What do you think? Should you discuss finances with your children?
By glblguy
Photo by: goat_girl_photos
One of the frequent topics of discussion between my wife and I is whether we should discuss our finances with our children and if so, how much should we discuss. We’ve been having this discussion off and on since our oldest son starting understanding what money was. We both agree that we should discuss our finances with our children but we differ on how much we should disclose. What’s even more interesting is that we both seem to waffle back and forth on the topic.
My wife and I both grew up in households where our parents talked about their money situation and taught us the basics of finance, but didn’t disclose any information about how much they made, their savings, their debt, or their overall expenses. I fully understand the reasoning for this, as sometimes letting your children know how much you make can result in responses like “Why can’t you buy me the new Xbox 360, you make $70,000 a year!“. It can even result in your whole neighborhood knowing how much you make and how much debt you have.
On the other side of the fence are those that believe you should disclose everything to your children, in particular your older ones. They should be fully involved in the family finances, knowing how much comes in, how it gets allocated, saved, etc. The benefit here of course is that you child knows the details and can understand why, even though you make $70,000 a year, you can’t afford that Xbox 360. I’ve even read of others that allow their children to have input into the budgeting process.
We both waffle back and forth on these two perspectives and right now we’ve settled somewhere in between. Our children know we have debt, but don’t know the amount. They know I make pretty decent money, but don’t know how much. Our older boys pretty much know the details of our monthly expenses, such as the cable bill, phone bill, utility bills, etc. We’ve shared this with them to help them appreciate things a little more.
This whole issue is a huge struggle for us, as we want to teach our children about money and help them to grow up knowing how much things cost and understanding that just because you make $70,000 a year you don’t have $70,000 to just go blow on whatever you want. On the other hand though, I don’t want them to worry about our finances. I want them to be able to be kids, after all they have their whole adult life to deal with money issues.
What really got me thinking about this is, yesterday my 13 year old was researching being a pilot in the Air Force on the internet for a school project. He loves planes, and right now that is what he wants to be when he grows up. He was very excited when he learned how much pilots can make. He came running into the room and said something like “Dad, pilots make around $75,000 a year. Man, that’s a lot of money, way more than you make huh?” I wanted to answer him honestly, but at this point he has no clue how much I make. I wanted to tell him. I wanted to help him understand. I ended up somehow dodging the question. But I’ve been thinking about his question and on what I should do frequently.
Where do you stand on this issue? Do you have kids? If so, how much do you share? If you don’t have kids, but may someday how will you handle it? Do you have a really great or really bad childhood experience as a result of your parents sharing or not?
I’d love to hear your thoughts and perspective as I’m sure it would help my wife and I further consider how we need to handle money with our 6 kids. Your perspective will also help me figure out whether I should follow back up with my son or not.
April 3rd, 2008 at 7:21 am
I don’t have kids. I do remember my parents including me in on the monthly budget when I was about 10. They first showed me expenses for a family then showed the income. I was surprised to see how close the two were.
I guess it depends on your children. I would disclose at least some of the family budget to them just to give them the idea of what it takes to run a household.
April 3rd, 2008 at 7:23 am
Now, I have no idea how much you make, but I’m guessing from your reaction to your son that it’s probably a lot closer to $75k than he thinks. That’s really the issue at hand, $75k sounds like a lot of money to a kid, but it’s actually not all that much money for a salary. In my industry (and in the UK) $75k is what someone who has 10 to 15 years experience would earn.
My advice would be to truly evaluate why you want to hide things from your kids. Is it really to help them, or to help you? That doesn’t mean that you should disclose everything, but you might want to help the appreciate what a large salary is, and what a small one is, and how much income it takes to keep a family of 8 people in comfort.
You could (if you wanted) teach your eldest a little more about debt, by explaining that if you didn’t have debt you would only need a salary of x amount to have the same style of living. You don’t have to use actual figures, you could use percentages, or be creative in other ways.
April 3rd, 2008 at 8:09 am
As far as affording the Xbox 360 type of questions from my kids … I make it clear that it is mostly a matter of how I choose to spend the money. It isn’t a matter of can we afford it but instead a matter of do the benefits justify the costs. So new car? Not right now. Depreciating camper and lots of family trips? Yes.
My parents didn’t share finances with me at all. I had to learn it all own my own. I remember reading Charles J. Given’s Wealth Without Risk on my own as a teenager. At least I had an interest.
With my kids I am teaching them a lot about money and how to handle it. Much of what they learn from me they will never get in school. This education is so important that I feel obligated to teach them so they have that benefit in life.
