Relatives, roommates, bosses, kids, neighbors, love interests, lunch buddies -- add money interactions to the mix, and things can get pretty awkward (the waiter forgets to split the tab; the cousin has a surefire investment opportunity; the in-laws expect you to join them on a lavish cruise, etc.). Or, worse, relationships and finances can be jeopardized. Here's how to handle one such situation: the scenario where your kid starts probing the family's financial situation.
New York Times columnist Ron Lieber was stumped when, on the way home from a family vacation at a friend's beach house, his 3-year-old daughter asked him why they didn't have a summer home, too. Figuring out how to answer that question -- as well as others posed by countless kids to their flummoxed parents -- inspired him to write The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money.
I would say to her 3-year-old self, 'You know what, Talia? We actually made a choice. If we wanted to have another house, we probably could, but that means we would have a smaller apartment. Maybe you would not have your own room when your sister comes. Maybe we would not be able to send you to summer camp. Maybe we would live farther from the park that you love so much. And it might be harder for us to save enough money so that you can go to whatever college you want to, and that's a big goal that we have for you. ... So we've made a choice not to have another house. It's not because we don't want to. It's just that there are other things that we think are more important.
It's only going to get more personal
Lieber's response was perfect for the 3-year-old Talia. But as children grow, so do their curiosity and powers of observation. It's only a matter of time before parents are faced with the dreaded "How much money do you make, Daddy?"
Don't worry. You don't have to give your child your Quicken password -- yet. But understand that you're teaching by example whether you intend to or not.
Your kids are already observing how you spend your money -- clothes, cars, charity, a summer cabin -- and making assumptions about what you value. Introducing some level of transparency about the family financial situation can go a long way toward making sure they're getting the right impression.
But what's appropriate to share at what ages? Lieber offers a helpful family financial syllabus:
- Ages 6 to 10: Your kids get an allowance and learn to manage life on a fixed income: "You want to give the kid just enough so they can get some of the things that they want, but not so much that they don't have to make a lot of really hard choices," Lieber says.
- Age 10: Put them in charge of their clothing budget. This gives them hands-on experience managing a more meaningful three-digit budget.
- Ages 10 to 14: It's time to learn about household finances! Here's how much it costs to put food in our bellies, stream Netflix movies, and put a roof over our heads. You can roll out the bills one at a time and involve them in brainstorming ways to economize or get more bang for the buck. So introduce groceries at age 10, the electric bill at age 11, the vacation/travel budget at age 12, and mortgages, home values, and other monthly bills at age 13.
- Ages 14 to 16: This is when you introduce a concept that Lieber describes as the "discretion test." "You remind them that yes, you are going to tell them how much money you make and what your net worth is, but only when they've proven themselves to be discreet." And what are the signs that a child is ready? "When they're not telling other people friends' secrets or reading their siblings' diaries or being a tattletale," Lieber says.
- Age 17 or so: Around this age, your child should be done with the snitching and snooping. Remind them that your salary, home equity, and 401(k) balance is family business and not for sharing with others. And Lieber says to tell them that if they do talk about it with their friends, they're going to sound like a jerk: "No kid wants to flunk the discretion test. No kid wants to flunk the jerk test. They don't want to disappoint their parents."
You may wonder why you should even risk revealing all. The answer is that by age 17, Junior is already facing some very big and adult financial decisions, starting with how much to spend on college and housing, and how to earn a paycheck as a grown-up.
"They should know what it takes financially to provide whatever life you've been able to provide for them," Lieber says. Even better if they've been learning these lessons from you all along.
Facing an Awkward Money Situation? Do tell!
Email me at email@example.com with scenarios you've encountered, conversations you keep putting off, situations that leave you stumped, and humblebrags about deft ways you've dealt with awkward money situations. I'll be picking through them to address here on Fool.com and on our Motley Fool Answers podcast.