When times are good, many parents overlook the need to talk to their children about money. When times are tough, many parents don't want to talk to their children about money. While financially-strapped parents may not want to discuss the subject, or may fear upsetting their children, the kids probably know something is wrong - they just don't understand the problem.

Tutorial: How To Manage Credit And Debt

How Do They Know
Children are quite perceptive and soak up input like a sponge. They hear things from their friends at school and at play dates, on the radio and on television. Children who are old enough to read can see the headlines in the newspaper, magazines and online, and children pick up bits and pieces of news from overheard conversations.

Your behavior is another source of information. Even if you don't talk about the impact of an economic downturn, kids notice when mommy stops going to Starbucks or daddy stops going to work. In an information-rich society, children have a wide variety of inputs. Rather than let them put the pieces together on their own, you may want to help them understand the landscape. (Read Teaching Your Child To Be Financially Savvy to learn more about setting your kids up for a lifetime of money management.)

How to Handle the Subject
Kids react based on input from adults, so you can help them shape their view of difficult economic conditions by explaining the developments in a matter-of-fact manner. Remember, if you get emotional, the kids will too. If you complain, they will take the news you are delivering in a negative context.

Instead of getting upset about the economy, start by talking about money. Explain how you get it and how you use it. Talk about jobs and why you go to work. Explain any changes in your family's situation. Talk about ways to save, and reassure the kids that everything will be all right. Even if you have to move or make other lifestyle changes, focus on non-monetary issues (health and family) to make children understand that there's more to life than money.

With older children, you can talk about credit, mortgages and economic cycles. Explaining that recessions are a normal and expected part of the business cycle can help children accept the gloom and doom news with the understanding that it's not the cataclysmic event the media makes it out to be.

Start Young
If you haven't considered the need to talk to your kids about money, now is the time to start. These three articles will help you get started:

Teach by Example
If you live within your means, take the time to share the experience with your children. Introduce the concept of living within your means, and talk about saving money. If your child doesn't have a savings account and you have the means to open one, take the child to the bank. Open an account (a Christmas account is often a good place to start, if your bank offers one) and get the statements sent in the child's name.

Get them involved when you go shopping, too. Let them help you clip coupons and search for the best price at the grocery store. When you shop for a big ticket item, like an appliance or a car, let them shop with you. Children learn what they live, so let your good habits help them form a lifetime of good habits.

Even bill paying can be an educational experience. Teaching the kids about checks and credit card statements and the need to have enough money in the bank to cover expenses is a valuable lesson.

College funding is another great topic for teenagers. You can connect the dots between good grades, scholarships and financial savings. You can also explain the merits of the various state-sponsored tuition programs. (For information to share with your children, be sure to check out our Education Savings Account Tutorial and Paying For College In An Economic Downturn.)

If you find yourself in trouble, explain what happened and teach your kids how you extricated yourself from the situation. The ability to learn from your mistakes will help your kids avoid making those same mistakes.

Lessons for Life
The things children learn when they are young and impressionable can go a long way toward shaping the experiences they will have later in life. Even challenging economic times can turn into a valuable life lesson.

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