Kids can ask some awkward questions about money. To teach them healthy financial habits, you want to give them the best answers, but those answers aren't always obvious. Here are some common money questions kids ask, and how you can best reply to them.
"How Much Money Do You Make?"
As kids get older, they start to understand that people are paid differently. They realise that incomes vary, depending on your job, and they want to know how you fit into all of that.
You'll have to decide how transparent you want to be with them. Maybe you don't want them repeating your number. Maybe you prefer to be totally candid. Either way, New York Times' personal finance columnist, Ron Lieber, says there's one answer you should avoid:
"By now we know that 'none of your business' is not the right answer here," he says. "But simply spitting out a number isn't usually the ideal response, either. Before there can be any financial transparency, there has to be readiness." Ultimately, Lieber notes, there's a very simple reason to be upfront about your earnings with your kids: If they really want to know, they will make it their business to find out.
Lieber argues that it's important to be open with kids about this topic, in order to prepare them for the future. Make money taboo, and they might miss out on some important financial lessons. He suggests giving them an idea of your income when they're younger — around 5 to 6, and then disclosing the details gradually, revealing the answer in their teen years. You want to disclose the info they need based on the money lessons they learn at each age.
In answering the question, it helps to give it some context. Explain what your income means — maybe even introduce them to your budget and your expenses. Use it as an opportunity to have a productive discussion about personal finance. In fact, with all of these questions, Lieber suggests asking them a question in return: "Why do you ask?" You'll get a better idea of their thought process, and you can give them more useful information.
"Are We Poor?"
Kids could be triggered to ask this question for a variety of reasons. Over at Mommyish, writer Valerie Williams explains that her daughter asked simply because she noticed a friend had more toys. Here's how she answered the question:
I then told her that we are neither rich or poor- that we have money for everything we need and many things that we want and that it puts us somewhere in the middle. That we have a nice, warm, safe house and cars that work and our cupboards are always full of food and that she does not need to worry because when I thought about it, that was probably her concern deep down. She wanted some confirmation that our family is secure and she will always be taken care of.
Most experts would agree that the answer to this question is all about making sure your child feels safe and secure. Personal finance guru Suze Orman argues that "no" is really the best answer:
"The answer should always be 'no,'" Orman says. "We are rich in love. We are rich in that we have each other. We are rich in every way in life that matters."
Momma, Are We Poor? is a kids' book that actually tackles this very question. It answers with the same sentiment — focusing away from materialism and onto the things that matter more.
Keep in mind, you don't want to vilify money, either. Sure, it does have a hand in materialism. But it also has a hand in more meaningful things — options, security and freedom. Most agree that the answer should be about highlighting the rich areas of your life and making sure your child feels safe and secure.
It's also a great time to explain to kids that rich people aren't better than poor people, explains financial educator Willard Stawski.
"Even if your household has a lot of money, you don't want your child thinking you can spend freely on anything you want or to run around the neighbourhood bragging."
He agrees that it helps to add a "reassuring generalisation" that your family has everything it needs.
"Why Can't I Buy What I Want?"
When kids don't have a concept of money and value, it can be tough to explain to them why they can't just have certain things. Your answer is a great opportunity to teach a little budgeting and savings 101. You can lay it all out for them, and explain how your family's own budgeting works, and, depending on their age, even include them in its planning.
Your answer to their question might also include a solution. Maybe you implement an allowance or set up some savings jars. Either way, when explaining exactly why you can't buy something, be mindful of your words. Psychologist Joseph Cilona says how we talk about money can have a lasting effect on our children. For example, he explains the possible impact of saying you "can't afford" something:
"[That phrase] implies a lack of power or control — and the idea of not having enough. Tying these emotions to money can create associations with helplessness and powerlessness," Cilona explains. "Financial empowerment is formed by identifying that money can be controlled and managed through thoughtful decisions."
He instead suggests a more empowering statement, like "I don't think that's the smartest way to spend our money because it costs so much." This might also be a good time to teach your child the concept trade-offs. Maybe he or she can't buy a toy because they have already spent their money on something else, or maybe there's something more important that money should be spent on.
"What Happens If You Lose Your Job?"
If you do lose your job, they might ask "what happens if we run out of money?" Both questions are tough, because, sometimes, you just don't know. You can't say you'll never lose your job. And, if you do lose your job, you can't say everything will remain the same. You might have to tighten some purse strings. Your lifestyle may have to change a bit.
Again, the answer is about educating them and making them feel secure. Lieber explains:
You can do your best, however, to make things as concrete as you can. Talk about savings, and severance and the money the government gives out for unemployment insurance. Explain that you will always have a place to live and food to eat (spare them, for now, the possibility that it may be with your parents or other family members if things get particularly bad).
If you have lost your job, it's important to communicate with your kids about how things might change. About Our Kids offers suggestions on how to talk to kids about this, depending on age.
- Children under 5: Be simple and concrete. Children of this age are most concerned about their personal safety and need assurance that they will be cared for. They need to the job loss was not their fault and they have done nothing wrong.
- Children aged 6-9: Are concerned with right/wrong and may have difficulty understanding that job loss may be unfair. Provide information as they ask for it.
- Children aged 10-12: Can put facts together in more complicated ways and can understand everyday effects of job loss. Can contribute ideas to budget planning.
- Teenagers: Capable of understanding the ramifications of the job loss and can discuss issues in more detail, understand more subtle effects of job loss, and be active in problem solving.
According to the site, this is another question that's about security. Reassuring your child that they're secure, even if things change a bit, is important.
At first, these questions might seem awkward. But understanding why your child is asking them can go a long way in helping you craft an answer. Ultimately, your answer should reinforce and teach them healthy money attitudes and habits. As they get older, they will have a solid foundation for making smart financial decisions.