While it is important to be honest with your children, experts say you should also be careful about how much information you share.
“While you don’t want to burden a child with adult-sized problems, kids pick up on stress. So pretending things are great when they’re not isn’t helpful,” Amy Morin, a psychotherapist, host of The Verywell Mind podcast, and the author of 13 Things Strong Kids Do: Think Big, Feel Good, Act Brave, tells Parents. “It’s healthy to share the situation with kids so they understand what’s going on, but it’s important not to give them more information than they can handle.”
You have probably relied on your parents to handle your financial matters for years, and you may only know a few basics about personal finance. However, when you graduate from college, you are suddenly responsible for making a lot of important financial decisions. Learning to manage your money is about overcoming four big hurdles. Even though these tasks may be challenging, it doesn’t mean you can’t do them.
“The crying need for more financial literacy in Gen Yers cannot be overstated,”
says consumer finance expert Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. “The good news is that managing finances is not an innate skill, but something that is learned like math, reading and writing.”
Gallegos suggests that those in Gen Y should take it upon themselves to learn about financial topics like budgeting and living below one’s means, as these topics are not commonly taught in schools. According to Gallegos, taking the initiative to follow one good online or print resource on these topics can provide a foundation for this education.
His advice also applies to younger generations, of course.
Repaying Student Loans
In today’s day and age, an undergraduate degree does not seem to be cutting it in many different fields. The biggest challenge that many young people face is student loans.
“There’s so much pressure to go to a good school and compete for limited jobs that a lot of students are taking out expensive loans to finance an education that won’t pay for itself no matter how good a job they land after graduation,” says attorney Shane Fischer of Winter Park, Fla. “If I knew then what I know now, I wouldn’t have gone to an expensive private school and would have opted for the less prestigious public school.”
According to FinAid.org, over half of graduate students have to take out loans to finance their education, with the average graduate student owing around $31,000 in debt by the time they finish their degree. The majority of law students also have to take out loans to finance their education, with 88.6% of law students borrowing money and the average law student having around $80,000 in debt by the time they finish their degree. Students pursuing other professional degrees are in a similar situation, with 86.2% of them having to take out loans and the average student in this category owing more than $87,000 by the time they finish their degree. This is on top of the average $10,000 in debt that undergraduate students have.
Learning to Invest and Take Risks
A lot of Gen Yers were greatly affected by the economy during the Great Recession- either they couldn’t find jobs or they saw their parents’ investment returns dwindle. Rachel Cruze, a professional personal finance speaker and Dave Ramsey’s daughter, commented on the situation. “It’s really unfortunate that the economic downturn has caused so many young adults to be discouraged about investing in the stock market. People need to keep in mind that when you’re investing in stocks, you’re thinking about the long-term- and although the past few years have been tough, overall the stock market has been profitable. If you start investing early and frequently, you can really grow your wealth through your investments,” she said.
Brian Ullmann, a wealth manager at Ford Financial Group, says that the younger generation has become much more conservative with their investments since the market turmoil. He says that some of their clients who are in their 20s have portfolios that are positioned for someone twice their age. He is concerned that this change is permanent and that it might cause them to miss out on opportunities in the future.
Present money struggles in terms they can understand.
Instead of just rattling off a list of overdue bills, try to find ways that kids can relate to and be a part of the conversation.
Instead of saying “I can’t afford that,” try expressing what you are doing with your money. For example, say “I am saving my money to pay the electric bill.” This will help reduce financial stress for you and your kids.
Morin then advises parents to share with their children what steps they are taking to address the situation, such as working extra hours to make more money, or meeting with people who can help them pay rent this month.
Explain family priorities.
If you’re trying to save money, tell your kids about it. They can help you come up with a budget and figure out what’s most important to spend money on.
“You can communicate the plan with them so they know what to expect,” adds Morin. For example, she suggests you might say, “We’re not going to spend money on things we don’t need this month. But we can still have fun by doing things that don’t cost money, like going to the park or playing games.”
Assure your children that they are safe.
It’s alright to tell your child that you are cutting back on some expenses and trying to spend more wisely, but do your best to ease their worries.
