Tough Times Series—Speaking of the Economy … What Do You Tell Your Kids?

Author: Judy Dahl

The playground at school is like a kid’s version of the water cooler at work, a place to discuss hot topics. Between that, TV, and your conversations, your child is bound to have heard talk about the troubled economy—maybe a friend’s parent has lost a job, or maybe your family is affected.

It’s a good idea to find out what your children have heard and are thinking about the economy, and to reassure them if necessary. You may see warning signs that they’re concerned. “They may act withdrawn, or different from normal,” says Francie Alexander, chief academic officer at Scholastic Inc., New York.

It’s important to be factual, and to speak at their maturity levels—which aren’t always the same as their age levels, adds Rick Kahler, CFP, president of Kahler Financial Group in Rapid City, S.D. “Obviously you’ll tell a teenager more than a four-year old, but that’s why you start by asking questions, so you can build on what they already know.”

But do talk about it.

“The worst thing parents can do is not talk about what’s going on, especially if it’s affecting your family. Kids know something’s up; they sense the stress,” Kahler says.

They need to know the situation and that you have a plan. “You don’t need to say much more to younger children, but they’re comforted when they know what’s going on, what might change in their lives—such as not going to the movies for a while—and that you’re working on it,” says Alexander.

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Prioritize Debts During a Job Loss

Below are some general rules of thumb in determining how to keep on top of the debt you owe during this tough time.

Housing Expenses – Pay housing-related bills first. Keep up rent or mortgage payments if at all possible. Failure to pay these debts can lead to loss of your home. Be cautious, however, about consolidating debts or refinancing your home. Depending on your situation, this may or may not be the right option for you—talk to a Real Estate Loan Originator.

Living Expenses – Next, pay basic living expenses, including groceries and medical insurance. Your reduced income may qualify you for government assistance programs. Visit your state’s website or contact your county human services office to see if you qualify. Pay what you can to keep essential utility service. Full and immediate payment of the entire amount of the bill may not be required. Contact the company to discuss your situation, and possibly pay a minimum payment to avoid disconnection.

Vehicles and Other Collateral Loans – Pay car loans or leases if you need to keep your car. If a car is necessary to get to work, you may want to make the car payment the next priority after housing, food and utilities. Your creditor can repossess your car without going through the courts first. If you do keep the car, stay current on insurance payments as well to avoid additional fees, legal problems or an overwhelming expense from an accident.

Treat co-signed debts like any others. For example, if you put up your home or the car as collateral, that is a high-priority debt for you if other co-signers are not keeping the debt current. If you have put up no collateral, make the debts a lower priority. If others have co-signed for you, you should let them know about your financial problems so that they can decide what to do about the debt.

Tax and Court-Ordered Debts – Make tax debts a high priority. You must pay any income taxes owed that are not automatically deducted from your wages, and any property taxes if they are not included in your monthly mortgage payment. You must file your federal income tax return, even if you cannot afford to pay any balance due. The government has many collection rights that other creditors do not have. Also pay child support; these debts are court required and will not go away. Nonpayment can result in very serious problems, including prison.

Student Loans – In general, pay student loans ahead of lower priority debts but after top priority debts. Since most student loans are backed by the government they are subject to special collection remedies, such as wage garnishments, seizure of tax refunds and denial of new student loans.

Lower Priority Loans – Make loans without collateral (credit card debts, hospital bills and other debts to professionals), or loans with household goods as collateral, a lower priority.

Don’t move up a debt’s priority based on threats to ruin your credit report. In most cases, the creditor has already reported the delinquency to a credit bureau. Be polite to a collector, but make your own choices about which debts to pay based on what’s best for you, keeping in mind that nonpayment of rent, mortgage and car debts may result in immediate loss of your home or car.