The giving season might just have wrapped up, but as we turn the calendar to a new year, it’s important to remember one of the greatest gifts that can be given at any time – especially from spouse to spouse or one generation to the next. It is a conversation about money.
Being open about money and how it aligns with your preferences, goals and values can be a conversational gift that can keep on giving. Money and its many tentacles are treated like an unpleasant topic by many families, but many future headaches might be prevented by having the money talk today.
Too often, personal finance conversations stay locked in a vault, only to be released upon some precipitating event. The outcome can be poor decisions that have unintended long-term consequences.
How we relate to money, what we’ve learned about it through family actions, how we make decisions – about spending vs. saving, needs vs. wants, and risk vs. return – are often considered useful only in a need-to-know situation. But not discussing it has a price of its own.
THE ‘WHAT IF?’ DRILL
Few money conversations are more important than the “what if?” drill between spouses. What if you are the primary money manager in the relationship and you die? Is your spouse informed enough to know how to act, or at least, where to turn for help?
This is especially important if men control management of the family finances. It’s not uncommon for men to view themselves as astute money managers who will be around to provide for and care for spouses. Well fellas, the fact is, you’re more likely to die sooner. You don’t have to look far to find a spouse who was thrust into the money manager role with no preparation because of death, disability or another life-changing event.
Even if you’re certain that you will leave your spouse with enough money, be certain that he or she has a solid understanding of what to do with the sometimes tangled web of account numbers, policies, tax documents and even online login credentials.
It’s a disservice to yourself not to have the conversation, not to know where to turn with questions. Even if you don’t go to the level of having a comprehensive financial plan with clear recommended actions, it would be a strong step forward just to understand the various pieces of the financial puzzle, whether or not you know how they work together.
Don’t be the uninformed spouse, lost in a haze of new responsibility that might be difficult to understand at a time when your mind is rightfully occupied with grieving. Well before this point, it could be helpful to identify a family member, friend or trusted advisor to help manage assets and make decisions.
CHILDREN IN THE DARK
The spousal conversation is one step. Frequently, the inclusion of children in the family finances conversation is a bigger, more challenging step, especially if there are multiple children with varying interest or understanding of money management.
As longevity continues to grow, more and more adult children find themselves drawn into situations where they can benefit from understanding their parents’ situation. Do they have sustainable retirement income? What is their plan if their expenses begin to exceed their income? What is their preference for living in their home or changing their living situation? How do they manage health care costs? If there is enough income or invested assets to support lifelong financial security, what are their preferences for how to use those assets to support the family or causes they care about?
This talk can not only help children understand how they can help their parents but also serves as an opportunity to introduce family values and legacy into the conversation. Sharing the meaning of money as a tool for experiencing life in a preferred way can be more important than the actual dollars and cents on a brokerage statement.
Of course, lessons of wise money management don’t have to wait for children to become adults. They aren’t likely to receive any personal finance education in school so kids learn most of the attitudes and knowledge about money at home.
There’s no benefit in remaining secretive. By taking time now to have meaningful conversations, you can identify challenges or opportunities and create a plan to address them as needed.
Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Old Town Tacoma. Reach him at gary@bhjadvisors.com.
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