The financial information we should (and shouldn't) share with children

Parenting today is a lot more open than previous generations, even when it comes to family finances.

From a “children should be seen but not heard” position of previous generations, modern parents today are a lot more democratic and transparent in the family decision making.

However, there’s a fine line between involving children in so-called “adult decisions” to support their personal growth and shielding them to preserve a carefree, stress-free childhood.

Household finances are a classic example. In the past any discussion about money was seen as grubby, one of those taboo topics never to be discussed. It produced young adults ill prepared in simple matters of money management which often led to some very expensive mistakes.

My fear is that the pendulum may have now swung to the other extreme where children are too exposed to the strains of the family finances and risk growing up to fear money and making mistakes.

Naturally, how much you talk about money to your children depends on their age, but here are some financial areas I think kids should be exposed to (and the ones they shouldn’t):

What to share:

Setting goals – It’s great for children to see that you’re saving for something which benefits the whole family. Perhaps it’s a new car, family holiday or even putting aside some money for new clothes. Whatever your savings goal is, it’s a wonderful life message that you can’t have everything you want without a bit of planning and a little sacrifice. When you’re driving the kids around in the new family car or swimming in the pool on holiday, remind them of what it took to get there and how it was worth the planning.
Paying bills – Libby and I always used to laugh at the outrage from our now-adult children when they read their first payslip and saw the amount of tax taken out. All of a sudden they realised who pays for the roads, schools and hospitals. Likewise, the first time we took them through our supermarket bill and compared it to their pocket money they understood that day-to-day items – often taken for granted – do have value and shouldn’t be wasted. We would also break down the cost of an item into how many hours they’d have to work at McDonalds (all our kids had part-time jobs at McDonalds) to pay for it. The message really sank in.
Consumer choice – Drag them along shopping and show that consumers have choices. Teach them how big brand names are often more expensive but not necessarily better. That supermarket prices are usually more expensive at eye level on a shelf than above or below. Take them shopping and treat it like a field trip – and pass on all of your canny shopping tips.
Everyday financial experiences – Go through your online banking with the children and explain what a financial institution does, the concept of earning interest and the difference between the range of accounts. The same with the credit card statement. Explain how a bit of plastic isn’t a money tree and it has to be paid back, often with interest. Whip out the debt card and explain the difference.
Making charity donations – Libby and I would always talk as a family about the importance of making donations to charity (not the amount, but the organisations – so, what they do and why we support them). We wanted the kids to understand that everyone has a community responsibility to help others. We also insisted they donate a percentage of their pocket money to a charity of their choice.

What NOT to share:

How much you earn – All a child wants to know is that you’re able to look after them. They want that security. Dollar amounts are often confusing and they have no concept of how much you need to earn to cover household expenses. If you are asked how much you get paid, it is better to avoid disclosing a figure and just say, “enough to make sure we’re okay”.
Level of debt – A 25-year home loan is an incredibly scary prospect for any aged child. To them, a year is a long way off. So avoid talking numbers and whinging about how long it will take to pay off. Instead, explain the concept of debt and how to use it properly to acquire things which hopefully appreciate in value.
Investments – Wait until children are studying commerce at high school or show an interest in investing before talking about it. It’s confusing enough of a subject for adults. When the time is right, don’t talk about dollar amounts but rather, why you bought some of your shares and what moves prices. Relate shares to companies and brands that children use everyday like retailers or clothing/technology brands. Then move on to explaining other investments and how they operate.
Wills and life Insurance – Most children hate the thought of being alone, of losing Mum or Dad. So don’t even attempt to explain wills or life insurance until they’re old enough to cope emotionally with the prospect. Simply explain that whoever is your executor will look after them.

Talking to kids about financial hardship

Sometimes we don’t have a choice when it comes to protecting our kids from life’s hard times. If Mum or Dad lose their jobs and the family faces financial strain, you may need to talk to the kids about this. Remember to: