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Lean times can teach much

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Financially speaking, these aren't the best of times for American families. Parents who are maxed out on credit, sitting on shrunken stock portfolios or worried about job layoffs face another problem they may not have reckoned with: what to tell the kids.

While belt-tightening may seem like a downer, it's also an opportunity to turn an indulged Generation Y into a generation wiser about managing money and setting priorities.

For starters, be honest with your children about any financial situation — to a point. Trying to hide financial difficulties is about as easy as hiding terrorist attacks. Kids can watch the evening news, so they know what's going on.

They can't help but overhear discussions between you and your spouse. If you're tense or anxious, they'll pick up on that, and they'll almost certainly imagine the situation is worse than it really is.

But children don't want or need to know all the details of your balance sheet, any more than they want or need to know the epidemiology of anthrax. They just want to feel safe, and to be assured that someone is taking care of things.

Even though you may gulp on the words, reassure them that, hard times or no, they will have a roof over their heads and food on the table — and that things will get better.

If you're facing a layoff, for instance, tell the kids that you will find a new job, and that in the meantime you have resources to see the family through. (And take heart that, layoffs notwithstanding, the job market is still strong by historical standards.) If your stock portfolio has taken a hit, explain that what goes down usually comes back up (assuming you didn't place all your bets on dot-coms).

In the meantime, kids want to know how your straitened circumstances will affect them. Younger children — say, under the age of 6 — won't even notice if you cut back. But it's better to level with older kids.

If an Xbox doesn't fit into your budget, tell the kids they'll have to wait or raise the money on their own. If a pricey private college isn't in the cards, steer your teens to a state university.

Don't try to maintain a life- style you can't afford. That doesn't help your financial situation or your kids' understanding of what's important in life.

Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, D.C. 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.