Using Psychology to Discuss Financial Problems with Your Children

Lay-offs, pay-cuts, foreclosures, and debt are all realities of the world we live in. What you share with your child about your family's financial problems, and the way you share it, can have a profound impact on their ability to process and cope — and even on their financial future.

If your family is facing a trying time financially, whether or not you've tried to hide it from your child, they most likely already know.

Children are incredibly perceptive — they can pick up on parents' stress, hushed conversations, and changed spending habits and moods much more accurately than most will give them credit for. Picking up on these cues without the explanation and assurance of a parent can lead to confusion and insecurity — emotions that can cause stress, anxiety, and physiological problems.

If you are a parent suffering from debt and are working with any debt negotiation or debt relief companies, it's likely your children have already sensed a change in the way money is spent — and they may need an explanation. Discussing this with them also provides an opportunity for you to teach your children financial responsibility so that they can make better decisions in their future.

We've interviewed counselor Chris Berger — founder and director of Foundations Counseling, LLC — to find out the best ways to tell your children about your family's financial issues and your plan to get out of debt. He gave us several guidelines for handling this sensitive subject.

How much you should share depends on your child's age and maturity level. Generally, Berger recommends sharing fewer details and emphasizing security with children 12 and under — the basic concept of frugality is all they can really process. Most teens, however, will be financially literate and can handle more information. If they can understand it, they can better cope with it, and they may be more receptive to discussing your family's money issues. But take into consideration your child's maturity level before deciding which method best suits them.

Don't lie. Berger stresses this in all areas on parenting. You can choose how you phrase things and how much to share depending on your situation, but don't give false information about your family's money problems.

Educate your children on finances. Trying times and slimmer budgets provide an opportunity for teaching your children about money, saving, frugality, and wants vs. needs. Berger said you can use your own financial missteps as a lesson, focusing on what you've learned and not being afraid to admit if you've made mistakes. "It's okay to be fallible," he said.

Focus on the positive. Emphasize that the difficult changes now will be better for the long-term, that a move or change in activity allows for new opportunities elsewhere and that no matter what, the family will be staying together.

Show a united front. Make sure you agree on what to say to the kids and how before confronting them. Arguing in front of a child can create more anxiety and less of a sense of security.

Don't use your child as your confidant. It's important to maintain the parent/child relationship as a healthy boundary. Confiding in a child like a peer or "over-sharing" will give them an added sense of stress. Berger says to remember that the child does not have the answers or the mindset to take responsibility for your family's finances — focus on their best interests in the situation.

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