A Parent’s Guide to Discussing Financial Hardship With Your Children

Many families in the U.S. face financial hardship. Although America has over $1.2 trillion in personal savings, the following statistics indicate that financial hardship is a very real threat to many families:

• Only 30% of Americans have a financial plan that includes savings.
• 50% of those aged 25 to 34 have no savings.
• 40.91% of those aged 35 to 44 have no savings.
• 23% of Americans can’t afford to spend $100 in an emergency.
• 31% of Americans say they can’t save any money because they live paycheck to paycheck.

Given that so many Americans face economic stress and have difficulty building up a savings account, the loss of a job, a medical emergency, or a financial crisis can leave a family in economic hardship. When a family faces financial distress, parents are vulnerable to feelings of anxiety, depression, grief, panic, and even physical responses such as the inability to sleep or adequately eat.

The effects and circumstances of financial hardship are often seen or felt by the whole family, including children. Financial changes cause stress as parents struggle to budget and redistribute funds in order to meet basic needs.

It’s not uncommon for impoverished families to lose housing, forcing them to move to a cramped apartment or in with relatives. In a sense, the struggling family may need to change financial identities as the role of provider shifts.

Amidst all of the potential changes and outcomes, it is vital to be able to communicate with children about the financial hardship your family may be facing, to reassure them, and to keep them from feeling overwhelmed.

The Importance of Family Communication During Financial Hardships

Families that are experiencing economic stress may encounter different symptoms and express their stress in various ways. Adults could experience the following:

• Inability to sleep;
• Inability to eat or weight loss or gain;
• Digestive ailments;
• Depression and lack of ability to enjoy regular activities;
• Anxiety or panic attacks;
• Avoidance behaviors;
• Self-destructive denial.

Children experience stress as a result of the various factors of financial instability and because they’re hearing or perceiving parental stress. Children who are still learning and developing essential communication skills may not be able to express their feelings of anxiety, and some children may not feel comfortable discussing how the family’s financial situation is impacting them. Childhood anxiety may appear indirectly in behaviors such as:

• Trouble eating or sleeping,
• Acting out at home or school;
• Hoarding behaviors such as hiding or saving food or money;
• Regressive, withdrawal, or avoidance behaviors;
• Emotional responses of shame, anxiety, or depression.
• Inability to control the bladder or bowels.

Studies have found that the effects of economic hardship on families can increase behavior problems, mental disorders, physical health problems, and risk to the child’s development. Parents learning how to approach and discuss financial hardship with their children can help children cope and open up to dialogue that allows them to express essential feelings and concerns. Through dialogue, kids can develop a healthier understanding of the situation.

How to Initiate the Conversation

As a parent, dealing with financial troubles is already a stressful and emotional ordeal. Still, it is essential to understand how to initiate and navigate a difficult conversation with your child that is productive, meaningful, and supportive. Preparing for or starting a difficult conversation with your kids may produce feelings of anxiety, but it is important to remain calm and composed.

Here are a few tips on talking with children about difficult subjects:

• Be aware of your own emotional state and how you may come across;
• Be considerate of the time and place you choose to have the conversation;
• Be aware of and attuned to the child’s emotions and emotional responses;
• Be sympathetic and non-judgmental about their reactions and feelings;
• Ask your child open-ended questions so they can discuss how they feel and you can gauge their understanding;
• Do not minimize a child’s feelings;
• Be honest, but do not provide unnecessary details;
• Don’t avoid the subject or difficult questions;
• Be reassuring and supportive.

Discuss Their Feelings

Discussing the difficult topic of financial hardship with your child may result in the child experiencing and displaying mixed emotions such as anger, fear, or stress. Talking about feelings with your child is an important step in navigating the conversation of financial hardship. A few tips on encouraging and unpacking your child’s emotions include:

• Help them to identify and name what they are feeling. Common words such as happy, mad, sad, or angry may not cover the breadth of their emotions. Teach your child new words and their meanings to help you both understand their emotional state. These may include:
  • Anxious;
  • Afraid;
  • Confused;
  • Disappointed;
  • Frustrated;
  • Embarrassed;
  • Jealous;
  • Worried.
• Be a role model and show your child how to express emotions by using “I” statements to encourage them to share their own feelings.
• Listen to what your child is saying and allow them to express their feelings without minimizing them.
• Ask open-ended questions that allow your children to talk through their problems and vent their emotions.
• Empathize with your child and validate their feelings. Praise your child when they express their feelings appropriately.
• Understand that your child’s behavior is a way to express their feelings.

Define Complicated Terms

Financial terms can be complicated, and financial products are becoming increasingly more complex. Creating financial education for your children is an essential step towards assisting them in developing financial literacy. Financial literacy helps kids with their future and personal economic growth, and it will help them understand your current financial situation. A few basic financial literacy terms that should be defined to explain your financial hardship include:

• Personal finance;
• Bankruptcy;
• Job loss terms such as:
  • Unemployment;
  • Laid off;
  • Severance and termination,
  • Fired;
• Credit terms such as:
  • Defining credit vs. debit;
  • Credit score;
• Income;
• Expenses;
• Budget;
• Debt;
• Bank account;
• Savings account;
• Taxes and taxation.

Explain the Impact of the Financial Situation

Explaining your current situation of financial hardship will most likely include addressing some changes that may impact your family’s lifestyle both in subtle and drastic ways. Discuss how some of these changes may be gradual, but some may be more immediate. Your new financial situation may include frugality and a limited budget that reduces spending on luxury items. It may consist of moving to a more financially accessible location or to a place with more job opportunities.

This is also an opportunity to discuss that though your family’s financial situation has changed, you will continue to maintain family routines, and you may find alternative forms of entertainment. Though your family may need to reduce spending for streaming services, going to the movies, or going out to dinner, you can still eat dinner at home together regularly, or, go to the playground, park, or library as a family.

Be sure to explain that though things are changing financially, the family is still secure and connected. Invite your child to ask any questions they have, and offer support that the family will persevere.

Answer in an Age-Appropriate Way

Approaching discussions of financial stress is a difficult subject matter, but by choosing to address the topic and have conversations with your child, you can help them feel more safe and secure. There are a few things to consider when opening up an age-appropriate conversation about financial hardship with your child.

• Consider the amount of exposure to the issue and appropriate language that is relevant to your child’s age. For example, a younger child may benefit from a discussion about budgets, while an older teen could benefit from a discussion on bankruptcy.
• Find out what they already know and allow them to ask questions to fill in the blanks.
• Follow their lead and do not overwhelm them. Give the child space and time to understand that things may change.
• Encourage critical thinking and address their curiosity. Some children may ask many questions at once, while others may need to have the conversation at multiple stages so they can digest the information.
• Do not “parentify” the child. Reinforce that finances are adult issues and though they can participate in things such as the budget, finances are not their responsibility.

How to Budget as a Family

Having a budget can help a family control their spending and redistribute money to more urgent or necessary expenses. A budget offers you the opportunity to bring the family together to work towards your financial goals. Together, you can get out of economic hardship.

A budget will help you evaluate your financial situation, track income and expenses, and trim costs; it will require you to check in frequently to ensure you are on track. Make budgeting a family practice. Together, begin brainstorming and discussing which expenses are necessary, such as food and housing, and which costs need to be cut, such as streaming services or eating out.

There are many frugal living tips to help your family live more comfortably on a tight budget, including:

• Couponing and purchasing things on sale;
• Choosing different forms of entertainment for family time, such as going to the park or planning a family game night;
• Making home-made gifts or offering gifts of dedicated family time rather than purchasing gifts;
• Eating dinner at home and learning how to cook together;
• Budgeting on transportation needs and finding alternative forms of transportation such as public transit or riding bikes.

