Submitted by New Jersey Bankruptcy Attorney, Lee Perlman.
Originally published here, by the New York Times.
When Scott Parker wanted his six offspring to know more about the value of money, he decided to do something that many parents would consider radical: show them exactly what he earned.
One day, he stopped by his local Wells Fargo branch in Encinitas, Calif., and asked to withdraw his entire monthly salary in cash. In singles. It took 24 hours for the tellers to round up that many bills, so he returned the next day and took away the $100 stacks in a canvas bag.
His oldest son, Daniel, who was 15 at the time, remembers the moment his father walked into the house and dumped the $10,000 or so on a table. “It looked like he had robbed a bank,” he said.
After a pause to let it all sink in, Mr. Parker began peeling off bills. He told them about taxes, set aside money for a tithe to their church and made a big pile for the house payment. The singles piled up for soccer and scouting and hamburger night. By the end, there wasn’t much left over. “I was trying to make as big of an impact as I could, and I definitely had their attention,” he said recently.
Your children deserve to know what you make, too. It may sound improbable, but you can begin to initiate them when they’re as young as 5 or 6, building their knowledge slowly and giving them the real answer while they’re still teenagers. Handle it right, and it will be one of the most valuable lessons of their childhood.
Here’s the bigger problem this helps to solve: Money is a source of mystery to children. They sense its power, so they ask questions, lots of them, over many years. Why isn’t our house as big as my cousin’s? Why can’t I have a carnivorous plant terrarium? Why should I respect my teachers if they earn only $60,000 per year? (Real question!) Are we poor? Why didn’t you give money to the man who asked you for some? If my sister can have Hello-Kitty-themed Beats by Dre headphones, why won’t you get me the Bluetooth-enabled Lego Mindstorms set? (It’s only $349, and it’s educational, Mom!)
We adults, however, tend to do a miserable job of answering. We push our children’s money questions aside, sometimes telling them that their queries are impolite, or perhaps worrying that they will call out our own financial hypocrisy and errors. Sometimes we respond defensively and viscerally, barking back, “None of your business,” unintentionally teaching our children that the topic is off limits despite its obvious importance. Others want to protect their children from a topic many of us find stressful or baffling: Can’t we keep them innocent of all of this money stuff for just a little bit longer?
But shielding children from the realities of everyday financial life makes little sense anymore, given the responsibilities their generation will face, starting with the outsize college tuitions they will encounter while still in high school. “It’s dangerous, like not telling them about how their bodies are going to change during puberty,” said Amanda Rose Adams, a mother of two in Fort Collins, Colo. “That’s how kids come out of college $100,000 in debt with an English degree.” Or not knowing how and why to start saving right away for retirement, or how to pick a health insurance plan.
This does not mean that children are entitled to your tax returns the first time they ask how much you earn. Financial transparency comes only with readiness, as Joline Godfrey, a family financial education consultant, puts it, and it takes a decade or so to give them enough knowledge and context to make the information meaningful and for you to feel safe sharing it.
Start by using the same, simple line every time your child asks you a money question: “Why do you ask?” Don’t say it with disapproval or defensiveness; make it clear that you’re glad your child asked.
This is a stalling tactic to give you time to think of an answer. (It also works well with questions about sex and drugs.) Even better, it can allow you to figure out exactly what is on your child’s mind. If two parents are fighting about money and a child overhears, it’s natural to wonder how much the family has or if it has enough. At that moment, it can be easy to reassure a child that the family is fine — if that’s true — and that the argument was merely about the best way to use what it does have. Still, when it comes to your children’s financial initiation, you don’t want to play defense, merely responding to their inquiries. Instead, you want to build their awareness slowly of how to build a household budget.
Start with something that you spend money on regularly — anything, really. Children as young as 6 or 7 can begin to understand the grocery bill. They often tag along to the store or add to the wish list each week, so it’s a great opportunity to introduce the idea of wants and needs as you navigate the aisles. Some children even get in on the couponing, collecting a portion of the savings from the parents.
This is all part of helping them answer basic family budget questions: What do we spend each month to cover the necessities, and what do we choose to spend on things that we merely want? Our spending isn’t a secret in the first place; children see plenty. But watching us whip out plastic cards in the store or in front of the computer, completely out of context, may give them the wrong impression entirely, which is why it’s good to introduce them to all of the expenses before they are teenagers.
Some parents start with even larger line items. Trisha Jones, a stay-at-home mother in Norfolk, Va., sends her children, who are 6 and 8, to private school. Each month, she has them sit with her while she pays the tuition online, asking them to click the button. “We jokingly say that it costs $92.50 to send them each to school every day,” she said, adding that they know that the daily number is akin to a nice Lego set. “But it’s a privilege to go to the school that they do, and we want them to know that we are making sacrifices to send them there.”
Other families focus on expenses that derive from the children’s extracurricular interests. When the local ballet studio raised prices just as her 12-year-old daughter was increasing her commitment to dance, Rebecca Miller Goggins showed her the bills. A professional fund-raiser who lives in Northampton, Mass., Ms. Goggins is used to being direct about money and gave her daughter the option of having one fewer lesson per week or cutting back elsewhere. Rather than reducing the number of lessons, her daughter started babysitting more and contributing money toward her pointe shoes.
