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What are you telling your kids about the economy?

With all of the market turmoil over the last several years, what should you be telling your children? We know that our kids are watching and they know things are going on that stress us out. With limited knowledge of markets and economies, how do you explain to them that the stock market is volatile and that unemployment is above 9%?

The first step is to talk in their language. This means using metaphors that they will understand and relate to. Depending on the age of your children, a simple explanation like “We aren’t going to be able to go to the movies for a little while” might be sufficient. For a teenager, this might be the perfect time to teach them about budgets. Sit down and write down every expense that they are responsible for, such as school tuition, gas, cash for dates and dinners out. Then look at where they can help cut expenses to understand the tradeoffs of there not being enough money.

Overall, trying to shield your children from the realities of the world would be a mistake. They probably know bad things are going on, no matter their age. Try to use this as an opportunity to reassure, educate and include them in the discussions.

CPFCU published an article with several ways to include children of various ages in the discussion about money, markets and the economy.

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2 Responses to What are you telling your kids about the economy?

  1. Richard Trachtman September 15, 2011 at 7:45 pm #

    Rick,
    You are certainly right about addressing children’s need to know based on their age and cognitive ability. I fear it might be a burden for a teenager to have all of the expenses that go to their care laid out for them. Better to say that what money the family has is for all of their needs as well as some expenditures that could be cut back if necessary. (“We have to pay for gas to get dad and mom to their jobs and you kids to school. We have to pay for food and fuel for heat, but could wear sweaters and turn the thermostat down a degree or two. We think it is important to pay for health insurance and homeowners insurance because …. We don’t have to eat out in restaurants but, if we are lucky and doing well enough we can afford that on special occasions. And maybe this year, because mom or dad has been laid off, or because the family store is not bringing in as much money, or because our investment returns are poor — we can’t take a vacation and can’t afford for you to have that really cool $100 pair of sneakers. We will all have to sacrifice.”)
    Kids should, from an early age be taught about budgets, saving and making choices about what and when to spend. For kid old enough to understand, and for parents who really haven’t educated themselves about the basics of our economy and how money works this is a good time for them to try to broaden their understanding. A bit of reading and family discussion around this topic would be really good. Asking some questions and trying to figure out the answers would be good. Like: Why does a bottle of water cost more than milk? Why are there so many competing adds trying to convince us that we need to buy stuff? Why does it hurt the economy if consumers are not buying and banks aren’t lending? What are interest rates and why do some people have to borrow money than others? And, what exactly is money anyway?
    Not easy questions, some of these, but working on getting educated can provide a sense of mastery and control at a time when it is easy to feel helpless and overwhelmed.- for the parents as well as the kid. And working on it together might just help pull the family together at a time when economic stress might pull it apart. And the education will stand all of us in good stead when economic times are better again.

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