your end because they are more in-depth concepts. But, these will be some of the final financial lessons you leave your children with before they fly the coop, so you want them to be good.
Important budgeting tools to help explain financial hardship
One of the first places to start when dealing with financial hardship is a budget. Not everybody has one or wants to stick with one. But I have found that continually having a budget, and visiting it weekly, has really helped us stay on track. In fact, creating a budget and sticking to it helped us get out of debt much faster than we otherwise thought possible. So I am a huge proponent of a budget.
No matter which budget you decide to use, just make sure that it works for you and your lifestyle. If you don’t have a budget yet, then this might be a great time to include your children in the process, depending upon their ages. And if you already have one, then going through your budget with them is a great built-in teachable moment.
Savings tools to include in your explanation of finances
Another topic that simply must be broached with your child is saving their money. This can be one of the most difficult topics to discuss because most kids want to spend every dime they have. Expressing just how important saving their money for a rainy day is might be more difficult to get across to them.
Using yourself and your current financial hardship situation as an example is the best way to get this message across. Explain why not having a decent emergency fund can only hinder them financially in the future.
Easy investment tools to explain getting back on track with your finances
Teaching your children about investing while they are young is the best time to introduce them to the subject. After all, we all want to retire someday. And for most of us, the sooner the better.
While investing may be near impossible when you are in a state of financial hardship, it’s still a good thing to have in the back of your mind. Because getting to the point where you can invest in your future can help possibly prevent any future financial hardship situations from occurring. Investing is much easier with today’s app friendly age also.
A couple of great places to start an investment portfolio are M1 and Betterment. Both of these sites have multiple account type options, such as:
- Individual taxable account.
- Roth IRA.
- Traditional IRA.
- Trust investments.
If your child is at working age and making some of their own money, then opening a Roth IRA account may be the best option. No matter which accounts they, and you, choose to open, these accounts can only help solidify future financial wellness.
Overall, explaining financial hardship can be a very sticky subject to tackle with your child. But, imparting our financial mistakes and wisdom onto our children is one of our most important jobs. So, include your children in your discussions about your financial hardship. Explain how you got there and how you plan to get out.
At some point, our kids will become adults and have plenty of opportunities to make their own mistakes. But, it would be great if they didn’t relive our mistakes. If we can help them live more financially stable lives than we have, then we have done our parenting job well.
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