Hiding the truth: Experts urge parents not to keep financial secrets from children
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."