Five Difficult Financial Conversations
Kids Will Make You Have

by Joline Godfrey

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Few things prompt feelings of shame, pride, embarrassment, regret, and inadequacy like a conversation with one’s children about money. The guileless, unexpected way children’s questions burrow into the most defended parts of our psyche, is part of what makes parenting so challenging. One reason families are uncomfortable with transparency in financial matters is they know that uncovering information compartmentalized as ‘private’ calls for skills to deal with complex matters—as well as a clarity of values that few other life circumstances demand. Kids bring out the worst—and best of us. Let’s be clear: navigating that journey is part of the joy –and the terror–of family life. The Q &A below are not ANSWERS—so much as guides to doing your best, all any parent or mentor can expect from themselves. 

  1. Are we rich? This question can come at any time—from your 5-year-old; 15-year-old—even from the 25-year-old who suspects but is not really informed about the reality of her family’s asset base. And it’s the question parents–at all points on the income spectrum– dread. If you’re struggling to make ends meet, it may trigger feelings of inadequacy (it should not—you are doing the best you can). If your kids are growing up in abundance it can trigger anxiety: will our kids be spoiled? Demotivated? 

Regardless of your net worth, the the most effective response is both specific to your situation and common to all parents. While most families can reassure children with some version of, “Of course—look at the wealth of friends, family, warmth, love, talent, and wisdom we possess,” meaningful responses specific to your own family situation can be more confounding. But regardless of one’s financial status, reality and authenticity, buttressed by a reminder of the family’s values is always the the most effective response. So these examples are offered to provide guidance, not a script!

“Are we rich?” Take One. Let’s imagine you’re a two income family; you own a lovely house with another decade left on the mortgage. There’s a pool in the back yard and you’ve put aside enough for your children’s education and a reasonably comfortable retirement. Are you rich? Well, by most standards you are. But that’s probably not what your kids are asking. When children pose that question, they are trying to figure out the world and their place in it. Tempting as it is to provide a definitive answer and allay their curiosity–or what you perceive to be anxiety–the right response is less an answer and more a series of Aristotelian questions of your own:

  • What makes you ask? (Maybe they’re reacting to a conversation at school or with friends—what’s the context of the question?)
  • What do you think? (Ferreting out their own perceptions will guide a more thoughtful response.)
  • By what measure are you referring to? (This provides an opportunity to explore wealth in meanings that go well beyond money.)

Teasing out children’s feelings, anxieties and curiosity about the question can lead you into some exciting conversations—without having to open up the family balance sheet.

That said, there may come a time when it is both appropriate and necessary to open up the family books (more on that in another blog), but a way to properly forestall the need to share information prematurely is to answer their question with a true—if slightly frustrating response: That’s a great question—and my answer will make sense in a few years if we help you understand the complexities of money. Perhaps now is a good time to launch an allowance. Do you think you’re ready? This diversion will take you down another sticky path—but we’ll visit that minefield later too!

“Are we rich?” Take Two. Now let’s imagine you’re a single parent, working hard, and hope your kids will secure college scholarships, because you’re struggling to keep them in proper size clothing now and may not be able to support them through four years of higher ed later.  How do YOU answer that question while not provoking high anxiety, but being truthful? You use the same queries your financially more secure neighbor above does. But early emphasis on the meaning of ‘rich’ is critical.

Every family has assets that go well beyond the purely financial. Intellectual capital: what family members know, what skills they have, what arcane, but useful knowledge they may possess, what talents they have is one form of ‘wealth.’ Social capital: the networks families have access to: community leaders they are connected to, school parents or friends, members of a choral group or a sports team—these are all networks that may be tapped for support and represent another kind of wealth. Human capital: the traditions, stories, values, and memories a family shares is yet another, CRUCIAL kind of capital—this is the capital that helps kids truly know who they are.