In the Adams house in Colorado, every line item in the budget is available for inspection by the children, who are 10 and 11. Each Sunday, the family reviews it.
“You feel deprived if you’re not part of the decision-making process,” said Ms. Adams, a program manager for a technology company. Her children are now involved in deciding on trade-offs too. Skipping dinner at the Vietnamese restaurant means more money in the Disneyland fund. One idea one of the children had: Rather than hang out at the Barnes & Noble after dinner, where spending temptations abound, they head to the public library.
It’s Already Out There
If your child knows how to use the Internet, you might be shocked by how much financial information about your family he or she may already possess. Search your home address: Did the approximate value of your home pop up? Mine, too, and it will happen when many children search their addresses for the first time and find the Zillow estimates. Once a child discovers this, it’s a quick step to looking up the address of every friend. Then comes research into salary information. If it can’t be found, the child may go looking through your belongings for your tax returns, as I did as a young snooper.
At this point, you may be in a bit of a pickle. Information about household income and home values is grown-up data; it ought to stay in the family. But if you can’t control exactly when family members acquire some of it, you need to at least try to imprint the idea of discretion. The script can go something like this: We’re trusting you with this information because we want you to know where our income goes, and we expect you to show the same maturity with other information you’ve found yourself.
The same principles apply with medical information, friends’ secrets and other private things. “We’ve had other issues that we’ve talked about that are private and confidential,” said Ms. Goggins, the fund-raiser in Massachusetts. So she and her husband recently told their 12- and 14-year-old daughters what they earn. “They’ve proven themselves.”
As will many children in middle and high school. Most of them don’t want their peers singling them out as having more or less than others, so they may try harder than you think to keep the information private. For some families, this advice will work only selectively. Ms. Adams, who wrote the book “Heart Warriors” about her son’s heart disease, shields him from knowledge of the family’s medical bills. Child patients often feel guilty for inconveniencing their families.
Families who struggle generally, or are experiencing a period of unemployment, are naturally among the most reticent. Still, even the youngest generally understand when budgets have become tighter and want to know why. Pretending that there hasn’t been a reduction in income or some other difficult circumstance doesn’t help them. “If you are not talking to them, then they are drawing their own conclusions,” said Sara Solnick, an associate professor of economics at the University of Vermont who has written about social comparison. Leveling with them about the reality and how you’re managing it may help ease their fears.
When Andrea Dutton and her husband separated and she moved with her 7-year-old daughter and 3-year-old son to a smaller house in Gainesville, Fla., she addressed the matter simply. “I’m not apologizing to them about it,” she said. “I want them to realize that the right decision is not always the easy one. I’d rather have them see that you can do the right thing and get out of a bad situation even if it means taking a hit financially.”
Keep in mind that if you are planning on applying for financial aid for college, you will have no choice but to disclose your financial information when your child is a senior in high school. That’s because anyone who wants financial aid must fill out a form called the Fafsa. It asks for information about income and assets. Parents sign it, and so must the students; everyone attests to the accuracy of the information.
Coming clean about income and assets can pose special challenges if you are truly wealthy; you may worry that children will flaunt their good fortune or think they never have to work. But you don’t get a pass: If you don’t work (or don’t work much), older children will wonder how the family affords its life. At the very least, it’s worth trying some starter exercises, like showing your children the details of what a vacation or a second home actually costs. Explain, too, that it requires a great deal of money to throw off whatever dividends and interest contribute to the family budget, and that the investments that do so may not last or may not fall to the next generation if the children don’t make something of themselves in college and beyond.
Our Money, Our Values
Given the near inevitability that parents will have to disclose their incomes or their children will find out some other way, it’s best to think of that moment of revelation and the years leading up to it as opportunities. For those of us who have at least a little bit more than what we need to scrape by, what we spend says a lot about what we stand for; how we determine value is a reflection of our values. The same is true for whatever we have left over each month. How much do we save? Why does it fluctuate? Who has helped us, what do we give to people who have less, and why don’t we give more? It’s impossible to answer these questions for children with conviction and clarity if they don’t know the size of the number at the beginning of the equation.
When Mr. Parker came home with his big bag of money from Wells Fargo 20 years ago, he was acting as much on reflex as anything else. “I just remember distinctly that I never knew myself growing up, and I felt it was a big disadvantage,” he said. “I had no idea what it would take to take care of a family.”
That night, the lessons couldn’t have been clearer: The family’s life was expensive. Every decision mattered. Savings and faith were high priorities. And there wasn’t much left at the end of the month.
His son, Daniel, is now an adult and has two small children. He and his wife intend to share their financial information with their children as they grow.
“He had little tolerance for entitlement in any of us,” Daniel said of his father. Scott Parker did have confidence that his children would know what to do with the information he had literally dumped onto the table.
“I wasn’t swearing anyone to secrecy,” he said. “But I can tell you, it never became an issue. I figure that whatever the risk was, it was worth it.”