“There is a tendency to cushion children from the severity of life, especially economic ones. In fact, parents should make sure to involve them in conversations relating to finances, which will help them to not only understand the significance of money, but also make them aware of financial adversities early in life.”
We are living in a world which is currently beset with different kinds of financial adversities ever since the onset of the COVID-19 pandemic. These seem to stem on all levels - right from the global slowdown and recession to individuals facing job loss or pay-cuts.
It’s forcing the world to rethink its priorities and also get literate to be able to deal with the financial adversities and bring a gravitas in their management of money. And while you are at it, your children are watching not only how you deal with money, but also cope without it during challenging times.
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Parents, however, have often been reluctant to have money conversations with their children. They’d rather not involve them in something that is believed to be an issue of the adults and shield them from the uncertainties of life. But did you know that your money struggles can have a negative impact on your children? In fact, you could even end up passing on that struggle to them. In fact, the chances are that your kids will have to experiment and figure out for themselves as to how to recover from adversities, which may not end up all that great.
The pandemic, however, has had its share of positive fallouts – there’s been a rise in money conversations between parents and children. The findings in T. Rowe Price's annual survey on Parents, Kids & Money in 2021 revealed that 44% of kids and 43% of parents disclosed having more money conversations since the pandemic. It also revealed that children are able to perceive when their parents are stressed, which gives rise to a feeling of insecurity.
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So, instead of insulating them from tough times, parents must take the step to involve, engage and communicate with their children about money matters and find solutions to overcome it as a family.
Renowned Harvard psychologist Gerald Kaplan had said that when we have no qualms about expressing our anxieties and seek help from others, we are able to deal with crises successfully. Similarly, when children learn this behaviour at a young age, they will be able to cope with stress as adults. This includes instilling confidence in money management; because when you are unsure about ‘what to do’ is when you find the prospect of managing adversities untenable.
Here's how to inculcate habits that will help your kids cope with financial adversity:
Discuss money matters openly
T. Rowe Price's annual survey has consistently propagated the need to discuss money in front of children instead of shielding. Communication is key in family for kids to understand what is happening around them as keeping them in the dark will lead to anxieties and insecurities. This way they also learn concepts related to money and are not lost when it comes dealing with it directly later. Also, it helps your kids draw from your experience on how adversities can be effectively managed without derailing your life.
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Explain economic crisis
Economic stress hits people differently, especially when it occurs during a global crisis. However, whether you have been impacted by roll-backs and lay-offs directly or not, bring it up during a family gathering as a way of information and discussion. This will help children understand money matters on a larger scale as well as its impact on an individual level and how to adapt around them.
Set saving goals
Kids can gauge a change in their lifestyle when allowances are cut down. However, you can motivate them by involving in setting goals in creating a savings out of it. If they say they want to attend a game show or want to buy the latest video game, help them find a way to reach that goal by saving for it over a period of time. If the kids are a little older, teach them the importance of earning their allowances by probably rewarding them for a chore.
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Help them keep track of spending
Money making lessons don’t just end with setting saving goals, you need to teach them to keep track of their spending too. By helping them document their spending, they realize how to do away with impulse spending. This will organically lead to self-discipline as they learn to spend on things that are truly important and avoid unnecessary spending.
Create an awareness of financial planning
Introduce them to concepts like financial planning, which includes knowing about saving and investment plans. It’s never too late or too early to learn about something, however, do it in small measures. The best way, perhaps, would be to involve them as you do things related to investments. For instance, like filling forms or when you are sitting with your financial planner and discussing the finer points of a policy. As parents, when you do this, you also set an example for your children, which they imbibe and will help them in the longer run.
Anup Seth is the Chief Distribution Officer at Edelweiss Tokio Life Insurance
