A Parents’ Guide to Teaching Kids About a Recession

A version of this article was originally published by Mydoh.

It feels like everyone’s been asking the same questions lately: Are we in a recession? Are we heading toward one? Canada’s recession status has been all over the news, social media and in everyday conversations. Maybe the kids in your life have started asking questions or even noticed your shopping habits have changed.

So, how can you talk to your kids about a recession? It’s not an easy conversation to have with kids of any age, but proactively teaching them about the economy, and how families can be resilient should a recession hit, can help them understand what’s happening and feel in control during uncertain times.

Let’s be honest, most of us are not economists ourselves, so getting a handle on the basics is a great place to start – and talking honestly to kids about this stuff might help reassure everybody in the conversation.

What is a recession?

Economic growth requires a healthy balance of factors like interest rates, inflation, consumer spending, and employment. A recession is triggered by a decrease in economic growth over a prolonged period, specifically two or more consecutive quarters (or six months) of negative growth.

Economists use different methods to track this growth, but Canada’s real Gross Domestic Product (GDP) is the most common. It measures the value of all the goods and services a country produces and sells in a specific period. Just as doctors measure a child’s growth at annual check-ups, GDP is measured quarterly and is used to track how healthy the economy is. If growth keeps dropping, the economy could enter a recession.

Read What Exactly Is a Recession and Are We In One? to learn more about what recessions have looked like in the past, how they are defined and what it means for Canadian investors.

Depending on the age of your kids, some of the economic concepts may be too heavy, so it’s best to stick the most important factors and the words they are likely to hear out in the world. Inflation, for example. When there’s a dramatic rise in inflation and people’s incomes remain the same or drop, it impacts the economy. People’s expenses rise but their paycheque can’t stretch as far, so they spend less or take on new debt.

Try to explain the nuances of inflation to kids by using examples they relate to, like the prices of their favourite food or video games and what they would cost with inflation. If age appropriate, you can ask them to multiply those extra costs by how often they make purchases to illustrate the effects.

How can a recession affect Canadian families?

A recession impacts families in different ways, depending on their unique financial, housing, spending, saving and employment situation. While there is certainly no one-size-fits-all impact, here are a few ways the people around you may be affected.

Stuff costs more

Almost everything we buy costs more these days, from clothing to gas to groceries. With life getting more expensive, families may have to be more careful about how they spend and cut back where they can. Talk to your little ones about the basics of spending less (the cost of eating out, groceries, driving) and to your teens about their own spending habits. You can ask if they’ve noticed a change in what they can afford.

Job losses or pay cuts

During a recession, employers may look for ways to save money. Some cut back on raises or reduce their budgets. Others may need to eliminate jobs or hours. If your teens are working, they may find themselves with fewer shifts or earning less. Let them know that employment rates fluctuate just like the economy and help them understand that it will bounce back eventually.

Getting a foot in the door

Employment freezes or cutbacks can have an impact on recent college grads, too. Companies may choose to hire more experienced people if they are available, which could make it harder for grads to get a foot in the door. Assure your kids that this too will pass. Discuss ways to weather the storm, like using the downtime to volunteer or gain new skills to add to their resume.

Keep an eye on the cost of housing

Some parts of Canada are seeing rent increases reaching record highs. This can be especially tough for people on fixed incomes, like students and seniors. If your teen is preparing to live on their own, check the market in their area and help them set realistic expectations. Explore options like taking on a roommate, reducing their costs of living in other areas or finding a place near transit or within walking distance, so they won’t need a car.

Check on cost of borrowing

Higher interest rates mean it costs more to borrow money. If your teen is planning on taking out a loan for a car or purchasing another big-ticket item, talk to them about whether it’s urgent. Help them do the math to see how much they could save on their monthly payments if they wait for a lower interest rate.

How families can prepare for a recession

Doing a little work upfront can help you and your family weather a potential recession together, with as little upheaval as possible. Getting the kids involved, where relevant, may help them feel more confident.

Create a budget

Now is a good time to create or update your family budget so it takes into account the higher costs of living. Track your family’s daily spending habits and the current inflated costs of what you purchase. Ask your kids to think about which items they can cut back on. Then, create a realistic budget that works for your family.

Build an emergency fund

Having emergency savings can help you pay for unexpected costs or price increases. It also helps with peace of mind. There’s no need to use the word “emergency” – especially with small children – but showing them how you’re cutting back to divert money into a “just in case” fund is a great idea. Depending on age, you can even ask them to do the same and create their own rainy-day savings plan. If emergencies don’t arise, they’ll have some bonus money and will have learned a valuable lesson about saving.

Pay down credit card debt

With interest rates high, it’s a good time to pay down debts as quickly as possible. The Financial Consumer Agency of Canada suggests taking action by cutting back on expenses, paying off debts with the highest interest rates, avoiding new debt, and having a plan in case you can’t make a payment.¹ If your older kids have credit card or other debt, discuss ways to keep things manageable. Help them analyze their bank statements and work out a payment schedule to meet their repayment goals faster.

Find creative ways to save

There are lots of ways to have fun for free, and now is a good time to think of ways to cut back. Watch videos about fun ways to repurpose or upcycle clothing and household items, instead of buying new. A visit to the local thrift shop instead of the mall can be fun and a goldmine for fashion finds. Research budget-friendly recipes and spend an evening making them together. Ask kids to find ways they can reduce the cost of social outings while keeping them fun. If they head to the movies on Friday nights, suggest they choose to watch a movie at home with their friends, or try biking to a friend’s house rather than driving.

Lessons that last a lifetime

Recessions can be stressful for kids and parents alike. Let your kids know it’s okay to talk about how they feel and ask questions. Help them understand the bigger economic picture, and that while sometimes the economy is down, history shows us that it eventually bounces back. Be honest but make conversations age appropriate.

Focusing on fun ways to save can be a lighthearted way to bring the topic into real life without scaring anyone or downloading financial pressures onto them. Plus, it can be great family time.

The lessons you teach your kids now can empower them to take control of their finances and learn valuable lessons for the future.

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¹ Managing your money when interest rates rise – Canada.ca

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