How Honest Should Parents Be With Kids About Money?

When your children start asking probing financial questions, here’s how to answer.

Little boy and his mother inserting money into piggy bank.

Being honest with your child about money can pass along important financial lessons early in life.

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Do your kids want to know how much money you make? Or what the car cost? Or how much you paid for one of your guilty pleasures?

How honest a parent should be with their children when it comes to money is a judgment call every mother and father makes. Honesty about money apparently doesn't come easily to most parents: In a March survey by T. Rowe Price, 75 percent of 795 parents surveyed admitted they're apprehensive about talking to their kids about financial topics.

If you're wondering how honest you should be with your kids about money, here’s some advice from financial and parenting experts.

Details come with age. "It's never too early to start teaching kids about money. Just be sure to use terms they can understand," says Stuart Ritter, senior financial planner and vice president of T. Rowe Price Investment Services. "Start with concepts like saving and spending for young kids."

[Read: 10 Easy Frugal Lessons to Teach Your Kids.]

As your kids age, Ritter says, you can transition to more complicated topics. But he advocates honesty from the get-go. "Your child's age should not affect how honest you are – rather it should affect the depth of information that you share," he says.

You can be pretty detailed. Not everyone agrees that you should divulge your annual salary, but Vicki Hoefle, a parenting coach in Middlebury, Vt., who raised five kids, says you can do so guilt-free.  

When her children were around 9 or 10 years old, she didn't just tell them how much money she and her husband made – she showed them the nitty-gritty details of the annual budget and solicited their advice on how the family should spend the money left over after bills and other expenses. "The quicker your kids get their hands on real numbers, the better equipped they are to understand how money really works," says Hoefle, who is also the author of "Duct Tape Parenting."

The decision to divulge how much your car cost depends on whether you think your child can be discrete, says Joseph Nacca, a father of two and vice president of Sage Rutty & Company, a wealth advisory firm in Rochester, N.Y. After all, it doesn't take much imagination to picture your 14-year-old posting this information on Facebook.

But if you do trust your child to stay mum, Nacca says sharing the price of your car is "an opportunity … You can walk the child through the decision-making process."

Be honest about your past financial transgressions. Just as a parent who sampled marijuana or alcohol as a youth might wonder if he or she should be honest about that when talking to a child about the dangers of drugs and alcohol, some parents wrestle with how transparent they should be about their financial past.

If you went bankrupt or racked up a large amount of credit card debt, should you share these mistakes with your children to teach them not to make the same ones?

Once again, Hoefle thinks the honesty approach is a smart one. However, she is quick to point out that it's a personal decision – parents shouldn’t bring up past financial problems if they aren't comfortable discussing them.

[See: 12 Money Mistakes Almost Everyone Makes.]

"I think it's such a rich opportunity to talk to your kids about how you got into financial trouble," Hoefle says. "If you can tell them how you lived beyond your means, and the real fear of waking up and realizing you can't afford to do anything, and your friends want to go out [while] you can't – that's the story that helps kids put things like credit cards and debt into perspective. They realize that it sounds like it's really easy to get into trouble – and really hard to get out of it."

What about current financial troubles? It depends on the situation and age of the child, of course. But as Ritter, a father of three, points out, "Your kids will know if you have financial problems – even the young ones can pick up on stress."

Also keep in mind that "in the absence of information, your kids will most likely try and fill in the blanks themselves, potentially assuming the worst," Ritter says.

Should you just let a kid be a kid? After all, when a child becomes an adult, there will be plenty of time to worry about paying bills and managing money. A parent may wonder why he or she should trouble a child with talk about rising gas prices and mortgage payments.

Be careful about that way of thinking, Hoefle says. "Adults make the assumption that children only want to play with plastic toys. What we know about kids is that they have an internal drive that makes them want to be independent and self-sufficient, and that includes understanding how money works," she says.

Parents can go overboard with sharing financial details, of course. If your money woes are extreme and each day you're dumping new, unpleasant information on your 11-year-old, you may want to rethink your honesty policy. But never telling your child anything about money can create trouble later.

[See: 11 Expenses Destroying Your Budget.]

"[Parents] think they're protecting the ones they love by sheltering them from tough choices," says Nacca, who is clearly sympathetic. But he adds: "I've seen this kind of protective behavior backfire."

After all, that 11-year-old may grow up to be a 41-year-old with an oversized mortgage and a slew of maxed-out credit cards. Occasionally interrupting an idyllic childhood with some financial honesty may give your kid a much happier adulthood.