After the anxiety and frustration of living through a recession, many parents are increasingly focused on teaching their kids to use credit responsibly. As our kids watch us struggle to pay credit cards and mortgage payments, it’s easy for kids to get the wrong idea about credit. They may see it as something entirely bad…something to avoid.
Small Pitchers Have Big Ears
You may think your kids don’t notice the concerned discussions about money between you and your spouse. But kids see and hear everything. It is important to speak openly and honestly with them about money, credit and debt. Otherwise, you could drive your kids away from credit altogether or let them grow up without learning the important lessons this recession has taught us.
Parents are often anxious when talking to their kids about debt problems. They don’t want to scare the kids, who may overreact and think the worst. Some simply do not want to disappoint when looking for places to cut spending. This is especially true when cutting services the kids enjoy, like cable television. But your kids already know there is a money problem. By opening up a discussion, you give your child a chance to express her fears and frustrations. It also gives you a chance to calm them.
The Importance of Openness and Honesty
According to Paul Donahue, clinical psychologist and author of the book, "Parenting Without Fear," parents need to discuss finances openly with their kids. "Kids who have been cocooned from financial pressure are suddenly faced with a lot of anxiety and worries about their financial well being." He also explains that "When we don't give kids enough information, then they become more anxious."
How to Talk to Your Kids About Financial Problems
If you are caught in the foreclosure crisis and might lose your home, there is a tightrope to walk. Tell young children the "selective" truth in basic terms. Share as much as you think your child can handle, but be careful not to share too many details. Your child will seize on those details and worry about them incessantly. The way to avoid over-taxing your child is to be sure he understands everything will be OK, even if you have to live in another house or rent an apartment. Mr. Donahue explains, "Kids need to see that their parents are confident, resilient and hopeful about the future, even if things have changed somewhat for the worse."
It is also a good idea to explain to your children the financial missteps that led to your financial crisis. Explain what you are doing now to fix the problem and tell them about your future financial plans. This will remain a powerful lesson for your children in the future and a reminder to remain hopeful in times of crisis.
Even parents who have been fortunate enough to avoid a financial crisis would do well to talk to their kids about the recession. Your children see the news, but they will learn few financial lessons without your guidance. The problems that befell this generation can easily affect your kids if you dot no explain the dangers of abusing credit.
Teach Your Kids Health Spending Habits
While new credit card regulations may shield your kids from some of this generation’s financial woes, they won’t fix poor spending habits or financial ignorance. Only you can repair such problems. The best way to do that is to give your kids some straight talk and hands-on practice in managing money.
For instance, kids should be given an allowance in exchange for completing household chores. They will quickly learn that no work means no pay. Sit down with your kids as you look at your credit card statement. Show them how interest works, and point out the areas on the statement where interest calculations are shown. Just being familiar with a statement and understanding how debt can pile up will help your child be financially more responsible.
You can also help your kids understand more about handling money by depositing allowance into a savings account attached to a debit card. Your child will need to learn and practice self-control while gaining the chance to understand spending limits.
Once your child masters the basics of debit saving and spending, you could consider adding your child on your credit card as an authorized user with a spending cap. Sit down and create a budget together to help your child work out the difference between wants and needs. If you remain strict about the spending limits, she will quickly learn to fulfill her needs ahead of her wants.
At some point, you will have to take off the training wheels, and if your child falls, let him pick himself up. Humans tend to learn best by doing. When you let your child make a mistake, he will learn his lesson more quickly and the lesson will stick.