Hold Family Discussions

In addition to the initial conversation explaining your financial situation with your children, offer the opportunity to maintain open discussions about how your family is moving forward through financial hardship.

• If your children are older, allow them to participate in talks that help set financial goals.
• Have regular family meetings to discuss your family’s budget and spending priorities.
• Hold family planning meetings and encourage children to consider future expenditures so the family can prepare in advance, such as taking a field trip or preparing for college.
• Hold brainstorming sessions for how to reduce spending, and invite children to help plan low-cost family activities.
• Consider allowing children to participate in doing chores or offering neighborhood services such as walking dogs, babysitting, mowing lawns, raking leaves, or other yard work to earn their own spending money.
• Talk with teenagers about getting their own job so that they have their own spending money.

Plan Low-Cost and Free Activities

There are many ways to bond with your family and create family time without extra expense. Discuss with your children that these activities are about creating experiences and memories rather than material items.

• Go on a family walk or nature hike.
• Visit the library during storytime or to borrow a book.
• Start a rock collection.
• Have a scavenger hunt.
• Visit a park, museum, historical site, or tour a fire station.
• Have a movie night.
• Play board games together or initiate a weekly game night.
• Participate in volunteer work such as cleaning up a park or visiting people at a retirement home.
• Write a play and act it out.
• Have a family reading time.
• Look for free community programs or events such as concerts, movie nights, or parades.
• Bake cookies or goodies together.

Take Proactive Steps to Improve Finances

Work towards improving your finances by taking proactive steps. Set clear financial goals and create milestones that help you stay on track. Proactive steps may include:

• Credit repair: Repairing credit does not mean eliminating your debt all at once, but finding ways to make it more manageable. This may include checking your credit report for inaccuracies, consolidating and lowering payments, or working with a legitimate credit repair agency regulated by the Credit Repair Organizations Act.
• Start a savings plan: Include a savings plan in your budget to help regain control of your finances. Start small and work towards a goal.
• Start an emergency fund: Prioritizing and slowly building an emergency savings fund can help your family prepare for and cushion unexpected expenses that are not typically a part of the budget.
• Find ways to reduce your mortgage payment while you are unemployed.
• Spend wisely: Look for opportunities to save money while spending. Recognize your needs vs. wants and consider couponing for grocery shopping and other expenditures.
• Track spending: Maintain a budget and track your spending. You might find places where you can cut expenses or redistribute cash to other areas of your budget. This could include memberships, impulse buys, eating out, or cable.
• Find ways to save on utilities by unplugging appliances that are not in use, turning the thermostat up or down, or reducing electricity by turning the lights off and using natural light instead.

Tips on Teaching Your Kids About Finances

Going through financial hardship offers the opportunity to help set your kids up for future financial success by including them in your financial decisions, talking about money, and teaching them financial literacy.

Studies on financial capability show that introducing and maintaining financial literacy in children results in improved credit management, credit scores, and reduced negative financial impacts or delinquency. There are many ways to teach your children financial literacy and lessons can be designed by the age of the child.

Finance Lessons for Young Children

Young children can play games or participate in activities that help them to build a foundation for financial literacy. Activities may include:

• Teaching kids how to count coins;
• Allowing children to play decision-making games that help them learn how to make spending choices;
• Play games that help children categorize money into spending, saving, or sharing jars. This shows kids that money is limited in quantity and should be divided for differing purposes;
• Ask young children to perform small tasks to earn money and explore how to save it;
• Play games or draw pictures that help children learn how to recognize different types or values of money.

Finance Lessons for Adolescents

Adolescents may be prepared to build upon basic financial literacy, learning more about saving, spending, credit, and interest.

• Use comic books to teach financial literacy.
• Teach money management plans, budgeting, saving, and spending.
• Discuss financial responsibility and show children how to record their spending, or how to save for items they wish to purchase.
• Discuss saving and investing to show how money can be used, earned, or lost in investing opportunities.
• Include adolescents in family spending choices such as comparison shopping or asking them to participate in the family budget.

