Don't Tell Your Kids


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. Erik Britt-Webb says:

    I think it’s absolutely essential to share “bit sized pieces” of the current financial crisis with your children. My wife and I have done so with ours, ages 6 & 8. This includes: discussing how we had to cut back while I was unemployed, how many other families are having to do the same, and how even now that I am re-employed, we have to be very careful and payback what we borrowed.

    We have continued to pay our kids a daily allowance, via, and they have invested more of that into their INGDirect savings accounts than they have used to buy toys. They really get a kick out of seeing how much allowance we owe them and how much they have in their savings accounts.

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  2. Kimota94 says:

    I learned more from watching my mother struggle to make ends meet when I was a kid than I could ever have learned from anything she could have told me on the subject (given that she was caught in the middle of it and hardly likely to have much perspective on it at the time, anyway). But it was also a different world back then (40 years ago).

    I think my wife and I raised our daughter (now grown) to understand that saving and living within your means are important, even though we both made a good living in those days… and we did it through both action (practicing what we were preaching) and words (reinforcing those principles with stories from our childhoods, when money wasn’t so readily-available). She’s in her early-20s now, living on her own, and using a budget to manage her money (including saving for retirement as well as for vacations, and never putting anything on credit that she doesn’t have the money for in the bank).

    If we come out of this financial crisis with a greater percentage of the population living within their means from now on, then it’ll all have been worth it in the long run. I certainly won’t be holding my breath for that outcome, though…

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  3. brianmc says:

    leaving aside the real topic, i’d like to discuss the reaction: people seem to think that being financially conservative means saving money. my interpretation would be that one who is financially liberal/aggressive (i’m not sure why they would say aggressive as the opposite, but if you look at a model portfolio, it’s always compared that way).

    one can save lots of money and still have aggressive investments. i intend to tell my children that your time horizon, risk tolerance, and current financial situation should dictate your investments. as a result (i’m 24) my retirement is most aggressive, my long-term savings are balanced, and my short term needs are FDIC. overall, this is a balanced portfolio, but that’s only when you consider all the holdings as if they’re equally weighted.

    the main point should be that risk aversion is not the same as thrift.

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  4. DaveJ says:

    My eldest is still probably too young to understand much about the crisis and since it’s not affecting us in any meaningful way, there probably isn’t any point in trying to discuss it.

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  5. Maria T says:

    I heard a scenario where two 7 year old boys were talking, and one said he was worried about the fighting on the news because he was scared that the fighting would come to his country. The other said he wasn’t scared if the fighting came because he has a sword! (Probably a toy one, I would hope!).
    I think this demonstrated how some kids worry about things a lot more than others of their age. With the current financial crisis, I would want to reassure the worrying kid that things aren’t so bad as he might hear, while I think the other should be told what’s going on to help him understand the adult world.

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  6. Kel says:

    @9: 300 *billion* people in the US? Wow, that would explain the long lines at the grocery store…

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  7. Cory says:

    Go read an original Mother Goose tail. Now try to come back and say that kids can’t handle news about a financial crisis with a straight face.

    Besides – talking to kids about money at a young age is the only way that they will learn. It’s too bad that the parents of people who thought that the housing prices would grow at 10%+ per year for the rest of time didn’t talk to their kids about financial issues, otherwise we may not have been in this mess.

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  8. anne says:

    Hmm. I just barked at a dawdling child this morning that we needed to get out the door so mommy could go to work because if I didn’t work, we wouldn’t have our house, the car or food — so get moving!! (She’s 10 so this shouldn’t be news to her) Will she grow up to be a conservative spender or a profligate?

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