With that said, I don’t specificly share my income and expenses at this point. Those numbers exact numbers don’t really matter. We can take real expenses and investment goals work backwards to figure out the needed income.
BTW, do you know how much money my 12 year old son will have at retirement if he starts a $5,000 ROTH IRA this year? It is a lot (53 years of compounding) and will make a pilots salary look insignificant. Of course, he could blow that money on Xbox games instead.
April 3rd, 2008 at 8:10 am
I don’t have kids.
I think it depends. :) How old is the oldest? I think you can share the family expenses as they get older (as you mentioned) in teaching them how to budget. I also agree that if you tell them how much you make or how much debt you’ve got, they’re going to tell Timmy next door, and then the cat is out of the bag.
So I guess I would do it in small steps depending on the age.
April 3rd, 2008 at 8:56 am
My parents shared some generalities of their financial situation “We made some mistakes and got into credit card debt.” (lesson: Only use credit cards if you can pay it off at the end of the month and then do so.) “But fortunately, your daddy makes enough money that we can pay off the debt.” (No idea what he made, but it was enough to handle the scary stuff.)
I didn’t find out how much my dad made until he and Micah applied for this apartment together. Then Micah told me because it was on the paperwork. I suppose it’s the right amount for a guy who’s been in software engineering pretty much since the beginning (something well on 35 years+ now).
They taught me other things about money management, but the biggest one was not getting into debt. Except mortgage and car payment (if you had to, for the latter, but you drive that car as long as it runs right).
April 3rd, 2008 at 9:04 am
I’m on the fence about how much to share. My oldest is 10, so we don’t share that much at this point. Like RobY, I try to talk about making choices with our money, rather than what we can and can’t afford.
That being said, my oldest must have big ears and listened to late night conversations between my husband and I about our tax situation. She came home from school asking if we could afford $4 for a field trip. I assured her that we could, but the question reminded me that we need to be careful about what we say about money.
I don’t think we’ll ever tell our kids specifics. Instead, we’re putting them on salaries of their own as they get older and giving them expenses that they’re responsible for (birthday party gifts, eventually clothes, entertainment, etc). I think the important thing is that they learn how to handle money, not the specific numbers.
April 3rd, 2008 at 9:45 am
This is definitely an issue I’m going to have to revisit on down the road, whenever the kiddos start to come along.
For now, I’ll have to draw on my experiences as a child.
I do think parents should talk with their children about money in general, and also clue them in to how much things cost.
If a child who is old enough to start comprehending this stuff (older than 10-12, perhaps?) can start to understand that the cable bill costs $XX, groceries cost $XXX per month, a cell phone costs $XX, etc., it might help them see where the money goes.
Also, it might be good to discuss how much is taken out of your paycheck before you ever see it–taxes, health insurance, retirement, whatever.
I think parents need to be careful not to worry their children about money issues, though.
When I was at Disney World with my grandparents on my 10th birthday, I cried in the restaurant because the dinner menu was so expensive, and I felt so guilty that my grandparents would have to pay $30 for my dinner, even though they assured me they could afford it.
I was mad at my 5-year-old sister for ordering something expensive, and I ordered a $7 or so pizza appetizer as my dinner.
I don’t know why, for sure, I was so upset by the amount, but perhaps it was from overhearing my parents talking with each other about money problems.
April 3rd, 2008 at 10:04 am
We have 3 kids 9, 8 and 6 and this topic has been on our mind a lot. I think it would be fine to tell your son that 75,000 is about what we make, don’t worry if the neighbors find out how much you make. Right now he’s thinking if I make that much money I am set, I wouldn’t even need to budget.
I also think that it is important to teach your children about finances and the mess you where in at one time. When I tell my kids how bad credit cards are and why you need to pay them off I will show them how much of a mess we where in.
I also reference all of this in the past because my plan is to dig us out of our current mess and then share it with them. I would agree that if you are late on bills and struggling to make ends meet now would not be the time to start sharing, I will wait until they are 16 or 17 to show them though.
The only way to teach your kids is by leading by example and they have to see the example you are setting if you want them to learn it.
April 3rd, 2008 at 10:33 am
I wouldn’t get into specific numbers until they are older teenagers, but when they are young it is a perfect time to get them thinking about making wise choices with money. If you can get kids to realize there is a finite supply of money to go around I think you’ve done something incredible – there are many adults who still don’t grasp this concept.
