Talking to Teens About the Financial Crisis

Take this chance to teach older kids the principles of financial responsibility. But keep your conversation positive and reassuring.

Should parents discuss the financial crisis with their children—and, if so, what should they tell them? The answer to the first question is a qualified yes; the second answer depends on the child’s age.

What younger children need most is reassurance. Older kids can process more information both in school and at home—though getting the details straight sometimes presents challenges of its own.

I recently listened in on a high-school economics class in which the teacher asked what had caused the current crisis. “Corporate greed,” piped up one student.

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It would have been nice if the teacher had gone on to explain (or had the kids explain) that corporate greed had been aided and abetted by the Federal Reserve keeping interest rates low; Congress urging Fannie Mae and Freddie Mac to buy up dodgy mortgages that lenders didn’t want to hold; and consumers borrowing easy money to buy homes they couldn’t afford.

Taking advantage of this teachable moment doesn’t have to be limited to AP economics. In history class, students could discuss how the current situation differs from the 1930s and how the Fed has been greasing the skids with credit in order to avoid the mistakes of the Great Depression, when government sucked money out of the system.

Middle-school teachers could inject financial literacy into social studies by explaining how borrowers overextended themselves on mortgages and credit-card debt. And in math, students could use a compounding calculator to learn how it pays for young people to buy stocks at today’s fire-sale prices.

At home, too, parents can use the following strategies to reassure teenagers while giving them a lesson in managing money:

  • Be proactive. You don’t have to share every detail of your family’s finances. But if you need to reduce your spending because of a layoff or because you want to pay off debt, show your kids how your monthly expenses stack up with your income and how you plan to cut back. That puts your finances in context without overloading the kids with information.
  • Have a plan that teens can participate in. Perhaps they can cover more of their own expenses by taking on more babysitting gigs or mowing more lawns. If paying college bills is an issue, have an up-front discussion about what you can afford. Should they limit their applications to lower-priced in-state schools? How much does it make sense to borrow based on their potential future income?By the way, if your kids are already in school and you’re suddenly short of cash, you have options. Appeal your financial award if you’ve lost a job, or take out a federal PLUS loan if your home equity line has been frozen.
  • Be positive and add perspective. Teens and young adults have never experienced a serious economic downturn. They need to know that our resilient economy has always recovered from other crises, and this too shall pass.

SEE ALSO: Tips for talking to young children

Janet Bodnar

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.