Everybody's talking about money these days: House prices are going down; more families are facing foreclosure on their mortgages; gas prices, energy prices, and grocery bills are all going up — and uncertainty over when things will take a turn for the better is making everyone tighten their belts.

But how do parents explain this to their fashion-conscious middle-school kids? How about teens with dreams of out-of-state college or a new car?

What to Say

Be honest with your children — but don't tell them more than they need to know. Avoid overloading older kids with too many details or worries that might scare them. Stick to brief explanations and be clear about changes made to the family budget.

Even young kids are brand- and consumer-aware these days, so don't expect them to volunteer to scale back on their treats or activities right away. But if you want to encourage budgeting behavior, offer incentives to get kids on board.

Knowing what you want to say, what changes will be made — and how those changes will affect each child — can help make this a little easier.

Talking to Younger Kids

Ali is 6. Her best friend just got a new doll for her birthday — the expensive kind that you know you can't afford. Ali starts to whine, "I never get anything I want. It's not fair..."

It's hard to keep your cool when you're working hard to keep the family afloat or stressed out because the bank has threatened foreclosure. Take a deep breath and stay calm. If necessary, tell your child that you'll talk about it later, then be sure to set aside time to do so.

Remind yourself that it's OK to reject pleas and set limits. You're not depriving your children — you're teaching them important lessons about delaying gratification, earning treats and rewards, and how family finances work. After all, food and rent come before toys.

When you're ready, tell your child that you cannot buy new toys right now, but perhaps the toys can be put on a wish list for the next birthday, Christmas, Hanukkah, or other gift-giving occasion.

If you can afford it, offer a small reward in exchange for good behavior or keeping the bedroom straight. Short-term rewards, such as stickers or tokens, can keep younger kids motivated. Financial incentives can help older kids earn money toward their goals while teaching them valuable lessons about saving.

Talking to Preteens

Catelyn, 11, is going to another birthday party. It's a sleepover and she's given you a list — birthday gift for her friend, new pajamas, and a new sleeping bag. She insists her friends will all laugh at her if she brings the old sleeping bag again — it's so last year. And 12-year-old Brandon wants a new skateboard and those cool new skate shoes. How do you tell them that your family can't afford all of these new things without scaring them?

Kids this age may not be interested in the global economy or why money is tight, but they can be told that there is a limited amount of money in the family budget. Do not cave into their every whim, and instead encourage kids to plan ahead for new purchases. Preteens are old enough to save money from a weekly allowance or earn it by doing chores around the house, raking leaves, or shoveling snow around the neighborhood.

When talking to your kids, let them know that they're not alone in their desires. Say how you feel when you see something that you want, but can't purchase it right away. Explain that everyone in the family has to cut down on spending — including you — and remind them that, if they're motivated, you can work together to help them try to earn money and work toward their goals.

Talking to Teenagers

Jaime, 16, needs a car to drive to school. Or does he? He may roll his eyes when you tell him that you walked or rode a bus to school, but challenging him to find a cost-effective, environmentally friendly way to get around town may appeal to his ambition of living a more "green" lifestyle. Likewise, suggesting that he save up for that big-ticket item — and seeing his goal through — will help him feel more empowered as he moves toward adulthood.

Through part-time jobs or regular babysitting, teens can earn money outside the home and cover many of their own expenses.

Making Rules Stick

Family meetings are a great way to establish these new rules, even if they're temporary until family finances are in better shape.

Explain the new rules and also new opportunities for earning privileges and treats. Make it fun: challenge kids to come up with family-friendly, cost-effective activities that everyone will enjoy.

Once you've had "the talk" with your kids, keep a list posted — perhaps on the refrigerator door — of the new house rules so that everyone knows what is expected of them.

What Else You Can Do

• Manage stress levels. Get support — yours is not the only family going through hard times. Try joining a support group or other social network in your area. Support groups are offered through local hospitals, churches, synagogues, libraries, and schools. If you feel that stress or anxiety is really starting to take its toll, tell your doctor, who may be able to put you in touch with counselors or suggest therapeutic strategies — such as relaxation techniques, exercise, or yoga — that can help you feel better and learn to manage your stress.
• Learn to say "no." Sometimes parents say "yes" to their kids before figuring out how they'll afford a new expense. Even if you agreed to something, you can explain that you made a mistake and — in order to be a financially responsible family — everyone must forego certain treats for a while.
• Explore fun, low-cost activities. Challenge your family to create memories without visiting a mall or a store. Some ideas: bike riding together, going to a park, visiting yard sales, free movie nights, concerts, library events, museums and other local art, cultural, or sporting events.
• Get kids involved. Do kids get an allowance they can save up? Can they earn money or points toward back-to-school items? Older kids might look into helping pay for college by saving money or applying for scholarships, loans, or grants.

Encouraging kids to find creative ways to save or make money not only helps them feel empowered — it helps them feel like they're doing their part to help out.

Reviewed by: Michelle New, PhD
Date reviewed: September 2011