April 3rd, 2008 at 11:36 am
My wife and I have 3 children, aged 21,19 and 14. I think the reason you are struggling with this question is that you know in your gut that “too much information” can truly be a burden for young children. It’s like Santa Claus or the Easter bunny: kids figure these things out when they’re old enough to handle the information. I think you should talk to your kids about money, make them get jobs when they’re old enough so they can learn to appreciate a dollar and what it’s worth, teach them to budget their funds, and the rest of this will take care of itself. I wouldn’t tell them your salary. Of course, they’ll eventually figure out what you make based upon your profession, what you own, drive, etc., when they’re old enough to handle the information.
Good luck!
April 3rd, 2008 at 11:41 am
No kids yet, but when we do I’ll definitely talk about money with them. My parents struggled with money at times and I feel like they “sheltered” me from the money talks.
It also helped that I wasn’t a needy kid. I just took what they gave me for the most part and wasn’t asking for “stuff” that they couldn’t afford.
Bottom line, I think it’s healthy to involve your kids in the money discussions. I’m probably going to wear my kids out with all the money talk. :)
April 3rd, 2008 at 11:58 am
I think you should start telling your kids about finances between the ages of 15-18. At 18, they will be going off to college and it will be their first true test of handling money on their own. It is also the time when they are eligible to sign up for credit cards just to get a free t-shirt. They need to know what they are getting into. My father passed away when I was 21 and from my mid-teenage years til his passing, he would never tell me or my mother about his finances despite my questions regarding them. It was not until after his passing when I realized he had left our family over $100K in credit card debt. If he had been more open with me and my mother about his finances, I know a lot of that debt would have been avoided. He even bought a timeshare when I was a teenager despite me urging him not to. Since when do teenagers know about finances, right? Well, I ended up “selling” that timshare after his passing for less than you probably paid to fill up your tank of gas just to get rid of the liability on my mother.
April 3rd, 2008 at 12:27 pm
We have three young daughters. We have told the girls that we are paying of debt because we spent ‘a lot’ of money in the past, and we are trying to do much better now.
That’s about it for now, because the oldest is only 7. We do show them that we have a new monthly budget, and they see the we now shop at less expensive stores, etc. They also now ask if we can afford to buy them something (last week it was a Webkinz) before they go about demanding that they get one…PROGRESS!
April 3rd, 2008 at 12:51 pm
My parents didn’t share a lot about their finances, but I do have one neat memory that really left an impression on me.
I must have been about 12 or 13 when my parents were almost done paying their mortgage off. About a year before it was paid, my mom taped a piece of construction paper on the kitchen cupboard with the balance of their mortgage at the top. Each month, she subtracted the payment they made and put the new balance on the construction paper. The memories for me were of her excitement of watching the balance go down and the end of the mortgage payments getting closer. It left a really positive message for me that debt was not fun, but that getting it paid off was something to be celebrated!
I’ve never had a credit card balance in my life and I only have a mortgage, which my husband and I should have paid off by the time we’re 40 :)
April 3rd, 2008 at 1:21 pm
Finances have been part of a bigger picture with our kids, who are now successful college students. It fell under discussions/experiences with relative value of things, consequences of one’s behavior, generally making choices, so forth. Lot’s of modeling of appropriate behavior (I cannot be guilt tripped)!
We’ve never disclosed WHAT our income is, though in filing a FAFSA you come close. I think the real/relative cost of things is really brought home when your kids start looking for and getting their first job. Easy then to see the cost in hours of work for an object.
i think as an older parent, it is important that your children are aware of the general state of your estate. It is also the parents’ responsibility to insure that your finances NEVER negatively impact theirs!
April 3rd, 2008 at 1:28 pm
I have an 18 year old son in college. I tell him everything about our finances. He came home Spring Break and saw a # written on my bathroom window. He asked what it was and I told him it was our total debt…he said “Holy Cow, Mom!” He and I then sat down and looked at my debt snowball speadsheet and he figured out that I had the payoff dates wrong.
We didn’t really start talking to him about money until a couple of years ago. We were going through a rough time and we wanted him to learn from our mistakes.
I am blessed that he is a great kid who is not demanding. He drives a used car, eats at home, has a part time job and was happy to get new sneakers for Christmas. He only asked for money once this semester, it was a cash flow issue…he needed money before he got paid.
April 3rd, 2008 at 1:32 pm
Yes, we share financial information with my children. Although, I share a lot more with my 12 year old than I do with my 7-year old.
With my oldest, she does take part in our “budget meetings” each month, where we go through our calendar and our budget and make sure we’ve planned for everything. I think it helps her to understand that making money also means spending and saving money. I want my kids to go into their adult lives with the knowledge to budget and plan for something.
