Financial issues can rank right up there with drugs and sex as one of the most difficult subjects for parents to talk with children about. One survey found that 39% of parents are more prepared to talk about drugs, and 29% felt more comfortable talking about sex. (Block, 2009) When it comes to financial hardships, the topic becomes especially touchy. We all have different ideas about what money (or the lack thereof) implies about us as a person. Therefore financial hardships can threaten one’s core identity, making it extremely difficult to talk about. Yet it’s important that parents find a way.

Why it’s important to talk to kids about financial problems

Children aren’t clueless, and are liable to figure out that something is wrong whether you tell them or not. “If you don’t address it straight on,” says Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, “they really start to imagine things, and they’ll imagine things for the worst.” (Block, 2009) Lawrence Kutner, Ph.D., tells a cautionary story about what can happen in the absence of communication:

“(A) psychologist had been consulted by a banker who was worried about changes in his fourteen-year-old daughter’s behavior. The man had recently lost his job, but he was so concerned about his daughter being upset that he told her very little about what was going on. He never mentioned to her that his severance package included a year’s salary and that the family was in no immediate financial danger.

The girl assumed that his secretiveness meant that she wouldn’t be able to attend college. She also assumed that this was such a touchy issue that she couldn’t talk to him about it. In response – and without telling her parents – she switched her academic program at high school from the pre-college to the secretarial curriculum. She also started avoiding her old friends because she was embarrassed by what she saw as her family’s plight.” (Kutner, 1996, pp. 77-78)

Not surprisingly, this girl became deeply depressed. Without her parents’ knowledge, she had undergone a dramatic (and unnecessary) loss that threatened core aspects of her identity: family, friends, and prospects for the future. Because there was no dialogue, they didn’t discover the source of the problem until it landed the girl in therapy.

This is hardly an extraordinary or unique case. In the absence of dialogue, children will form their own interpretations about what is happening, and what they imagine tends to be worse than reality. You might think that you’re protecting your children by keeping them in the dark about your family’s money struggles, but in actuality, it’s just as likely to make things harder on them.

How to tell your children about financial struggles

• If you just lost your job, be sure to tell kids about it, but don’t rush the news. Allow your own raw emotions to settle first and the shock of it all to sink in.

• This is a good time to call a family meeting. It’s a good venue not just to explain the problem, but to provide them with updates as well. If you’re new to family meetings, you can find helpful tips and instructions in our family meeting section.

• Have a plan of action. Kids will want to know what is being done about this. It doesn’t need to be real specific; even something as basic as, “I’m going to start putting in applications next week” lets them know that you’re working on a solution.

• Kids will want to know how this situation is going to impact their daily life. So be prepared to spell it out for them. Have concrete examples for younger children. Make a list of all the impacts this might have. You don’t have to discuss potential long-term ramifications (which may add unnecessary worry over things that will never come to fruition), but let them know that if the situation continues for a while there may be additional sacrifices you have to make as a family.

• You shouldn’t tell your child not to tell her friends or encourage her to keep it a secret. This will do little except raise a child’s anxieties and send the message that this is something to be ashamed of. It also takes away one of a child’s primary ways for coping with stress. You can, however, talk to them about the importance of being discreet on the matter and not babbling about it to the whole world. Go ahead and tell them it’s something you (the parent and provider) are a little embarrassed about, which helps them understand the need for discretion without heaping shame upon them.

If it’s something that is going to cause visible disruptions (foreclosure, homelessness, etc.), you should also help your child rehearse what she might tell her friends. The topic is likely to come up, and kids often don’t know what to say.

Reassurances you should give kids during financial hardships

Part of your discussion should involve offering a few reassurances to children. Kids will look to their parents to solve the crisis, since they are powerless to do much of anything about it. Just be careful not to make any promises you can’t keep. Here are some ideas for reassurances you can offer:

1. Give them specifics. ” You can’ t just say, ‘ We’re going to be Okay, “‘ says psychologist Marlin Potash. “You must explain why you’re going to be okay.” (Barrett, 2009) A good way to start is by reassuring them what isn’t at risk.

2. Reassure them about things that aren’t related to money. For example, reassure them that the family will stay together, that you still love them, or that they’ll remain in the same school.

3. Reassure them that you won’t be living in a cardboard box on the street. Talk about backup plans for a worst case scenario. (“Even if things were to get really bad, we could always move in with Uncle Teddy.”)

4. If you have savings or a severance package, tell them. Younger kids especially may assume that once you lose your job it means all of a sudden you have no more money.

5. Talk about your current situation as a “break” from affluence. Like the rest of us, kids tend to be categorical all-or-nothing thinkers. So being told not to expect new toys today and no trips to McDonalds can be interpreted as no new toys ever and no more tasting a Happy Meal for as long as they live. Instead explain that we’re “taking a break” from some of these things, which makes the loss a whole lot easier to handle. If I were to tell you “no more sex,” even if you hadn’t been having a lot of sex before, the very idea that something has been lost to you would make you anxious. You can help avoid this type of anxiousness in your children by approaching this as a phase to get through.

6. Talk about economic cycles. Recessions suck, but they’ve happened before. Eventually the recession ends and things get better. Helping them see things in historical perspective like this can ease some of the anxiety.

Other things you should talk about:

1. If your kids are teenagers, a family’s financial struggles can impact their future plans as well. Will they be able to go to college? Can you help them buy a car? It’s good to spell out what these difficulties will mean, and help them plan around them. “Be clear about what you can realistically afford and how much she’d have to take out in student loans,” suggests Kalman Chany, author of Paying for College Without Going Broke (Princeton Review). “Better to be brutally honest, even if it means lowering expectations, than to disappoint your child when the acceptance letter comes in.”