Finance Lessons for Teens

Financial literacy for high school students and teens introduces more complex financial concepts such as interest, credit, banking, and taxes.

• Include teens in the conversation of the family’s long-term financial goals.
• Explain how credit and interest work.
• Discuss financial choices they will encounter in adulthood, such as student loans or getting a loan to buy a house.
• Approach more complex financial decisions that help them make wiser choices concerning their time, money, and resources — for example, buying a new or used car.
• Allow teens to work for their own spending money, and discuss future career options.
• Ask teens to participate in the family budget and help them build their own budget.
• Introduce teens to banking choices and services.

Resources for Financial Assistance

There are resources available for families experiencing financial hardship. Some resources are local, nationwide, or built for specific demographics of people. Resources include information on tax credits or access to social services or financial assistance.

• Adjustable-rate mortgage insurance: Adjustable-rate mortgage insurance programs lower some costs of mortgage loans for low- and moderate-income families to assist in homeownership. The Federal Housing Administration’s Section 251 program insures adjustable-rate mortgages (ARMs), enabling borrowers to obtain mortgage financing with lower interest rates.
• American opportunity tax credit (AOTC): Families paying education expenses in the first four years of higher education may qualify for a maximum annual tax credit of up to $2,500 per student.
• Armed Forces tax benefits: There are specific tax breaks for members of the U.S. Armed Forces. There are tax breaks for those that serve in combat zones, to help cover moving expenses, tax deductions for reserve-related duties, uniform deductions, civilian job search expenses, and more.
• Bureau of Indian Affairs (BIA) financial assistance and social services: The BIA offers financial assistance, contracts, grants, and social services to recognized members of American Indian Tribes and Alaska Native Villages in the U.S. This may include workforce development, financial assistance, housing improvement, the Indian Child Welfare Act, and welfare assistance.
• Casualties, disasters, and theft: If your family has experienced losses related to your home, household items, or vehicles from a federally declared disaster, casualty loss due to flood, hurricane, tornado, fire, earthquake or volcano, or by theft, the losses not covered by insurance may be available to claim for tax deductions.
• Child Tax Credit: The Child Tax Credit offers as much as $1,000 per qualifying child to families with an adjusted gross income below a certain amount.
• Earned Income Tax Credit (EITC). The Earned Income Tax Credit is a benefit available to families with low- to moderate-income. The EITC income qualifications are subject to change by year and may be adjusted by filing status, as well as the number of children claimed.
• Housing choice voucher program (Section 8): Housing vouchers are administered locally by public housing agencies that receive funds from the U.S. Department of Housing and Urban Development. The housing voucher is determined by the total gross income and family size and is limited to U.S. citizens and some non-citizens who have eligible immigration status.
• Lifetime learning credit: The lifetime learning credit (LLC) is worth up to $2,000 per tax return and provides assistance with tuition and education-related expenses for eligible students at an eligible educational institution. The purpose of this credit is to provide financial access for degree seekers to acquire or improve job skills.
• Low Income Home Energy Assistance Program (LIHEAP): LIHEAP offers federally funded assistance to help families manage costs associated with home energy bills, energy crises, and weatherization and energy-related minor home repairs.
• Medicare Savings Programs: There are four types of Medicare Savings Programs that can provide you with state-funded assistance for paying Medicare premiums. These include the Qualified Medicare Beneficiary Program, the Specified Low-Income Medicare Beneficiary Program, the Qualifying Individual Program, and the Qualified Disabled and Working Individuals Program.
• Feeding America: Feeding America provides food to people in need. Programs include food banks, the Supplemental Nutrition Assistance Program, Child Nutrition Programs, and Women and Infant Children programs.
• 211: The 211 program offers assistance with crises and emergencies, disasters, essential needs such as housing expenses, food and hunger, financial aid, and healthcare access.