Airing Out the Family's Money Secrets

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Crises

Very few families can claim to see their children grow to maturity without experiencing some family crisis along the way. With the divorce rate in the United States at about 50 percent, the dissolution of the family is by far the most common crisis that many children experience.

Divorce brings many financial changes to the family. It may mean that the mother has to work full-time, that there's less money in the child's household, and that money may be a serious issue between parents.

Children of divorced parents shouldn't be in on the details of child support payments: That's something between the parents, and wrangling about it usually results from the parents' broken relationship. This information should have nothing to do with the children; bringing them in on the issue only forces them to take sides and makes them feel conflicted about doing so.

With any family crisis, there's usually an important aspect of money involved in the events. Consider the following crises (besides divorce) that can happen in any family, and think about how each one can impact the family's finances (positively or negatively):

• Unemployment of a parent. The family may be put on a bare-bones budget. Unemployment compensation may cover necessities, but extras are now out of the question. The other parent may go to work. Roles within the family may be upset, with the former breadwinner acting now as the bread baker.
• Bankruptcy. Personal bankruptcies are in record numbers today. Some of this may be because of poor money management, such as overcharging on credit cards that can't be repaid. But some bankruptcies result from forces beyond one's control, perhaps if a fire or other natural disaster wipes out a business, or if a lawsuit against the family results in a staggering judgment. While the bankruptcy laws are designed to allow a person to keep certain things—a home and furnishings, a car, and a wedding ring—other assets are used to pay the debt and give the debtor a fresh start. Bankruptcy isn't the time for taking vacations or making frivolous purchases.
• Job relocation. A relocation can mean the family has more (or less) money to spend, depending on the new town or city. For example, if the family moves from a small town in the Midwest to New York City, the sticker shock of a family meal at McDonalds may be astounding. The family may have to spend more on housing and, as a result, have less to spend on entertainment and other extras.
• Remarriage. As with a job relocation, a remarriage may be positive or negative, from a financial point of view. The nature of the situation depends on the new spouse and whether new children are coming into the family. When children from two families come together in a remarriage, issues arise over how much money there is to spend and how each set of children has been raised so far to regard money.
• Serious illness of a family member. The emotional cost of a serious illness is paramount, but the financial cost cannot be denied. Even with medical insurance, a serious illness brings financial consequences, especially if the one who's sick is the parent who used to be the main provider.
• Death of a parent. As with a serious illness, the emotional price of death can't be minimized. Unfortunately, there may be a financial price on it as well. Some parents may carry adequate insurance to support the family and even provide for a college education for the children. Others may leave some assets to help, but the other parent may have to work, incur child-care expenses, and struggle along. Still others may not leave anything to help the family.

What children need to know in a crisis is that it's not their fault and that you're taking care of things. When they're little, they want their routine to continue unabated. If they've been getting dance lessons, they want to know that the lessons can continue. You, in turn, should keep this in mind when deciding what you're going to spend money on during the crisis period.

As children get older, you can bring them into the inner circle of money matters during the crisis. For example, you might tell a child that her college savings is safe and will be there for her when she needs it. Or, you might have to say that the savings will have to be used now to support the family and that payment for college will have to be worked out later.

The prospect of death is particularly scary for children. They fear not only losing their parents, but also ending up an orphan like Oliver Twist begging for more food. It may be reassuring for children to be told that if you die, they'll be taken care of, both personally (with a guardian you've named in your will) and financially (with life insurance and other property).