My sister-in-law had a good upper middle class life until she got a divorce. Her three daughters that were used to Disney vacations and frequent trips to the beach suddenly could only afford to go to the mall during their breaks and eat in fast food restaurants when eating out. They simply could not buy new clothes that they were used to. The parents were fighting over money and the kids had a very hard time transitioning from getting what they were used to without worrying to begging for even the basics like school supplies.

So how to tell your children about financial difficulties in the household?

For kids younger than 5 years, there is nothing to be said unless they demand a toy that is simply unaffordable. Just promise them that they can have it next year or at a holiday in the future.

Kids from age 5 to 12 need to be told at a high level what is going on and how the family needs to cut back. You will be amazed how understanding children can be. This way you can gain their cooperation and not make them feel bad.

To a child who is a teen, it is best to explain everything as it stands, but also provide her/him with guidance on how to respond to uncomfortable questions from friends, like, Why is your dad/mom always at home? Or when is she downloading the latest Justin Timberlake song? Or when is he going to buy the newest version of iPod?

When you talk to them, reassure them of the future and as time goes by, keep them engaged with updates on the situation.