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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.
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
POSTED BY: Janice Wilcox (October 22, 2008 08:58 AM)
Once again, you've come through in the "Teaching Teens About the Financial Crisis" piece with wonderful material for our Green Dollars Project here in Baltimore. Your suggestions for "teachable moments" and lesson strategies are right on for both elementary and middle school. Thanks much!
POSTED BY: Nomen (October 23, 2008 09:56 AM)
My children were taught all the right things about being frugal as they grew up. As a result, they never had to struggle with debt and by working hard prosperity came quickly. But now as 30 year old professional people with good incomes they have no real understanding of investment risk. As smart as they are, they are still going to have to get badly burned to fully complete their education. Sadly,experience can't be taught, it can only be learned. I agree with the student in your article blaming the crisis on "corporate greed". Since Congress and the Fed pretty much do the bidding of the corporate world and their lobbyists,I don't think you can blame them separately. I do agree that many average people have made poor choices but think about the reasons. They believe what they are told. If their bankers say that they should be able to afford the loan, they believe them. If the auto dealer says the SUV has affordable payments, they believe it. When people get in over their heads, the credit card companies say here's more credit. While these people should have made better choices, WHY,WHY,WHY did the financial businesses knowingly take on all these high risk loans to begin with? Why did the financial experts then bundle and rebundle these risks and create the subprime disaster? If the trained financial people can't properly manage risk and investments,blaming the little people for our economic troubles rings a little hollow, doesn't it?
POSTED BY: Nomen (October 23, 2008 02:26 PM)
One further caution for young and old. Many of the people that I know, who are now in financial trouble, DID and STILL DO have professional financial counselors. They were told that historically property values would continue to rise and to consider it a safe investment. Young professionals were told that variable rates saved them money now and that their incomes would likely rise fast enough to offset possible higher future payments. They were also told to be very aggressive in their choice of stocks and investments. Once again they were told that historically it would pay off in the long term no matter what happened. Worst case, you are young enough to start over. If the people who could afford financial counselors are doing this, then it is logical that the general public would follow along. I have warned my children to be conservative in their investments at any age but my voice is being drowned out by the experts trying to maximize their commissions. Choose your financial advisor CAREFULLY. Shop around. Check their qualifications and question their fees. If they try to talk you into high risk or if they are always calling and trying to get you to trade to boost their commissions, find someone else. While there are many competent financial counselors, far too many are more interested in increasing their wealth and not yours. Buying stocks now at fire sale prices?? Only as much as you can afford to lose.
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