My youngest daughter is at an age where things are more “visual.” So when we go to the store, I talk to her about how much money we have, and when she wants to buy something we don’t have budgeted, I can say “So what should we go without so you can get _________?”
We don’t discuss things like insurance and investing with the kids, but I definitely am all for keeping them informed on the family budget.
April 3rd, 2008 at 6:43 pm
Like This Mom, we include our two children (13 and 11) in our monthly budget meetings. They see the total household income and how it’s allocated out in our zero-based budget, but we don’t let them see how much their dad and I each earn individually.
The children help us set priorities for discretionary money, and they get to see how much we spend on (and what we sacrifice for) the things they enjoy, like sports and music.
Then throughout the month, they see us keeping track of how much we’ve spent in various categories and they ask how we are doing on certain categories they care about, like restaurants or food. The whole family knows that using up the restaurant category early in the month means we either eat in for the rest of the month, or someone has to pony up their personal funds for a family meal.
I like having them involved and think it’s helping teach them not only that it’s important to have a budget, but also to live within it!
April 3rd, 2008 at 9:51 pm
While it would be next to impossible for me to respond to each comment, I did read each and every word. Thanks so much for sharing your stories, perspectives and opinions. You’ve given me lots to consider. I plan to review all of this with the glblgal (hehe, she hates it when I call her that) and decide how we want to proceed.
Thanks again for taking the time out of your busy days to help me out and write such thorough comments!
April 3rd, 2008 at 11:35 pm
My parents NEVER discussed their own finances with us and to this day I have no idea how much they made, they have or owe(d). I know that they did well, retired in their forties and buy everything with cash, so whatever they did, they did it right ;)
I can say this-they taught us how to manage money, how to handle OUR money and taught us all about credit/debt, budgeting, savings and everything they thought could help us. (we didn’t always listen, but they did teach us)
I think the approach my parents had was a good one and for my kids (they aren’t quite old enough yet to really “get” it) we will take a slightly varied approach.
We both agree that we want our kids to understand the importance of money, finance and savings and we want them to know that debt should never be a way of life. We also agree that our income and expenses are our business, not theirs, so we more than likely will never share those numbers.
We will however tell them of our past mistakes with debt, inadequate savings and the like, in hopes that they can learn from us and see that there is a better way to live than “keeping up” with the joneses.
We want them to understand finances without having particulars-I think this can only lead to the inevitable comparisons of childhood-my Dad makes more than your Dad type stuff or the misunderstanding of a salary-you say I make 1500/week and they think that is what shows up on your check.
I also think that divulging too many particulars may lead to uncomfortable situations with friends and family-like your son blurting out how much you got back on your taxes in the middle of dinner at Grandma’s house or something(yes, that really happened to us!)
Ultimately-I think it depends on your family structure and how comfortable you are with sharing the details. For me, I think it would do more harm than good, but for your family it may be the best idea. Everyone needs to do what feels right for their family and for us, keeping the details private is what feels right.
I hope you and your wife figure out a good plan for your kids and yourselves and best of luck to you!–let us know how it goes!
Take Care
LJ
April 4th, 2008 at 10:36 am
I was going to write a book but really, most people have touched on everything I was going to say.
I am going to add one thing though – one thing I will *not* do with my kids is make them feel like they cost too much. ;) And that is actually trickier than it seems.
When I was a child our family struggled. And I knew it. And I always felt like I was at fault somehow. My parents didn’t try to make me feel that way, but that is what my “kid” ears got from the random bits I heard. So although I will involve my kids in the ideas of budgets and spending less than you earn, and saving, I am not going to make them feel like we can’t “afford” things – more that we *choose* to spend our money differently.
I don’t think kids need to feel stressed about their parents finances.
April 4th, 2008 at 11:53 am
I want to be completely honest with my children and tell them everything they want to know as well as teaching them a lot about finance. I think that it is one of the most important lessons theyw ill learn and as school will not teach them, then I will need to. I do not have any debts apart form our mortgage so I don’t see that they would worry if they knew the details of our finances. However, even if you do have debts, as long as you explain to them the advantages of paying them off and what they can learn from your mistakes etc I am sure that it will be a valuable lesson.
April 4th, 2008 at 12:12 pm
We totally discuss family finances and their personal finances with our kids.
But, I also have Matthew 6:26 tattooed on my arm…
In the end, our kids hopefully will see money as something unnecessary for happiness, that can make your life hell if you don’t manage it carefully.