For children (and often for older teens too) rich often equates to stuff: money, status, outward displays of class, or culturally recognized value. The task of parents and grandparents is to counter the conventional definition of ‘rich’ with the more meaningful sense of wealth that comes from the hard work of developing humanity, expanding the universal sense of ‘rich.’ This is not to duck the existential conversations likely to follow for both financially secure and less secure families, about class, fate, and politics. But as you can see, “are we rich?” opens a Pandora’s Box of philosophical and factual dilemmas for parents.

And whether you’re responding to the child who has a trust fund of massive proportion or are answering kids growing up in challenging circumstances, the answer to the question of ‘are we rich’ is never a simple yes or no.

  1. Can I___? How your kids fill in that blank matters little in the scheme of things. Whether it’s asking if they can have a car when they turn 16; can go to Aspen with friends on college break; or can get that new Legos game when they’re 7, the answer must always be placed in the context of family values. One of my clients, fortunate to be able to grant their kids pretty much whatever they may desire, grew up hearing their father say, “Just because we can, doesn’t mean we should.” 

This simple statement of values is so ingrained in their family—that three generations of children understand in their CORE character that abundance is not a license for indulgence.  And families who must set limits as a financial reality, also have an opportunity to establish character values with their responses. “No, because we can’t afford it,” may be true. But “That’s not within our means, how might we brainstorm how to earn, borrow, or find some equivalent way to meet your need or pleasure?” is a way to nurture resilience, resourcefulness, entrepreneurial behavior without shutting down dreams and possibility.

Framing the family’s lack of resources as an issue of life challenge and social conditions, rather than intractable fate is one way to nurture a child’s inner resources. And whether privileged or not, it is the kind of encouragement all kids need if they are going to be adaptive and thrive in a world facing climate change, global competition for natural resources, and digital disruptions. “Can I?” is the question that can unleash the young inventor, the next great problem solver in the world.

  1. Why do they have a bigger/smaller house (more/fewer cars…longer vacations, etc.) than we do? This is another teachable moment. The truthful answer is this: “I don’t know; maybe they value having a larger house than we do. Maybe they’re more comfortable with borrowing money than we are. They are making different decisions about how to use their money than we are. In our family we choose to___.” 

 It may be you fill in the blank by saying, “We prefer to be more active in philanthropy than in buying a new car every year.”  Or conversely, it may be that “In our family we put more money into a larger home rather than multiple cars as it is a long term investment for us.

In our family is the operative phrase. By helping children understand the values driving the decisions in your family you provide guideposts for all the choices and decisions you will make in their lives. They may not always agree—and as they mature, may diverge from your own values. But the values you articulate and live will help shape the character of your children.

  1. How much do you make? Kids pose this question at the most inopportune time—as you’re trying to prepare dinner, getting ready to go out, or sitting down to a quiet moment. How much you make is the kind of question that leaves a parent tongue-tied—largely because it feels like such an intrusive, intimate question—we are not prepared. Anticipation of the question is half the battle.

A lot depends on the age of the child asking. Six year olds have little or no context for making sense of your answer: as much as three Mercedes? Enough to feed all the kids in your class for a year? $75,000? For a six-year-old, the goal is reassurance (enough to make sure we can pay the rent, eat healthy food, and go to Disneyland); in families with limited means reassurance is still important: just enough if we share, take turns, and are careful about what we use and spend.

For children 10, 11 through 17 and older there are two schools of thought, both have merit. The first is the most practical financial education lesson one can provide: an accounting of what your weekly or monthly income covers. This strategy is not for the feint of heart as it is likely to open other questions, but it is a true teachable moment.  

Make sure you have time (this is not a 10-minute conversation). Sit down with your kids and, using paper, a chalkboard, or your tablet, explain you will share your monthly income, if they’ll take time to understand what your income means. Then walk them through the family expenses: rent/mortgage, food, transportation, insurance, clothing, education, medical, savings, taxes…the goal is to share information about income, in the context of what that income has to cover. Kids will pitch in when they understand they are part of the solution, when they understand the goal—and they are less likely to be entitled when they grasp the big picture: family is not about feeding your wants: it’s about making sure that, as a family we help build a better world…or family, or community—whatever the ‘better’ in that sentence is for you. (Ron Lieber, NYT columnist, handles this how to have this conversation adroitly in his VERY helpful book, The Opposite of Spoiled.

