If you've ever been mortified to hear your toddler repeat a curse word in public that you muttered under your breath, then we don't have to tell you that kids are like sponges.
And that's precisely why it's so important that life's biggest lessons — you know, things like the birds and the bees, and the right way to treat others — are taught by you.
Financial experts will argue that there's one other hot topic you should add to the top of the list: uncomfortable money situations.
"Dealing with financial issues can be a good opportunity to instill values in your children," says family psychologist Aaron Kipnis, Ph.D., author of The Midas Complex. "It's important for them to understand money early on — that it comes and goes, but you adapt and life goes on."
And in the same way that you'd rehearse the sex talk a million times before finally having that sit down, you'll also want to perfect your plan of action for tackling a tricky money issue with your child.
Got a doozy coming up? We asked Kipnis, along with Adam Koos, a CFP® and president of Libertas Wealth Management Group in Ohio, to share their top tips for how to broach seven tough money talks with your kids.
Tough talk #1: There's another baby on the way
Why it's a hard talk to have: Not only are you about to rock your child's world — especially if he's your first born — but your family will likely have to adhere to a stricter budget. And that means your oldest may get fewer toys and treats than he's used to, in addition to having to cope with the fact that he's not the baby anymore.
How to approach it: This is a happy occasion, so frame the conversation in a positive manner before the new baby arrives. "This can help ease him into the idea, so that it's not so sudden," Koos says. "Use Mommy's growing belly as a starting point for the discussion."
Then talk regularly about how life at home will change, whether that means your family can't go on your annual trip to Hawaii or that there may be fewer Christmas presents than usual. "Read books together before bed about getting a new sibling, and then elaborate on how it will actually impact your family," Koos says.
And be sure to explain that sharing is a form of helping — and splitting up resources, like money and attention, is part of being in a family.
For younger children, you might say, "You're such a good helper, and when the new baby arrives, we'll need you to be an even bigger helper." If you have a pre-teen or teenager, explain the new responsibilities you'll expect him to take on as an older child. One approach: "Your mom and I gave things up when we met each other, and it made our lives so much better."
Just remember to couch these statements with excitement about what the new baby will add to the family — and that's more love.
Tough talk #2: You're getting a divorce
Why it's a hard talk to have: No one ever said divorce was easy, but it's a particularly difficult concept to grasp for little ones who aren't sure what to expect. "Children are selfish, and when they get news that things are about to change, they'll immediately think, 'What does this mean for me?' " Kipnis says.
So don't let them guess, and tackle this discussion head-on — but with extreme care.
How to approach it: According to research from the Joseph Rowntree Foundation, a social policy research center, the biggest fear for children going through a divorce is that their parents won't be as committed to them anymore, so reassuring your kids early on that your relationship with them won't change can help quell their concerns.
From there, honestly address what's likely to be another big worry for your kids: the living situation. Your child needs to know that she'll be staying in two homes. To soften the blow, Kipnis suggests framing this information as a chance to have fun decorating a new bedroom and exploring a different neighborhood.
And Koos underscores the importance of setting expectations for what divorce means for each parent's budget, like perhaps not being able to afford certain extras, such as spontaneous shopping trips or takeout several nights a week.
And while this news can be upsetting, it also creates a good opportunity for a life lesson. "You can teach your child that you can have just as much fun with less money — you just need to be a little more creative," Kipnis says.
One helpful approach? Let your child choose which activity she prefers to do when she's with you — like whether she wants to go out to dinner or to a movie, but not both — so that she can start to savor the treats she does receive.
Tough talk #3: You can't afford the tuition at your kid's top pick college
Why it's a hard talk to have: You're on a state-school budget, but your teen has Ivy League dreams. Fact: Private school tuition now comes in at about $30,000 — a year. And for many, that's simply out of reach.
This one's tough because you want to provide the very best for your child, and being unable to afford to send them to their preferred college is a difficult reminder that it's not always possible.
"Parents want to be seen as their kids' heroes," Koos says. "When money becomes a problem, they feel like failures."
How to approach it: While it may be tempting to pull a "because I said so" when your teen asks why she can't attend her favorite school, that simply won't fly. "Your child is going to be disappointed and will want to know exactly why she can't have what she wants," Kipnis says.
So explain everything that you did to try to afford it — like saving since she was a baby — but that the expense was ultimately too large to fit in your budget.
A University of Illinois study found that teens can better manage their emotions when they're in an atmosphere of trust and support, so make sure to emphasize that you're not giving up — that you'll all work together to ensure she gets the best education.
One option is, of course, to find a state school with a tuition bill that's easier to handle. But if your kid is determined to go to a particular school that's out of your reach, investigate the best alternatives for funding her college career together, whether that's through grants, scholarships, or student loans.
And if you're seriously considering student loans, Koos recommends reviewing a few main points before signing on the dotted line, including the difference between government and private loans. "And address when your child will have to start repaying the loan and the interest rate," Koos says. "Most loans accrue interest during college, so the longer you're in school, the larger the loan gets."
Tough talk #4: You're going through a career change
Why it's a hard talk to have: Unless you're the parent of a teenager, most kids don't understand much about having a job, other than the fact that you go to work.
