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A generation ago, there were certain things you simply never asked your parents. One was how much they earned. But times move on and (at least as far as money is concerned) transparency is gaining a foothold in family affairs.
There is a growing attitude that the more kids understand about their parents’ finances, the better they will be equipped to manage their own.
Information about the Present
Children are naturally inquisitive. They are curious about everything. They learn early on that money is an important yet mysterious part of life. So they wonder about it and want to know how it works. They wonder why other kids seem to have more or less than they do. They wonder why they can’t have a video game when Dad is able to buy a whole computer.
If they don’t get straight answers to their questions, they make up their own answers. A smart five-year-old was asked what she wanted from Santa Claus. She thought carefully and finally decided—a credit card. She had seen the magical power of these things and believed they were the key to having everything she wanted.
To understand what can go out of the family budget, your kids will need to understand what comes in. A child with a basic awareness of arithmetic can fairly easily comprehend the notion of starting with a pile of cash and then taking bits away from it. Some parents even teach their kids by bringing home a month’s income in cash and then dividing up the pile into all the expenses, to demonstrate what is left when all the essentials have gone out.
What and When to Share
Rather like sex education, informing children about money is best done at their pace. You don’t need to bombard your seven-year with every detail about your finances, from the cost of the weekly groceries to the balance of your outstanding business loan from Unsecured Finance Australia.
A good general approach is to answer their questions honestly, allowing a little room for them to ask more. Responding to a question with a question—“Why do you ask?”—can help you to frame the answer in a way that will make sense to them, as well as clarifying whether they are curious, cross, or worried.
As time goes on, they will gradually build up a picture that they can handle. By the time they are in high school, they should have a fairly realistic picture of how and why your financial situation is how it is.
Preparation for the Future
One of the best things you can do for your children is to send them into the world with a realistic awareness of what money can and cannot do. Sharing in the setting of your household budget can be the best preparation for managing their own when the time comes.
If by the time they leave home they have grasped the importance not only of living within their means, but also of setting aside resources for the known and unknown future, the relevance of insurance, and the right and wrong reasons to borrow, then you have done them a great service.
In addition, talking to them about the personal aspects of money, including income, is an excellent way to negotiate issues of trust and confidentiality. You can make it clear that you are trusting them with private and important information. This is a reassurance to them on a personal level, but also an important lesson: you only share certain sorts of information with people you trust, and you do not divulge personal information about one person to a third party without permission.
With natural curiosity and the resources of the internet at their disposal, your kids may be able to find out more financial information about you and your neighbors than you would have thought possible, and they need to know how to handle it responsibly.
A Good Start
All parents have a natural instinct to protect their children’s innocence and not to expose them to the harsh realities of life too soon. They also have a deep desire to retain their place in their children’s lives as a bountiful provider whose limitations do not need to be explored. Good parenting includes clearing these hurdles at the right time and in the right way. Helping your children to understand the realities of your financial situation will set them on a good course to their own adult life.
About the Author
Lydia Lynch is a parent and works as a personal finance consultant. She’s keen for parents to take more of a roll in teaching their kids about money from a young age, especially since schools don’t do it. Read her articles on personal finance as well as parenting blogs.