How to Explain Financial Trouble to Your Kids

No matter how old they are, teaching kids about money is important

A mother talks to her daughter about finances.
•••

Tetra Images / Getty Images 

Throughout one's adult life, the chances of experiencing a financially stressful situation are high. And knowing how to manage it, whether it's a national recession or a personal circumstance, is extremely important. But just because important financial decisions are typically made between adults, doesn't mean your kids should be left completely out of the loop.

Economic stress is real and can take a toll not just on you, but on your children as well. In 2010, the American Psychological Association (APA) found that during the Great Recession, 91% of kids were aware that their parents were stressed by how their parents behaved.

Key Takeaways

  • Studies show that kids can tell when parents are stressed, so it may be wise to explain financial troubles to children as a way to help them learn important lessons about money.
  • Create a plan about when and how you’ll talk to your kids about your financial hardships. 
  • Choose a time when you have your child’s full attention and be mindful of your tone.
  • Tailor what you say to your child’s age, and don’t be afraid to allow older kids to participate in parts of your financial life like budgeting. 

During financially stressful years like 2020 while people are learning and adapting in their own ways, many families are given the opportunity to talk about money in a way they never have before, according to Tim Sheehan, co-founder and CEO of Greenlight, an issuer of debit cards for kids.

“It opens the door to an even bigger discussion on saving money, giving to charitable organizations, spending wisely, and having emergency savings funds," Sheehan said in an email to The Balance.

Before jumping into a discussion and teaching kids about finances during a recession or economic trouble, take a little time to plan out a strategy.

When to Talk to Your Kids

Talking about financial trouble within your family isn’t something to do on a whim. Consider a time and place that shows the severity of the situation. Carefree mornings before school or story time before bed probably aren’t the best times to talk about money.

Instead, think about doing it over the weekend when your kids aren’t rushed from the bustle of school or activities. For example, when you sit down for dinner, address how important the topic is by taking a more serious tone as opposed to a lighthearted one.

Even with careful planning and proper tone, though, your kids might not be in the right mindset to hear it. If they’re upset, working on a project, or are otherwise distracted, consider bumping the conversation to another time.

How to Talk to Your Kids

Being stressed about money is already hard enough, but keep in mind that kids are more aware than we might give them credit for. In that 2010 APA study about the last U.S. recession, 86% of tweens and 74% of teens said they were very or somewhat comfortable talking with their parents about stressful things.

  • Be mindful of language: The words you say are impactful. If you’ve been stressed because of money, share with them what’s caused your stress and how it’s affecting your family. While kids can tell when something is up, they don’t always know what is up. Use this time to explain what’s been going on in a clear way. 
  • Consider your tone: Sometimes serious conversations scare kids into thinking they’ve done something wrong. Be kind and inviting so your kids feel comfortable asking questions. Reassure them that even though you’re being serious, they aren’t in trouble and what’s happening isn’t their fault. 
  • Keep the conversation going: If you’re going through prolonged financial trouble, one conversation might not be enough. If you’ve lost your job and shared that with your children, celebrate a victory when you get a new job. If you have to relocate because of a job or opportunity, inform them as well. Don’t stop at one conversation; let them learn to trust you as you share important information.
  • Open up for dialogue: Let your kids ask questions and don’t be afraid to answer them, even if you don’t know the answer right away. “Kids learn by doing, so make them part of the solution,” Sheehan said. “Make it fun and hands-on—they’ll take these lessons with them throughout their lives.” Your children will feel engaged and you’ll have a chance to grow together. It’s also perfectly fine to say, “I don’t know”—sometimes it’s all you have and they’ll know it.

What to Say to Your Kids Based on Their Age

What you say to your child may depend on their age and comprehension level. 

“Your 5-year-old will have very different questions from your 17-year-old,” Sheehan said. “So be ready for different conversations depending on their age and experience handling money.”

Preschool and Kindergarten

Younger children may not understand the nuances of money trouble, but they likely can understand the concept of money.

Explain what not having enough money means for your family. Maybe this means no vacations this upcoming year or fewer presents during the holidays. For some families, it could mean moving out of your home. When your kids ask questions, be clear in your explanations and try to break down as much as possible. Avoid using figures of speech, as younger kids may take them literally. 

Early Elementary

Your older, elementary-aged kids may know a little bit more about money than younger children do. For example, if you don’t leave the house to go to work anymore, they may understand that you’re not making any money.

Share what the issue at hand is, like if you have to pay for a large bill or why you don’t drive anymore. It’s important to be detailed without being overwhelming. Your child might not get why hospital bills or owning a car are so expensive, but they will understand that you need money to pay for those things and you might not have it right now.

“For younger kids, put it in their world,” Sheehan said. Instead of sharing hard facts with younger kids, Sheehan recommends relating it to big-world events, like the 2020 recession, and explaining how these events have a direct impact on the way people handle their money.

Depending on your child’s age and maturity, you may even want to share what your plans are to solve or manage the financial trouble.

Middle and High School

Most older kids have the ability to understand a lot more than we might give them credit for. While it’s a good idea to explain what’s going on, you can also use them as a sounding board.

“If they’re old enough, you can share high-level facts,” Sheehan said. “[Like] how you or members of your community may be affected by losing work and what that means for spending (for) the next few months.”

Share with them how you plan to pay for things or get out of this financial hole. If you’ve lost your job, share that you’re looking for a new one. If you need to pay a large bill, explain you’re working out a payment plan. Engaging your kids gives them a sense that what they say and do has an impact on your family.

How to Involve Your Kids In Your Finances

Kids don’t need to be oblivious to money concerns. Even after you’ve explained the financial pickle you’re in, you can build up their financial know-how. 

Younger Kids

Teach them about how you earn money, where it goes, why you need to pay for things, and what happens when you don’t have enough money to cover your bills.

If you have the means, walk them through saving their money—whether through a piggy bank or a bank account—and show them how to pay for things they want. For example, younger kids might want a toy or game. If they don’t have enough money for it, teach them how they can save for it or buy something else that they can afford instead. This also shows them patience and value—maybe the item they originally wanted won’t be such a hot commodity when they do have enough money.

Older Kids

“Work together to set savings goals or talk to them about a big-ticket item you’ve needed to save for in the past,” Sheehan said. “As kids, they’re in a fortunate position to be able to learn about money while mistakes are just mistakes.”

If you don’t have a budget, involve your older kids in helping you set one up. Show them how much money is coming in, where it all needs to go, and what happens if you have any extra cash that you can put away for later (like in a savings or investment account, college fund, or something else).

You can also help your teen set up a bank account, and if they have a job, show them how to deposit paper checks and take out cash. Don’t forget to explain the nuances of fees and a lack of funds. For instance, if they withdraw too much money, they can get hit with an overdraft fee. You may even want to have them start paying for their own clothes or bills, like gas for their car or their phone bill.

Whatever you choose, teaching kids about financial trouble now—as well as solutions to those problems—may help them learn important lessons about money that they can apply in their future.