Often such a conversation is the first time kids grasp what it means to support family life by making choices about money (poking a hole in the fantasy that money grows on tree!) For some children it will be a shock; others a revelation—for all, it is an introduction to the most basic idea of sustainability: how we sustain our family needs is the thinking that should come out of this conversation.

Parents whose income is vastly greater than the routine expenses most kids understand are often reluctant to shed light on questions of income: our kids will know we CAN afford things they may want (and we don’t think they need). Then what do we do? How do we explain what we do with our money?

This brings us to the heart of the challenge with children: articulating your values to them. If you want to teach them to share—you need to be able to say: “In our family it’s important to use a portion of our money to…fill in the blank.” If you want them to save for a rainy day, you need to be able to say: we have special savings for____whatever it is. If pleasure is an important goal in your family, there is nothing wrong with adding the expense of travel, boats, or special traditions by explaining that a priority in the family is to share time together and these expenses make that time more meaningful—if it does. The problem comes of course when your actions and stated values are not in sync—or are not shared by your kids!

I said there are two schools of thought on how to respond to the ‘how much do you make question. The second (remembering this does not have to be an ‘either/or strategy) is a commitment to financial education. Families who address the teaching of financial fluency with as much discipline as nurturing the skills to play a piano with ease or compete as an athlete at a high level will make sure the family masters skills like saving, giving, budgeting, and investing for the long term. In those families, it is appropriate to respond with this: “That’s a great question—and one reason we are focused on building financial fluency with a deeper understanding of saving, budgeting, investing, etc. is so we can have a serious conversation—as your readiness matures, that conversation will be more meaningful….”

That will be a frustrating response—at first. But as their knowledge builds, so should your conversations with them. And over time, those conversations will become more satisfying for both of you!

  1. Can we bring my best friend on vacation with us? If you’ve been saving all year and budgeted carefully for your family—but not an extra child, the response is pretty easy: “If her/his parents can afford to cover his/her costs, of course. Do you want me to chat with them about that?” In this way you introduce reality and communicate the how, rather than an embarrassed knee-jerk no (or an ill-considered yes that will put your budget at risk). 

But let’s say you you have the means to bring along his or her whole gang. Should you if that’s what will make your son/daughter happy? See question #2: just because you can, doesn’t mean you should.

The unintended consequence of subsidizing friends can set up confusing dilemmas for kids. In the future should your son or daughter pay for lunches, concert tickets, shopping excursions when their friends cannot afford the same things they can afford through their parents? That is not to say you never include friends in family excursions and activities—if your family values generosity and inclusion, of course you do. The difference is between setting a pattern and clarifying the times and circumstances that are appropriate. Having family time—undistracted from diversions provided by the presence of friends is important. It’s both legitimate and instructive to let kids know that time with family is as important as time spent with friends—and to accommodate both at different times and in different ways.

A LAST THOUGHT. It was Sept. 26, 2008 and I was giving a talk to at the annual Alumni Reunion of Harvard Business School grads. It was a big room in Morgan Hall. And it was packed, standing room only. I could feel the anxiety in the room. The stock market had been tanking all week—and no doubt the fortunes of many in that room had been, or would be, profoundly affected.

But I was there to give a talk on my book, Raising Financially Fit Kids, so I began by asking, “How many of you have talked with your kids about what is going on in the stock market?” In that cavernous room, holding somewhere between 300-400 people, just three people raised their hands. One man shared that he had explained ‘sub-prime’ to his 9 year old. That got a good laugh—but I applauded him for trying! Another man said his son had called home to ask if he needed to cancel the ski trip they had planned. “We talked for an hour,” the man said. “That’s the longest we have talked in a long time.”

The point of my question was to encourage the parents and grandparents in the room: what exactly they said to their kids was way less important than starting a conversation. That’s the essence of family: talking and sharing. You don’t have to get it perfectly right—you just need to begin.