But any kind of job change — a layoff, a promotion that requires you to relocate, even a dream gig that doesn't come with a dream paycheck — affects your kids. And it's best to be transparent about these kinds of changes early on, since they can cause stress for both you and your kids.
How to approach it: If you were laid off or fired from your job, talk to your child about what happened — without getting worked up. According to research from the University of Washington, kids as young as 15 months can detect anger in adults and may act uneasy because a parent is upset.
A way to give this tough talk a positive spin? Focus on how your child will benefit while you're looking for a new job — by getting more quality time with you. Explain that while money will be tighter than usual, you'll be able to attend their soccer games and eat dinner together every night.
Took a new job with a lower salary? No matter what age your child is, acknowledge the fact that you've been stressed in your current gig — chances are she's noticed — and explain that you'll be happier now, despite the decreased income. If your kid is around high-school age, segue into a lesson about the importance of choosing the right career path that makes you feel fulfilled, especially since you spend so much time at work.
And when an opportunity for cost savings comes up, like bypassing the toy aisle in order to be more budget-minded, Koos says you shouldn't hide it from your kids or make too big a deal of it. This way, you're demonstrating that you have to cut back when less money is available — but it's not the end of the world.
Tough talk #5: You're in debt
Why it's a hard talk to have: When you're grappling with a lot of debt, you're likely hyper-aware of every non-essential expense you can nix to accommodate higher debt payments.
It may not seem so tough if tightening your belt means you have to skip your morning latte or those $35 a pop spin classes. But when you need to scale back on your kid's expenses — like your middle schooler's favorite summer camp — that hurts.
How to approach it: Talk to your kids about the consequences of digging into debt, and why living within your means — even if you have to give up something you love to do it — is the most responsible approach to managing your money.
When you break the news that you can't afford an extracurricular, Kipnis recommends offering up some lower-cost options your child can enjoy instead — a strategy that worked for Mike Miller, a medical equipment salesmen in Maryland, and his wife, Emily.
When their 6-year-old daughter qualified for a $5,000-a-year traveling gymnastics squad, they were faced with the difficult task of telling her they couldn't afford it. "We tried to think of all the positives for her of not doing gymnastics, and game-planned our approach," Miller says.
Since the gymnastics squad practiced three days a week, the Millers focused on other fun things their daughter could do if she didn't join, like riding her bike and playing soccer, which only cost $30 for the season. They were also honest with her about how expensive the gymnastics team was, and let her know how much they wished they could swing it. Fortunately, she was empathetic. "She said, 'It's okay. I'll have fun playing soccer!' " Miller recalls.
If your child isn't quite as understanding — or still heartbroken about giving up an activity — Kipnis suggests getting creative about ways to raise money to pay for it, like holding a mini-fundraiser. Bonus: Her willingness to do so may reveal how committed she really is to the extracurricular.
Tough talk #6: There's a medical crisis
Why it's a hard talk to have: Maybe your partner has a serious illness that your health insurance doesn't fully cover, or you need unexpected surgery that will cost thousands of dollars.
Regardless of your particular situation, medical issues can be scary — and these days, most adults don't completely understand the health care system, making it an even more difficult topic for kids to digest.
How to approach it: "Use this chance to teach your child that, sometimes, to preserve our health, we have to spend money that we wanted for more fun pursuits," Kipnis says.
Depending on how much your budget is affected, Koos suggests explaining just how long you'll be following a stricter spending plan. "It's good to set expectations with a timeline," he says. "And make it overly realistic so that they're not crushed in case their expectations aren't met."
If your child is in high school, Koos recommends giving them a quick tutorial on how health insurance works, so they better understand why you're still responsible for a good portion of your medical bills.
"Take a piece of paper out and draw three boxes: one for the cost of insurance, one for the deductible and another for the coinsurance," he says. "Then draw lines, connecting the deductible and coinsurance, with arrows pointing below them to the coinsurance, labeled 'maximum out-of-pocket.' "
Once you calculate your out-of-pocket expense, explain that this is what you're shelling out for your health issue — and that it'll take "X" months of your extra money to reach that threshold.
Tough talk #7: You lost money in an investment
Why it's a hard talk to have: Losing money — especially a lot of it — is tough to swallow, and you might be hard-pressed to come up with a big-picture lesson to impart to your kids.
Worse? Talking to them about the loss of a big, net-worth-affecting investment means admitting you made a bad decision — and no one wants to do that.
How to approach it: Trying to spin something that obviously has no upside won't work, so don't try, says Kipnis. Case in point? According to research from Concordia University, even kindergarteners are good at discerning when someone isn't telling the whole truth.
With that in mind, be upfront about what happened without going into too many details. The important thing to focus on is that you lost money — how it specifically happened doesn't matter, says Kipnis.
"Just say, 'I made a bad investment, and we have less money now,' " he says. Kipnis also recommends relating it to losses your kids have suffered themselves — like misplacing a phone or favorite toy — and stressing that loss is a natural part of life.
Now is also a great time to loosely explain the concept of the stock market, Koos says, adding that kids as young as middle school can benefit from this overview. Helping your child understand that investing involves risk is a good lesson for them to learn before they become adults.
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