There's an elephant in the room
By Don Kuehn
I don't want to startle you, but did you notice? There's an elephant in the room. It's the economy, and it's blocking the view of everything else that affects you life.
Maybe your school board is wrestling with budget problems caused by declining tax revenues; perhaps your 529 college savings plan has taken a huge hit, or your mortgage has reset and payments are getting out of reach of the household budget; maybe part of your family income is threatened by a job loss.
Every family in America is faced with some tough decisions today because of the recession that became "official" last December and a stock market that charts like an erratic EKG. President Obama warns that it could take years for the economy to completely recover. And don't think your kids haven't noticed.
What do you say to your kids when they want to know "Are we going to have to move?" Or "Is Daddy going to lose his job?" Well, people with a lot more firsthand knowledge on this issue than I have are advising you to be as honest and gentle as possible. No matter the ages of your children, it's important to reassure them that everything is going to be OK and that you have a plan (or are making one) to get the family through this period together.
Every conversation about credit cards, criticism of bailouts or off-handed comments about the shenanigans on Wall Street sounds an alarm in the ears of your children. They don't miss much, do they?
But these can be "teachable moments" for your family. How you deal with the current financial calamity can be turned into life-changing lessons for your kids.
You may have to re-evaluate where you spend your available dollars. If you have been prudent all along—living below your means, sticking to a budget and building a cash reserve equal to at least six months of fixed expenses—the blow of the current recession might even pass you by. But most of us are really struggling.
Focus on how fortunate your family is to have a roof over your heads and food on the table. Even if you are having a tough time paying your bills, explain that you have the skills and education to find other work if things really go sour. Make it clear (depending on the age of your youngsters) that for the time being, it may be necessary to cut back on certain things they once may have taken for granted.
If you have been functioning on a demand-and-supply model (the kids demand, you supply) at your house, this is a great time to help kids understand the difference between something they "really, really want" and the things they actually need.
That cell phone with unlimited minutes and texting: Want or need? The latest video game or laptop: Want or need? The clothes "everyone's wearing": Want or need? You get the picture.
For many of us, this recession has become an opportunity to dramatically alter the family's habits. Put the emphasis on family activities, volunteer to help others in a food or clothing drive, trade vacation plans at Disney for explore-your-own-city day trips or a camping or hiking trip instead. It's time to take a close look at your own "family values."
"I think there is a silver lining for parents and families," said Marybeth Hicks a columnist and author on parenting whose work appears in the Washington Times. "I think this economy is going to give parents the opportunity to regroup in terms of the values that we're teaching our children with respect to money and materialism.
"Parents need to learn to say ‘no' and need to have confidence in that," she said. "It isn't always in their best interest to give [children] everything they want, even if you could, because I think they need to learn that waiting for something, delaying gratification, sacrificing, those are important aspects of character development."
If your children are in college, be sure they understand, at a deeper level, the realities your family is dealing with. They have to understand that good spending habits and staying out of debt are crucial at any time, but especially now. The habits they develop could be more valuable to them in the long term than some of what they learn in class.
Then there's the dilemma of parents whose grown children are facing economic troubles. Help them or not? In this era of bailouts, you might find yourself faced with a plea from your older kids. Do you come to the rescue? Here are 10 considerations from MSNBC.com columnist Laura T. Coffey:
1. Assess the situation objectively. Is your child seeking financial help from you for the first time-or for 10th time? If this is an unusual emergency beyond your child's control (caused, perhaps, by an illness, a job loss or a divorce)? That's one thing. But if your child consistently shows a lack of spending control or has addiction problems, a different kind of help may be needed.
2. Ponder the consequences. You could be opening a can of worms by getting involved in your child's financial affairs. Brace yourself for a barrage of strong emotional reactions—including guilt, resentment and anger—on both sides. But if you feel confident that you can discuss money honestly together, then it might be OK to proceed.
3. Set clear limits. If you do decide to help financially, be clear about how much you can do. "If people know the help is temporary, that's more of an internal motivator to right the ship," says Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. Richard suggests helping with bills for a set time period—say, three months—or giving the child a percentage of the total amount he or she needs.
4. Keep your finances separate. It's not a good idea to add your adult child's name to your credit cards or establish joint accounts together, especially during a time of crisis. Studies have revealed that up to three-quarters of all co-signers are asked to repay loans that go into default.
5. Decide between a gift and a loan. You could eliminate future stress if you can afford to give your child a gift rather than a loan. You can give a tax-free gift of up to $12,000 to an individual. If you give a loan, though, document everything (terms, interest rate, collateral, monthly payments, etc.) and draft an agreement that you both sign.
6. Know where else to point your child. Your child can get free, confidential help through Debtors Anonymous. This 12-step program provides support and guidance in a manner similar to Alcoholics Anonymous.
7. Consider credit counseling. Your child also could get help through a reputable credit-counseling agency. You can be connected to agencies that have made a commitment to certain professional and ethical standards through the National Foundation for Credit Counseling (or call 800/388-2227) and the Association of Independent Consumer Credit Counseling Agencies (866/703-8787).
8. Know what to expect. A debt-payback plan devised with the help of a credit-counseling agency can take as long as two to five years to complete. If your child ever misses any payments, the agency may require full debt payment all at once. This move could force your child into bankruptcy court.
9. Help in other ways. If you suspect that your child is dealing with chronic money woes because of larger issues beyond your expertise, you could direct your financial help toward rehabilitation or counseling. If he or she refuses such help or fails to change the behavior, it may be time to resort to the tough-love approach.
10. Start the training process early. To help prevent future problems, Richard and other experts recommend that parents give children an allowance from an early age and then let them manage their own money without bailing them out. The idea is to let them learn from their spending mistakes while they're young and the stakes aren't too high.
No matter the age of your children, they are likely to have questions about the tight money situation that has all of America wondering what might happen next. You kids need to understand that you are going to do everything in your power to keep their world stable, but some sacrifices may be necessary. The best thing you can do is to plan for every contingency and include them as much as possible in family decisions related to weathering this storm.
If you've still got some, it's your money and conserving what you have is a family responsibility.
Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to firstname.lastname@example.org .