It can never buy happiness, but it can sure cost you a lot of it!
Ken Clark, CFP
April 4th, 2008 at 7:52 pm
I wrote a post recently about what my parents didn’t teach me about money. I grew up thinking that things would just automatically come if I needed them. Like PT, I wasn’t a particularly needy child but I had NO idea about how to handle money until just recently.
I think kids need to hear some of the reality and that it should be age relevant. I don’t know that they need the nitty gritty details but certainly some feeling for it.
April 4th, 2008 at 9:45 pm
Good article. I know I wished my parents would have told me more about my “real world” expenses because I am deaf so I have to deal with the costs of replacing hearing aids every 4 to 5 years, not to mention batteries, exams, etc… which is not covered by insurance but “reimbursable by FSA” or in other words, by my own income.
It was not until I had to get my first pair of hearing aids on my own when I realized that I had to live with the sticker shock of purchasing two hearing aids (one for each ear) at 2K each every 4 to 5 years.
That’s when I realized my parents were not being strict with me and toys etc.. They just had to budget their money after expenses for their own retirement, our college education, and my hearing aids.
April 5th, 2008 at 4:11 pm
I definitely think talking about finances with children is important. I don’t have kids, but I was one :-) I don’t think you need to get into exactly what the figures are to have valuable conversations. Far too many people become adults with far too poor an understanding of personal finance. Given how important this is today I think it is like hunter gathers not teaching a kid how to hunt.
April 6th, 2008 at 10:27 pm
Knowing how bad my mother’s credit and ability to handle money was… well, that was the very thing that got me interested in personal finance and “never becoming like that.” If she’d managed to hide it from me, I’d probably think you could spend money like it was water, and it would be fine. Seeing the reality of it, and knowing that it was tied into bad credit, which was caused by ignorance of money management… that made all the difference in the world for me.
Which isn’t to say that I haven’t made some mistakes. But at age 21, I’ve managed to start turning things around for myself already, instead of learning a much harder lesson first.
August 26th, 2008 at 2:40 am
I think my parents share a little too much information with me regarding their finances (I’m 18).
I’m going to college this Fall, and even though I am taking out a loan and they aren’t paying that much themselves (and I am a very ambitious young lady), they have me wracked with guilt… it’s almost debilitating :(
We’re not in the poorhouse… but they’re self-employed. However, I hear from other non-immediate family member that my parents are worry warts…
August 26th, 2008 at 2:49 am
I’d like to note that my parents don’t make me feel guilty on purpose (I don’t think).
So, while it’s good to share your finances with your kids and to teach them the value of a dollar, you have to be very careful about making your kids feel like they may be burdens to the point where they are afraid to ask for new underwear.
August 31st, 2008 at 3:59 am
I do not believe this
September 17th, 2008 at 11:21 am
I knew generally how much my parents made; the paystubs were easily accessible. I also remember once wanting to go to an amusement park and my mother telling me that there was only $7.00 in the checking account and we couldn’t go. I appreciate her honesty and openness, but that sure did worry me a lot. I still remember it like it was yesterday. By her telling me things like this, I had conscience not to ask for things that weren’t necessary. I think it depends on the child and the temperment. For a sensitive child, I might think twice about giving the whole story. Kids deserve a childhood without worry. A less-sensitive child might handle it just fine.
As for the neighbors knowing how much you owe and how much you make…who cares??!!! Why is there such a stigma attached to money? Why all the secrecy? I am open and honest with people about my family’s financial situation. People don’t talk about things they SHOULD talk about (such as mental health issues, drug/alcohol abuse, etc.). The longer the stigma is attached to these subjects, the less progress will be made in getting people treatment, and yes, some people need “treatment” for their money ills. If people were more honest about what they made/owed…there might not be so much “keeping up with the Joneses.” Sometimes I think people refuse to discuss money because they are embarrassed of how they handle theirs. Admitting you have issues is the first step….
January 15th, 2012 at 10:23 pm
We don’t have kids, yet, but I think we will probably be pretty open, at least with older kids. I think looking over a real life budget on a regular basis would have helped me a huge amount when I went out on my own and had to deal with my own budget.
January 16th, 2014 at 9:53 am
I think parents should. They don’t necessarily have to discuss their salary (relatively private information). I do think, however, that they should give their kids a credit card in their teens and explain to them to value of making small purchases and paying them off right away to build a credit score over time. They should also teach them the art of saving and investing early to take advantage of exponential growth starting from a young age.