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The pandemic and financial lessons for kids

Shelly  Gigante

Posted on April 16, 2020

Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Pandemic financial lessons for kids

Financial literacy may not be top of mind in many households just now as the COVID-19 crisis rages on, but for parents now charged with overseeing their children’s home education, a clear opportunity exists: Use the weeks and perhaps months ahead as context to teach the fundamentals of financial planning.

Financial professionals agree that age-appropriate discussions about how the pandemic has affected your family, the financial tools that can be used to protect loved ones, and the importance of being prepared can help young people develop saving and spending habits that will serve them well for life. It may also help alleviate their concerns.

“During this unprecedented event, there should be focus on protecting our financial well-being as much as the physical health and safety of our families,” said Paul Golden, a spokesman for the National Endowment for Financial Education . “Children are paying attention to what’s going on in the household, so it’s important during this crisis to have regular conversations about how your family specifically is being impacted. Parents should be as transparent and calm as possible.”

The intent, of course, is not to induce anxiety, but rather to initiate healthy dialogue about the pillars of financial planning, including:

You need not be the perfect role model to impart financial wisdom. Share your mistakes, too, which are sometimes the best teachers.

For example, it’s OK if, like many Americans, you fell into a pattern of living paycheck to paycheck and didn’t have enough savings set aside for an unexpected loss of income. You can level with your child about where you are, what your plan is to resume employment, and how you intend to build a financial safety net when your income stability resumes. (Hint: Save future bonuses and raises until you reach your goal.)

Just be sure that you and your spouse or partner are on the same page, delivering a consistent and optimistic message. Invite your children to share their thoughts about how the coronavirus pandemic is affecting your family, or them personally. And take their questions seriously, said Golden.

“Parents are important role models and the No. 1 influencer for where kids adopt behaviors,” said Golden. “Valuable lessons can be learned from our mistakes, so be transparent, honest, and have consistent conversations. Understandably, many are stressed about their finances during this time — lack of savings, stock market swings, maintaining housing, and medical payments all are contributing factors.”

The emergency fund

An easy entry point for talking with your child about money management is the important role that having an emergency fund can play in facilitating financial wellness.

Such funds give you the cushion to pay the bills in the event of a layoff, a pricey medical procedure, or an unexpected roof repair. Without it, you could be forced to rely on high-interest credit cards, drain your 401(k), or take out a personal loan — all of which perpetuates a cycle of debt.

Yet, many American households have under-saved. According to MassMutual’s 2018 State of the American Family survey, more than half (52 percent) of families with a household income of $50,000 or more and at least one dependent had less than three months' worth of readily available savings set aside. Roughly 8 percent had nothing at all.

Conventional wisdom suggests that working adults should have at least three to six months’ worth of living expenses set aside in a liquid, interest-bearing account, such as a savings or money market account. But a growing contingent of financial professionals say that number should be higher, especially for those with income insecurity. (Related: Emergency fund basics)

Having observed many in her community struggling to find work for more than a year after the 2008 financial crisis, Cynthia Richards-Donald, owner and managing partner of Premier Wealth Transfer Group in Charlotte, North Carolina, now recommends that married couples have nine to 12 months' worth of fixed expenses saved in an emergency fund. Singles, who do not have a second income to fall back on, should have 12 to 18 months of savings, she said.

But don’t let the end goal cause paralysis. If you can’t save the recommended amount, Golden said it’s important to simply save as much as you can. Any amount tucked away for emergencies is better than nothing.

Live within your means

Economic setbacks also reinforce the benefit of living within your means — or better yet, below your means. That’s a message that every child can understand.

By spending less than you make, you create a buffer against sudden job loss, liberate disposable income, and eliminate a major source of stress. Indeed, money continues to be a leading cause of stress in America, according to a recent study from the American Psychological Association. When asked about their personal stressors, around six in 10 adults identified work (64 percent) and money (60 percent) as significant sources of stress, making them the mostly commonly mentioned personal sterssors.1

A pragmatic approach to saving and spending, of course, also helps you reduce dependency on costly credit cards, which may compromise your ability to meet other financial goals, such as saving for retirement. (Related: How to build a family budget)

Help your children differentiate between “wants” and “needs.” And discuss the cost of carrying debt. For example, by making only the minimum monthly payments of $125 on a $5,000 credit card bill at 18 percent interest, it would take them 273 months (22.7 years) to pay off—and in that time they would pay an additional $6,923.09 in interest, according to Bankrate’s credit card calculator.

