As a parent, have you ever felt it was necessary to lie to your children about money? Maybe you’re in debt, and you don’t want them to worry. Maybe you’re wealthy, and you don’t want your kids to feel entitled. Or maybe you’re ashamed, and you want to hide your mistakes from them.
It can be difficult to know what to tell your children and what to keep from them when it comes to financial matters. You’re not sure if they’ll understand. You’re not sure if they’ll forgive you. You’re not sure how much of an impact the news will have on them.
It’s natural to feel apprehensive. After all, you want to be a good financial role model for your children. You want them to succeed. You also want to give them everything you couldn’t have when you were a child.
Lying has the opposite effect, though. You’re not teaching your children anything by ignoring the issue, even if you have the best intentions.
Unfortunately, according to the 2015 Parents, Kids & Money Survey conducted by T. Rowe Price, 32% of parents said they lie to their kids about money. Yet, one of the top concerns they had was “Setting a good financial example for my kids.”
Parents can start being good financial role models for their children by discussing their financial situation and money, as opposed to lying about it. The dangers of lying to children about money can potentially be grave.
Kids Know Much More than You Think
When asked if they were reluctant to talk about financial matters with kids, 72% of parents said they were at least somewhat reluctant. What was the reason? 52% answered, “I don’t want them to worry about financial matters.”
However, when asked if their parents worry about money, 61% of kids said yes. They knew.
Kids pick up on much more than parents give them credit for, and I’m talking from experience here.
I was around 8 when my dad lost his job, and my family hit quite a financial rough patch. My parents would often talk in hushed whispers. As soon as I entered the room, they stopped. It was obvious something was going on, and they didn’t want me knowing it. They wanted to protect me instead.
Guess what? This only led to me to worry even more. When kids are kept out of the loop, they don’t know what to think. They pick up on the actions and body language of their parents, and if you’re stressed, it will show.
What you can do instead: Talk to them calmly and explain, in simple terms, what they need to know.
This doesn’t mean you need to tell them every last detail of what’s happening. What you choose to reveal will likely depend on their age and what they can understand at this stage in life.
Being 8 years old, I knew enough about the concept of debt to understand my parents couldn’t afford extras anymore. I was told we had to be mindful when shopping, because they didn’t have enough money to afford anything that wasn’t a necessity. I didn’t push back because I wanted to help out where I could.
Depending on what’s going on, give your kids an opportunity to help. It doesn’t have to involve money (obviously, 8 year olds can’t legally work!). If you need to take on an extra job, ask them to pick up extra chores around the house. Ask them if they would be okay brown bagging lunch to school. Explain how this will help improve the situation.
Lying Can Instill Fear in Children
I developed an unhealthy relationship with money because of what I saw my parents go through. I made saving a priority, but I had a hard time bringing myself to spend any money. I was fearful of what would happen if I did.
This came as a direct result of witnessing what happened to my parents who weren’t savers. They were deep in debt and couldn’t save because at the end of the day, all of their money was allocated toward bills.
When anything major happened, such as the A/C unit breaking, or the washing machine overflowing, they had to put it on credit. This meant going further into debt, and added more stress to the situation.
Always wanting to spend the least amount possible and constantly depriving myself wasn’t very healthy. Only in the last year have I managed to be more laid back about my spending. I’m still financially responsible, of course, but I don’t agonize over pennies.
What you can do instead: Be a good financial role model, and be proactive about your finances.
40% of parents from the T. Rowe Price survey said they agree with the statement, “When it comes to talking to my kids about finances, it’s ‘Do as I say, not as I do.’”
This isn’t how you go about being a good financial role model. Kids pick up on actions and words, and they’ll wonder why you’re contradicting yourself. You need to build upon a solid foundation when it comes to shaping your kids’ views on money.
Also, make sure your kids don’t have any reason to be fearful of money. Emergencies will inevitably occur. Be prepared for them by regularly contributing to an emergency savings fund, otherwise these unexpected moments in life can often make or break your financial situation.
If you haven’t already, do your best to save up at least $1,000. It’s still $1,000 less you’ll have to put on credit in the event something does happen.
Don’t Outright Lie About Your Salary and Net Worth
Parents that are well-off might not want their children to know the particulars of their net worth. They might want to protect them from jealousy of others at school, or keep them from feeling entitled.
While that’s understandable, you shouldn’t completely lie and say you’re not doing well if you are. Don’t give your kids a reason to worry. For example, they might hear a friend at school talking about the unfortunate situation their family is in, and wonder if that’s where you’re headed.
What you can do instead: If money isn’t a concern for your family, leave it at that. If your children asks about how much you make, you don’t need to give them an exact figure (especially if you’re worried about it getting out at school), but assure them you’re doing fine, and explain why.
Do you or your spouse own a business? Do you have several sources of income (i.e. rental income, side business, full-time job)? Let them know that and explain how much hard work it took to get to where you are in life.
You’ll be setting a great example for them to follow. If they know mom and dad are entrepreneurs, they might be more inclined to go down that path. Always seek to make these kinds of interactions learning experiences for your kids. They might be interested in the work you do, and there’s no reason to hide it from them.
If you want to avoid your child feeling entitled (or as though they should expect an inheritance), show them how hard you work. If you can take your child to work someday, or show them a little bit of what you do at home; you’ll be giving them valuable knowledge. Most kids aren’t aware how hard they’ll be expected to work once they graduate from school. This will give them a better appreciation of what goes into earning an income.
Additionally, if you’ve earned most of your wealth through investments, then be sure to pass that knowledge down to your children.
You can start with the basic concepts of investing early, especially if you’ve opened a 529 Plan or IRA for them. Give them the necessary guidance and knowledge to choose their investments, and get into the more complex concepts down the road. This is one of the best gifts you can give your children, as it ensures they can grow their own wealth in adulthood.
Don’t Say You Can’t Afford Something When You Can
These can be toxic words, and you might not even realize it.
I’ve been guilty of saying this phrase in the past, and it came from hearing my parents say it when I was a kid. I recently came to the conclusion that it’s a limiting phrase. There are better things you can say that are much more empowering.
What you can say instead: When you tell your children “no,” explain why in a way that makes sense to them. “No, we’re saving up for that trip, remember?” “No, not this time – we need to save for a car right now so we can keep picking you up after baseball practice.”
Tying it to something your children can relate to makes it easier for them to process. This is another reason why you should involve your children in the family’s finances.
For example, if you budget, let them in on it. Explain what the purpose of budgeting is, and why you’re tracking your spending. Like investing, this is a crucial money management skill they should learn early on. It will serve them well when they move out on their own someday.
Including your kids in budgeting will also help them learn how to prioritize. Does your family enjoy going out to eat together? More than going on vacation? The next time your kids ask to take a trip to a restaurant, you can remind them it’s not in the budget because you’re saving money toward your vacation.
Lastly, if you’re part of the 70% of parents who give an allowance, according to the survey, set expectations and let your children pay for their own things when it comes to toys and games. Help them budget their purchases and sit with them while they create a list of things they want.
At the end of the day, lying to children about money isn’t benefiting anyone. Children know when something’s off, and they’ll start worrying. It’s best to let them know something, even if it’s not the entire story.
Take the opportunity to teach them the lesson you learned from your mistakes. As a parent, you should educate your child when you can, especially with personal finance not being taught in many schools. Focus on being a good financial role model, and your children will catch on.
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