You may think you can keep your children in the dark about your finances. But you can't really. Take Alan Wolan, for instance. Now on the brink of 50 and a guerrilla marketing expert, Wolan remembers how money was discussed at home when he was a child.
"My parents didn't talk about money at all," Wolan said. "If they ever had a talk about money they would do it when I wasn't around. The actually made a concerted effort to shield me from those conversations."
He thinks they were trying to lengthen his childhood.
"If I were to ask my father, 'How much did our house cost?' He would say, 'Oh, a lot.' He was obviously giving me vague answers that I couldn't wrap my head around," Wolan said.
Studies show parents think their kids are on top of things — 54 percent of parents think their teenager's knowledge of personal finance was "good" or "excellent," according to a study by Capital One and Consumer Action in 2003. Yet 78 percent of the children ranked their money management as poor or average. And now that the economy is struggling, vague answers not only won't work, it will damage things, experts say.
One of those experts is Susan Beacham, the CEO of Money Savvy Generation. "A lot of parents believe they can keep that a secret from their children," she said.
"But kids are brilliant detectives. They watch our faces. They hear our conversations. They watch the mood in the house. They see the things that we think they don't see."
Other experts are a husband and wife team of retired professors, Paul and Pat Frishkoff, who run a consulting business in Oregon that advises family businesses.
Paul Frishkoff said secrets fester. "Kids will come to resent it if they find out about problems after the fact. There is always a 'Why didn't you tell me?' "
Wolan agrees with the sentiment. He felt his son, who is now 13, could handle the truth. And so he tells him what is going on — something that is rare for poor and even wealthy families
An October 2011 survey by SEI Private Wealth Management found only a third of uber-wealthy families ($20 million in assets) discussed their wealth with their children before the age of 21. The parents said they had strong expectations for how their children would use that wealth in the future, but they were reluctant to talk about it.
"People are afraid of being judged by both their family and their neighbors," Paul Frishkoff said. "They are afraid of being judged as not as good as the Joneses or richer than the Joneses. They are worried that if they level with their kids that their kids will put demands on them or will become slackers."
Pat Frishkoff added that the reluctance is among people who are rich and among those who are struggling.
But the alternatives to discussing money are not pretty.
Consequences of silence
In addition to resentment, children intentionally kept in the dark on family finances face other challenges as well. Some of them long term.
"To not let kids know where things stand is to be borderline cruel," Beacham said, "because it doesn't empower them. It cripples them when they become young adults. And it makes them extremely insecure when they are under your roof because they are not sure why things are the way they are."
And, especially if they are younger, they may blame themselves for family tensions. The alternative is to tell them what is going on.
But for Wolan, the biggest danger of not teaching kids about finances is how they will act in the future. "They will pay the price later on, which means financial mistakes, which means debt mistakes. They will get into debt."
Jayne A. Pearl, co-author of "Kids, Wealth and Consequences," thinks the financial crisis gives parents an opportunity to teach children how to be resilient.
This doesn't mean scare them, she said, but children need to know that things go up and down. Things change.
"We tell them we have to learn to roll with that and learn how to survive in any economic environment," Pearl said. "And right now people are struggling."
A February 2010 survey by American Express found that 71 of parents with kids between the ages 6 and 16 say their children understand we are in a recession. So they already know. But they need to have a more important message added to that knowledge, Pearl said: "But we are going to be OK."
Then, to help the kids really learn, Pearl said to get them involved. "When kids feel they can be part of the solution it is very comforting to them."
For example, parents can ask their children for ideas on how the family can lower expenses.
Pat Frishkoff would also adjust allowances. (And 62 percent of parents give a weekly allowance, according to the American Express survey.)
She said if parents experience a change in income it is important for kids to also experience it on their own level — such as cutting their allowance. "Kids need to be a part of that," Pat Frishkoff said. "Parents cannot continue, if income is going down, to pretend that everything is fine. This downturn has been too severe. It is long-standing and continuing. And a lot of people have been impacted by it. So to pretend that it does not exist is a serious mistake on the part of the parents."
It is all about teaching the kids problems can be met and they can rise above them. They don't hide from difficulties. They meet them head on.
But it has to be on their level.
When Paul Frishkoff was a young assistant professor at the University of Oregon, he tried to explain how tenure worked to his 4-year-old son. "I was trying to explain that if I didn't get it I would have to move on," he said.
He later overheard his son tell a neighbor kid over the back fence, "Daddy is about to get fired."
"We believe being disclosive in a gentle way," Paul Frishkoff said.
"Kids need to know, if it is true, that they will be taken care of," Pat Frishkoff added. "You tell them you love them and you will take care of them. … Young kids need to know they are loved and that they are safe."
Letting them know they are loved and safe takes on even more importance with a May 2011 study by Laura Padilla-Walker and Randal Day at BYU and Gustavo Carlo at the University of Missouri.
The researchers looked at middle- to upper-middle-class parents with financial problems and accompanying depression. They found the parents were less likely to feel a connection with their children, and their children were less likely to engage in pro-social behaviors, such as volunteering or helping others.
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It drives Wolan's relatives crazy when they hear him talking about finances with his son. But it isn't likely the author of "Moneyology: A Kid's Guide to Money" is going to back down.
"I've talked with my son about how much our house costs and how much that translates in terms of monthly payments. We talked about the different expenses that go along with it. I let him sit down with me when I pay the bills, so he can see how much the water bill is. He knows how much the water costs per gallon and the difference in cost between a 10-minute and a 20-minute shower. So I don't have to hint around things," Wolan said. "I don't want my kid to worry about things, but he doesn't seem to be too worried. He still takes 20-minute showers. He's not worried with my money, but if it is his money, he thinks twice."