Just because our children don’t watch the news or read the business section in the newspaper doesn’t mean they are unaware of what’s happening to our economy. They may not have their own financial worries just yet, but they know when their parents are worried. Before you begin explaining, ask your child what they do know and if they have any questions. Maybe they learned that one of their classmates has to move because her dad lost his job.

They are frightened that this might happen to them. Kids often hear pieces of information, or words like ‘recession,’ ‘unemployment’ or ‘foreclosure,’ and then draw their own conclusions, which are often incorrect and may produce anxiety. 

Your goal of explaining the current economy to your child is the same as explaining any other issue – explain it honestly and simply, without causing them any undue anxiety. But you shouldn’t overprotect them from the reality of the situation and the potential implications for your family. Here are some other tips to help you:

• Choose your words carefully. Children, especially young ones, take things you say literally. Try not to convey anxiety to your children by saying things like ‘all our savings are gone,’ ‘we may lose our house,’ or ‘there goes your college fund.’ Even in these difficult times, it’s important for parents to stress the positives and explain that although there will be some setbacks and changes in how you spend money, keep reassuring your children that the situation is under control. 
• Keep the discussion at their level. Don’t make this a one-size-fits-all family discussion. Keep it simple and concrete for your younger children. Explain that you may have to cut down on buying holiday gifts or holding extravagant birthday parties (which could be a good idea in any economy). For adolescents, you can explain the real details. In a time like this, being treated like an adult can be very rewarding.
• Be specific and give a unified message. Although kids shouldn’t have to share their parents’ financial woes, they should be told what this financial crisis will mean for them. Don’t be afraid to tell your children what they will have to do without even if that means the trip to Disneyland is off this year. Kids are highly resilient and will easily bounce back from disappointments.
• Have them help. Ask their opinion as to how the family can cut back on expenses until the family’s financial situation improves. Feeling in control – for both parents and children --even in some small way, helps to alleviate the anxiety that a crisis produces. Have them decide what are they willing to sacrifice or cut back on. The empowerment they feel by helping out will build their resilience and coping ability and will also bring the family closer together.
• Be optimistic. Kids take their cues from us; if you constantly look and act worried, they will feel your burden. Help them understand that the economy will always have ups and downs and that this downturn will improve. When it does improve, so will the family’s finances. 

These are tough financial times for us all. When our children understand what’s going on in our economy it not only helps alleviate their and the family’s stress, but it elevates their sense of self-worth as well. Be honest, be optimistic and don’t overprotect them. Teaching them about a tough economy now will only help them in the future.

Want to read more about how to help your children learn about the economy and money?

Paul Schwartz, Ph.D., is a professor of psychology and education at Mount Saint Mary College in Newburgh.