Yahoo Finance I’m a Financial Expert: A Step-by-Step Guide to Explaining Budgets to Kids
Families will undoubtedly face economic hardships or challenges at different intervals. Since the turn of the century, the United States has endured at least three significant financial storms because of national events that were unexpected.
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The first was the impact of the tragedy of 9/11. The second was the Great Recession of 2008, and we are still recovering from COVID-19, which brought the world to a standstill. These traumatic experiences affect everyone in the family. Oftentimes, parents attempt to navigate through the uncertainty without involving the children.
However, it is super important to be transparent about finances in your household. In this article, you’ll find several straightforward approaches to involve your children in financial discussions about the changing economy and dynamics that will impact the family.
Talk About Current Events
The best way to communicate with your children is to discuss current events that are happening locally and in the nation. In the middle of the conversation, you can address how the news will affect your family directly.
For example, inflation had a detrimental impact on the average family in 2022 and 2023. Explaining to your children that cereal costs more because of inflation can open a discussion about expenses associated with food and why trips to fast food eateries may not be possible for some time.
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Be Honest
When a parent is faced with a layoff, explain to the children how working is directly connected to their overall standard of living. It is a great opportunity to stress the value of education, so children can connect working with having resources.
Explain that there are necessary expenses that must be paid and specifically identify them. Share that they may have to cut back on discretionary expenses that may directly impact them.
Such things may include after-school activities that have a cost associated with them. Other areas can include trips to the movies or other activities.
While the children do not need to know the exact details or costs of things required to manage a household, teaching them the difference between discretionary and nondiscretionary expenses will help them associate the definition with their specific circumstances.
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Implement a ‘Get Paid for Service’ System
Parents typically want seasons of unemployment to have a minimum impact on their children. A great way to prioritize rewarding their children while maintaining a budget is to implement ways for children to earn extra dollars that can be used toward recreation.
Things that should be included are not general chores, but things that will give a parent time to focus on securing a new job.
Some examples are offering to pay older children to babysit younger siblings, asking the children to mow the lawn instead of paying the landscaper or tackling a major project, like cleaning out the shed or garage for a nominal cost.
Place an Economic Value on the Most Important Things
Once children begin to grasp the concept of budgeting, help them to understand it in fun and exciting ways. The following exercise is both impactful and fun.
Allot your children a stated amount of money each week. Allow them to select a career choice and calculate the average savings for a position in their chosen field for a month.
Then place a financial value on goods and services that are normal to them. Make the prices as realistic as possible. Have the children use their weekly allocation to pay for items. Show them where they may fall short and what do to if they have a surplus, and teach them to think about the difference between what they want and what they need.
Takeaway
Financial transition is never easy, especially when involuntary terminations are the primary reason. However, the unknown variables of job loss, unanticipated illness or catastrophic incidents, along with untimely deaths, are a reality families will face.
Preparing in advance is always ideal. Use today as a great day to get started with getting your financial affairs in order so that if a loss of income happens to your family, you can teach your children the best way — preparing for life’s unexpected events in advance is both a choice and a way to show those who depend upon you that you love them dearly.
Editor’s note: Dr. Nicole B. Simpson is a dedicated certified financial planner board member of the CFP Board Center for Financial Planning Diversity Advisory Group and Chair of the Generation X Community Association.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: A Step-by-Step Guide to Explaining Budgets to Kids