Morin recommends starting a healthy conversation with children by explaining what they can expect and assuring them that the adults have the situation under control. She suggests some conversation starters could be: “We’re working hard to pay our bills. But for the next few weeks, we won’t be buying any extra clothes or eating out.” By acknowledging the stress, but reassuring them that the adults are handling the situation, children will feel safe.
Try to shield kids from adult implications.
Do not let them see or hear anything upsetting.
“You don’t want them overhearing an argument about money or hearing a voicemail from an angry landlord threatening eviction without any type of explanation,” says Morin. “Kids will often form their own conclusions based on what they see and hear. So if you don’t give them a simple explanation, they may fear the worst.”
Consider age-appropriate action.
Morin suggests being delicate when talking to your kids about money troubles and being considerate of their age. The following are age-dependent ways Morin suggests approaching your kids about money troubles.
It is important to keep everything positive when teaching kids about money. They do not yet understand the concept of money and how it’s earned or spent.
Morin states that kids at this age are capable of understanding simple explanations concerning how you are setting money aside to pay specific bills or how you are spending your money on only the most necessary items.
Morin suggests that tweens can handle more complicated conversations about finances. You could tell them that you can’t afford certain brands of clothing or outings to restaurants because you need to pay for necessities first. You can also be honest with them if you receive help from others.
Morin believes that teenagers are more easygoing when having conversations about financial problems. According to her, teens can be taught the worth of money by having discussions about how much certain things cost. For example, she suggests explaining to them how many hours of work are needed to buy groceries or to pay the electric bill.
According to Morin, while you don’t want to make your teen(s) feel guilty for how much they eat or how much electricity they use, it can be helpful for them to realize that it takes a lot of effort to cover the basic expenses, which may help them see that you’re not saying no to things because you don’t want them to have those things; rather, you just don’t have the money as a family.
When should someone start to plan?
It is better to learn something earlier rather than later. An example of this would be budgeting – it is a skill that we should learn at school age, as soon as we start receiving pocket money. The sooner people realize how to set priorities and understand the trade-offs when spending, the more disciplined they will be. It is important to understand the importance of saving early – even small amounts put away when someone is young can grow into larger sums later on, with little cost to lifestyle.
It’s easy to focus on the present and miss the opportunity to prepare financially for the future. This can have a big impact later in life because compound interest grows over time.
Overcoming Pressure to Follow a Worn-Out Path
Brock says that one of the biggest issues facing Generation Y is overcoming societal pressures. He says that they are constantly being told by older generations that there is a right way to plan financially, even though this advice often comes from people who are not in a good financial position themselves.
Brock says that young adults nowadays don’t care about keeping up with the Joneses like previous generations did. He attributes this to the fact that the Joneses have lost their jobs and houses, and may never be able to retire. Brock adds that this generation of young adults prefer freedom and experience over owning property. He concludes by saying that young adults are waiting longer to get married, move to the suburbs, and have kids.
The flexibility that comes with renting instead of owning a home allows people to more easily pursue their goals and dreams. Financial security and stability are not always the top priorities for everyone, and being able to rent gives people the freedom to choose what they want to do with their lives without being tied down to a mortgage.
Brock states that older generations should acknowledge that younger people may have a better understanding of happiness than they did when they were younger.
Avoid worst-case scenarios at all costs.
Try not to tell your children the very worst that could happen with your family’s money troubles. According to Jennifer Weber, PsyD, director of behavioral health for PM Pediatrics Behavioral Health, it’s better to avoid “worst-case scenarios” or how the situation could be worse. She also suggests not comparing your situation with that of other friends or family.
According to Dr. Weber, children are egocentric due to normal development, which means they typically worry about how changes will impact them and if their needs will still be met. He suggests only discussing finances with children when it will directly affect them, using concreteness by focusing on what will stay the same and what will change.
“This allows your child to ask questions you can then answer specifically,” Weber concludes. “By answering just what they ask, you can avoid potentially creating more anxiety around the situation for them—and for you.”
The Bottom Line
Today’s youth need to educate themselves on personal finance to overcome the challenges they face, such as managing student loan debt, minimizing additional debt, and learning basic investment skills. They should also not be afraid to choose their own paths and practice patience, as advised by many.
“Remember that you’re still young, and be content with what you have,” says Cruze. “Work hard so that you’re able save up to make large purchases that you can afford without having to pay interest.”