In our inaugural issue of The Journal, we discussed strategies to start talking with kids early about money and finances. The earlier a person gets started (and that is the key, to start) working towards a financial goal, the better. Time is a huge ally!
As life moves along, roles tend to change. In our own unique experiences, we progress from babies completely dependent on adults, to teenagers who frequently question the wisdom of just about any adult, to becoming adults ourselves with our own set of “real world” responsibilities. Frequently, this latter stage includes role reversals with parents. Instead of them making sure you get to school on time, you now give them directions to their grandkids’ softball games. Maybe as your career has progressed, you start to periodically pick up a restaurant check (even if it means inconspicuously sliding the credit card to the server to avoid the 20-minute “There’s no way I’m letting you pay” discussion). And, sometimes there comes a time when parents need some help managing their finances. And you thought talking with your kids was awkward!
Just like talking about money with your kids, the earlier you start talking about finances with parents the better. That is important for both healthy family financial dynamics, as well as their own protection. Unfortunately, as we age, financial elder abuse can become a reality. Being aware of and staying current with aging parents’ finances is an important step to protecting them.
Are My Investments Aligned With My Goals?:
Have conditions changed, whether in my personal or professional life or within my investments? Is rebalancing appropriate? Should I raise cash for a new short-term goal?
Am I Being Tax-Efficient?:
Have changes in my personal tax situation or tax laws opened or closed strategies to help me more efficiently keep more of what I make?
Am I Appropriately Protected?:
A growing family might have different insurance needs than a family whose children have moved into adulthood. Are my estate planning documents up to date (these documents might include wills, trusts and healthcare and financial powers of attorney)? Do key individuals have copies of or know where these documents are located? Are beneficiary designations on insurance and retirement accounts correct?
A regular review can help prioritize financial decisions and strategies. This is also a wonderful opportunity to tee-up money conversations with Mom and Dad. But, consider making that first conversation about you. Share what you and your family are doing with your own financial planning. Ask questions and advice. What strategies were they happy with and what would they have done differently? Leading in this way will help lay the foundation for continued candid money conversations.
The goal should be to break the “money-silence” and see your relationship graduate from the traditional parent-child hierarchy to becoming peers in discussing important and sometimes difficult financial topics. Of course, this takes time and the more the better. As these relationship-evolving conversations progress, there are a few concepts of which to remain aware – both for adult children and Mom and Dad:
It’s the Relationship:
Family financial decisions have the power to create closeness or distance in family relationships. Close relationships are typically characterized by open conversations where participants are allowed to talk, views are heard, everyone feels respected and, while there may not be 100% agreement, there is a sense of fairness. Distant relationships, on the other hand, often involve a lack of communication, some family members feel they have no voice, they may feel judged or unheard leading to feelings of unfair treatment. Be careful in your family financial conversations and any decisions that come from them. Periodically ask yourself, “Am I creating closeness or distance in my family relationships?”
Dictatorship to Democracy:
Imagine the chaos in your childhood home if all members of your family were given a vote from the day they were born. It is a practical impossibility. Mom and Dad were the collective boss. You, the child, had to earn a voice and eventually a vote over time.
When discussing family financial matters, it is important to allow all family members to have a voice. Early in the process of eliminating “money-silence”, parents may understandably avoid or fear giving children a voice or relinquishing the vote because it means slowly giving up control. But as children mature and change their roles in the family, the voice-vote engagement should also evolve. As these decisions are increasingly made together, they contribute to building closer family relationships.
Fair ≠ Equal…Necessarily:
Equal might be easy but it does not necessarily make things fair. Fairness is open to a wide range of personal interpretation. All family members rarely have the same talents, lifestyle, career choices, health, maturity, marriages, number of children or life spans. Is fairness based on need, merit, equalizing family member circumstances or simply trying to treat everyone equally?
Silence on varying financial treatment of family members can severely impact family relationships. Instead, parents and adult children should engage with one another. Parents should share their rationale for decisions made or that they are considering. Likewise, children should inquire with their parents about perceived “unfair” financial treatment. Open dialogue provides the opportunity to talk through family circumstances allowing mutual sharing of rationale and feelings.
Walk Before You Run:
Late in life disclosures about financial decisions that have already been made, whether prompted by health issues or angst, will likely negatively impact your family relationships. On the other hand, your grandchildren won’t visit much if you insist on regularly reviewing the details of your generation skipping trust and the importance of stepped up cost-basis on inherited assets. Family financial discussions should be characterized by balance and age-appropriate transparency.
Important topics to address include both the location of estate planning documents and the roles and responsibilities outlined therein; successor trustees, executors of wills, agents in both healthcare and financial powers of attorney, named beneficiaries on life insurance and retirement accounts. Secrecy on these topics can create jealousy among family members. Also, some family members may be uncomfortable with the responsibility that accompanies these roles.
For younger families, one way to get started breaking “money-silence” is to discuss financial decisions around the dinner table. Life events such as graduations, college choices, vacations, buying a car, changing jobs, getting a raise all present an opportunity to get money on the table.
Over time, appropriate levels of transparency create a sense of shared knowledge and decision-making. At the same time, it provides parents a “money-silence” glide path allowing the hold back of certain information until they are comfortable sharing it.
Talking about money is rarely easy and discussions between adult children and parents can be even more challenging. Next to health, financial decisions may have the most comprehensive influence on each of our lives. In most things financial, time is a huge ally. So, break through the awkwardness and take the common first step to achieve any goal. Start. IIII