As more parents find themselves dealing with rising costs and strains on their budget many are facing financial issues which cause concern and worry and impact on what and how they can provide for their family. Just as there is no ‘easy’ way to deal with financial problems, there is no easy way to explain this change in finances to children. Parents will often try to ‘shelter’ their children and decide to keep money problems from them. This is understandable, as the child cannot do anything about the situation, and parents will want to spare them the worry. While it is important, we do not cause children worry, keeping them in the dark may lead to further stress and many experts suggest parents should talk more openly about their family’s money situation. Just like adults, children can make better decisions if they have a better understanding of the situation and why they need to make different choices.
For younger children, parents should remember that you will be setting a good example to your child by setting limits and living within your means. While the newest toys and designer clothing can seem very important to a child, they are much less important than healthy food, heat or electricity in your home. Explaining to your child that they cannot have a new toy now but need to wait until a holiday or birthday is a good way to teach them to delay gratification. This will make each new gift even more special and help to emphasise the value of the item.
For slightly older children, parents should empathise and relate to their child’s situation. Explain that like them there are things you would like to have but cannot afford right now. Rather than making the child feel guilty by saying this in a way that the child may believe that they are to blame (for example saying ‘if I didn’t have to buy you a new bicycle, I’d…’) explain you can both set goals to save for and celebrate together when you reach what was agreed. Setting limits and rules, and sticking to a budget and a saving plan, is a good way to encourage good financial behaviour going forward.
If children understand that money is not limitless, their expectations will be more realistic. This can naturally be more difficult under certain circumstances, for example at Christmas. A child might not understand why their family cannot afford a particular toy, they might struggle to comprehend why some children get more toys or gifts than others. Exactly how your family deals with this issue is up to you as a parent as often traditions are unique to each family. However, you might want to explain that every family’s situation is different and use it as an opportunity to discuss the importance of spending time together, having family traditions and emphasise how fortunate you are that you are able to do that. As children grow up it is much more likely that it will be the trip to the park for a jump in muddy puddles or the rolling down the hill in the snow that they remember rather than how many presents they received.
Even if you are not facing financial difficulties, children are remarkably preceptive and will soon understand signs of wealth or poverty. They may ask, for example why they (or their classmates) get free school meals. They may wonder why some children’s clothes or school supplies are not as good as others. While primary school may be a little early to have a conversation about post-industrial capitalism, it is a good idea to speak about some of the realities that your child will encounter. Using the opportunity to talk about money, budgeting, poverty and unfairness is an excellent way to foster empathy. Encourage your child not to flaunt any expensive gifts they receive, and not to tease those less fortunate than themselves. Instead, children can be taught the value of sharing and the importance of non-financial things.
Teaching your child, the value of money early can be useful. Many parents may shy away from sharing details about finances that a child may innocently ask – how much money parents earn, how much is in the saving account, or if granny is ‘rich’. These simple questions might seem rude if asked by an adult – but a child has no concept of the societal aspect of wealth. They do not know why someone might not want to discuss their salary. Parents should share as much as they think is appropriate, but also explain why someone might want to keep those details private.
Teaching children simple monetary concepts at appropriate ages can help them to understand the value of money later in life. As early as 5 or 6, children begin to understand simple things like identifying different coins and counting change. This presents an excellent opportunity to talk to them about the value of money and to teach them money has to be earned, it does not grow on trees, or appear like magic from an ATM.
Giving children a small amount of money, particularly tied to suitable chores can help them to understand the relationship between work and money. Some parents will be tempted to make children save their money however, it is important to recognise that if they never spend even a little of ‘their’ money they will not necessarily understand the true value of it. While having some money in a savings account when they turn eighteen is good if they have no concept of costs their savings may not last as long as you would hope. On the other hand, once a child has experienced how quickly shopping can drain an account they might refrain from impulse buys or save for more valuable purchases.
One important thing that you can do as a parent is avoid getting caught up in ‘competition’ with other families. Aside from the manufacturers, no one benefits from parents putting immense pressure on themselves to buy all of the newest, most expensive items. It can be difficult to ignore when your child’s friend has something that your child wants, but you cannot afford it. Just remember that you do not know the reality of their family’s situation. Comparing yourself and stressing over not being ‘good enough’ because you cannot afford a toy or trip does no one any good.
Focus on meeting the basic needs of your children and teaching them to be financially literate. While they may complain about not getting what they want, you are doing your best as a parent and setting them up for success in the future.
