How Much Should Your Child Know About Your Finances?
August 26, 2015
One body of thought says that children should be privy to every detail of their family’s financial reality. These experts recommend that at year-end you take your child through your financial statements and bills and explain how much things cost. They should know your salary, what you pay in taxes, and how much it costs to use heat in the winter. This can even be a monthly ritual if that better serves your purpose.
On the other hand, revealing too much about your financial situation can be stressful for your child. You do not want to create anxiety about running out of money, just as you don’t want your five-year-old showing up at preschool proclaiming how rich your family is by shouting out your annual bonus or how badly things are going by telling stories about the foreclosure proceedings.
When you share financial information with your child, make sure you precede that with a lesson about discretion. Make sure they understand that your family’s financial information is private for two reasons. First, talking about how much money you have, whether it’s a lot or a little, is not a polite thing to do. While your child might be free to ask you whatever financial questions they wish, he’s not free to ask those same questions of other people. For example, asking someone how much money they have is never okay. As your child gets older, they will understand which topics can be broached and which are off limits. As you introduce them to new financial lessons, make sure part of that lesson is whether the information is okay to discuss with people other than you.
The second reason for keeping the family’s financial information private is that sharing such details recklessly can get them—or your money—stolen. Explain to your child that you wouldn’t run down the street waving hundred-dollar bills or type your credit card information into a website before verifying the site is legitimate. By the same token we need to be careful about what we say to other people about our finances. Show them that thoughtfulness and safety go hand in hand with good financial skills.
Just a note – this all gets tricky if your child will one day inherit a large amount of money from you or from a family trust. Experts disagree about the best age to let children know that they have an inheritance. Their recommendations span a pretty wide range, from about eighteen to thirty-five. Some experts argue for revealing the extent of one’s inheritance earlier, as the inheritor might make different life choices (e.g., majoring in classics rather than computer science) based on the income they will be receiving. Having this conversation too early, though, runs the risk of creating the typical “trust-fund baby.” Dealing with large inheritances is a specialized issue, requiring additional education and resources, such as wealth seminars and a lifelong team of special advisors. Fortunately, there’s a well-developed body of literature out there to assist you. Check out some of the books reviewed on this site to help guide you in preparing your young ones.
Question: How do you handle talking to your kids about your family’s finances?