Don't Tell Your Kids

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Most parents have difficulty deciding how much of the “bad stuff” (war, death, etc.) they should tell their kids about, or when they’re old enough to hear it.

New research from Ulrike Malmendier of the University of California and Stefan Nagel of Stanford identifies another kid-sensitive subject parents might want to avoid for a while: the financial crisis.

According to this Economist article on their research, Nagel and Malmendier found that “people’s eventual appetite for risk is affected by the economic environment during their childhood, well before financial matters could possibly have been of interest.”

In short, what you tell your kids about the current financial crisis — or what they discover on their own — could affect what financial choices they make throughout their lives.

But grown-ups aren’t immune either. The study found, for instance, that “people who had experienced lower stock-market returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better,” reports the Economist.

And so, to readers of this blog with children: have you discussed the financial crisis with them, and if so, how did they respond?

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  1. Laura B says:

    I would imagine that it isn’t hearing about the financial crisis that makes children eventually less risky with their money, but seeing the actions their parents take in response to it. If you grow up in a household where your money is tight, your parents are constantly saving, not taking risks, you will be much more likely to grow up with a frugal mind set because of observations you made, not because of any understanding of financial crisis.

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  2. Elana says:

    I don’t see how not talking to them will help at all. They’re more likely to hear rumors at school. You’re better off discussing what’s going on and how it is or is not affecting your life (in simplistic terms). It’ll also help them understand why they might not get everything they’re asking for either.

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  3. aldabra says:

    Surely I *should* be telling her about the financial crisis, specifically to inoculate her against taking the kinds of risks that leave you upside down in financial crises?

    That’s what I’m doing, anyway.

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  4. Brian says:

    @Laura B agreed. actions speak louder than words–which appears to be how The Economist has read their work (and probably how it actually was intended)

    Also, it could have to do with people being bad at estimating just how bad it could get. People who have been in those situations are probably more likely assign a more negative value to the negative outcomes of outlier events (e.g., Great Depression, etc). Whether they would overestimate or underestimate is hard to know.

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  5. Ellie says:

    I grew up in a household where my parents thought if we were old enough to ask the question then we were old enough to know (at least part of) the answer.

    I would now take the attitude with my kids that its better to tell them a bit now, as if we do get into a worse position/one of us looses our job, then it will suddenly get worse and they will have to be told so its better to get the information gradually as the questions occur to them rather than in one huge life altering dollopwhen its too late for a gradualy mental process to occur.

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  6. Sap says:

    What is the definition of “kid”? My ex-wife who is now 48 y.o. never has been old enough to hear bad news. Financial or otherwise.

    Consequently, she has no concept of risk or the Econ 101 concept of “scarce resources”. She trusts everyone and fears no consequences. She also spends money like it grows on trees. Hence, I’m still broke.

    Not that I want to traumatize my children, but I do want them prepared to be adults.

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  7. Cathy says:

    I find this somewhat interesting…I was raised by a single mother, and while she would never share financial details with us, it was obvious that we didn’t have a lot of money. There were a lot of things I was told we couldn’t afford, debt collectors would call, etc. and it was apparent she was very stressed about our financial situation.

    I’ve turned into a financially conservative adult, in the sense that I don’t spend freely and place a big emphasis on having an emergency fund and carrying as little consumer debt as possible. I’m one of those money=security types, although I do have an aggressive portfolio because I’m young and far away from retirement.

    But yet my brother, who is less than 2 years older than me, who grew up in the exact same household, is horrible with his finances and is constantly spending more than he makes. He might also have a high-risk portfolio, but I don’t think he has much of one to begin with.

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  8. Walter Wimberly says:

    I think that you have to inform them, at what they can understand. It helps to explain if mommy or daddy doesn’t have a job, that is why they can’t go out to eat…kids know more than we give them credit for.

    But I also agree that what we grow up with tends to shape our behaviors. My wife and I both were first children, who’s parents didn’t have a lot while we were young. We saw how they worked and improved their life style with hard work and determination.

    We took our experiences, and learned from them to be wise with our spending, knowing we can live without the latest and greatest. This has led us to both be careful with our money, and in turn, we have a low debt to income ratio and are better prepared to weather this economic storm because we don’t have creditors calling us, and we do have savings to live off if necessary. I’ve seen others who were born later, and “expect” the nicer things in life because that is all they remember growing up with…they are some of the ones hurting right now.

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