Not all debt is bad, of course, especially debt tied to a potentially appreciating asset, such as a mortgage for a home or a student loan for higher education. (Learn more: Good debt vs. bad: Keeping it in check)

The key is finding a balance and learning to budget for the things they need, including personal savings, before they spend on things they merely like.

Invest for long-term goals

There is no doubt that stock market swings give mom and dad a scare, but they’re an excellent learning opportunity for children, especially young adults who came of age during the longest bull market in U.S. history.

That abruptly ended on March 11, 2020.

The time is ripe to talk with your children about the cyclical nature of stocks and how maintaining a diversified portfolio of stocks, bonds, and cash — appropriate for their age, risk tolerance, and financial goals — can help them weather market storms. (Related: Basics of investing)

It’s also wise to explain the risks of trying to time the market, which rarely works. Instead, encourage them to invest for long- term goals, like retirement, through practices like dollar-cost averaging, which lowers the average purchase price for stock investments.

Talk, too, about the time value of money. There is no substitute for investing early and often.

To illustrate, a hypothetical 25-year-old woman today who starts contributing $19,500 per year to her retirement plan (the annual contribution limit for 2020) would amass a nest egg worth roughly $4.2 million by age 65, assuming a 7 percent annual return, according to Bankrate’s compound interest calculator. That same investor with the same contributions and annual return would have a balance of just under $2 million if she started investing at age 35.

For the record, the historical market return for the Standard & Poor’s 500, an unmanaged index of large company stocks, is closer to 10 percent, according to a Nerdwallet analysis.2

Despite the occasional bear market, Daken Vanderburg, head of investments for MassMutual Trust Company has pointed out that stocks over time remain a remarkable provider of investment returns and a valuable tool to potentially build wealth. (Learn more: Market volatility and some good news, perhaps)

If your children are older and ready to start developing an investment plan for themselves, it may be helpful to have them meet with your financial professional to discuss strategy and long-term goals.

Protect your loved ones

Depending on their age and sensitivities, it may also be appropriate to discuss with your children the various financial tools you use to protect your family, without delving too deeply into details, said Richards-Donald. Just knowing that there is a plan in place to provide for them can help ease any concerns they may have.

For example, perhaps you have a disability income insurance policy, which helps protect a percentage of your income should you become too sick or injured to work. For most Americans, their income potential is their most valuable asset. That’s something children need to understand.

Your life insurance policy, which may help replace your income in the event of your passing, is another layer of protection. The proceeds can be used to help your family pay for college tuition, make mortgage payments, and even help cover retirement income gaps.

Some policies, including whole or other permanent life insurance policies, allow a policyowner to build cash value, which they can borrow from for any purpose. Of course, there are consequences of using your cash value, as any amount borrowed reduces the cash value and future death benefit, increases the chances that the policy will lapse, and may result in a tax bill if the policy terminates before the death of the insured. (Learn more: Know your ‘cash value’?)

Your older child may also be comforted to know that, in the event that something should happen to you, you’ve put estate planning documents in place to protect them. That might include a will, a designated guardian, a trust, or beneficiary designations. (Learn more: Wills and the basics of estate planning)


As your household takes precautions to stay healthy during the COVID-19 pandemic, don’t be shy about initiating dialogue with your kids about the family finances. The conversation could help alleviate fears they may have now, and is likely to foster better financial decision-making down the road.

“When parents work together and consistently convey that ‘crises happen, we have a plan in place, people change jobs, we will be okay,’ this is what your kids need to hear,” said Golden. “Present the situation realistically, but with a positive outlook for the future: ‘We can take advantage of the time we have together, and things will get back to the way they used to be.’”

Discover more from MassMutual…

Money and children: Teaching by age groups

Gifting life insurance to children

Need financial advice? Contact us



American Psychological Association, “Stress in America,” 2018.

Nerdwallet, “What Is the Average Stock Market Return?”April 2, 2020.

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