by Michael C. Loch
April 2024
Over the course of one’s life, we have many important conversations with family, friends, coworkers, and clients. It’s those conversations with family that often mean the most and have the deepest impact on our lives. We discuss commitment, starting a family, careers, the future, and our dreams. The conversation that often gets brushed aside but usually one of the most crucial, is the one about finances and money.
Money matters are notoriously known to be a significant source of stress and discord in relationships. But, the importance of discussing financial matters with your spouse, your children, or even your parents cannot be overstated. Yet, ironically, it is often handled with hesitancy or avoided altogether.
Communicating With Your Partner
Engaging in conversations about money with your spouse is not just essential, it’s a cornerstone of a healthy, thriving relationship. The importance of discussing financial matters with your partner can strengthen your bond and secure your future together.
Open and honest communication about finances fosters trust and transparency in your relationship. When both partners are aware of each other's financial situations, including income, debts, and expenses, the potential for misunderstandings or hidden agendas is eliminated. Trust forms the foundation of a successful relationship and being transparent about money strengthens that bond.
Discussing financial matters helps couples to align their goals and aspirations. Whether it's saving for a house, planning for retirement, or budgeting for a vacation, having shared financial goals encourages a unified effort toward achieving those goals. Financial communication should not be limited to the bigger topics of retirement, estate planning, and savings for education. Even more mundane topics such as taxes and paying the bills need to be discussed and understood by both partners.
Life is full of unexpected twists and turns, including financial challenges. From job loss to unexpected expenses, having open discussions about money prepares a couple to face these hurdles as a team. Knowing where you stand financially allows you to devise a plan, regardless of whether it involves cutting expenses, tapping into savings, or seeking additional income streams. Being proactive about financial planning can alleviate stress, especially during difficult times, and strengthen your ability to weather storms together.
Death is an inevitable part of life, and while it's not a pleasant thought, being prepared for it can mitigate the stress and uncertainty that follow. When a spouse passes away, the surviving partner is often left to navigate through difficult financial decisions and responsibilities amidst grief and loss. Having open discussions about finances ensures that both partners are aware of their financial situation, investments, debts, important documents, and each other’s wishes. This knowledge empowers the surviving spouse to oversee matters efficiently and make informed decisions during a challenging time.
Talking to Your Children About Money
Consider yourself fortunate if your parents spent time talking with you in your teenage years about the importance of saving money for a rainy day –the first car, house, etc. Admittedly, it was probably easier to teach these lessons when you got paid with actual cash for odd jobs. Now, children in grade school have refillable debit cards to use at the movies, Starbucks, the mall, etc. Digital transactions have made children (and some adults) numb to the actual value of a transaction.
The sooner you discuss money, income, and expenses with your child, the better off they will be as they grow up and begin to establish their own families. Encourage your children to set financial goals and allocate their money accordingly. Help them understand the concept of budgeting by dividing allowance or earnings into various categories such as saving, spending, and giving. Emphasize the importance of saving money for future goals whether it's for a video game, a new phone, or a first car. Consider setting up a savings account for your child and involve them in the process of depositing money regularly. Teaching the difference between needs and wants is crucial in helping them prioritize spending, a lesson that can prevent financial mistakes later in life.
Children learn by observing the behavior of their parents. Witnessing open communication and responsible financial management can instill valuable lessons about the importance of financial literacy and teamwork in relationships.
Foster your child's entrepreneurial spirit by encouraging them to start small businesses or engage in activities like selling crafts or offering services to earn money. This can teach them valuable lessons about initiative, resourcefulness, and financial independence. As your child grows older, introduce basic concepts of investing and the power of compound interest.
Explain how investments can grow over time and help achieve long-term financial goals.
Understanding Your Parent’s Financial Picture
Broaching the subject of finances with aging parents may feel daunting or even inappropriate. It’s a conversation, however, that should not be postponed. It’s especially important if you are their Executor or have financial Power of Attorney. Even then, they may be hesitant to cooperate if they think you see them as anything less than fully in control. Start by setting aside dedicated time to talk openly and honestly without distractions. Approach the discussion with empathy and understanding. Be prepared to address any concerns or anxieties that may arise and focus on easing their fears. Ask for consent to speak with their financial professionals and estate attorney as well.
When you are dealing with the passing of a parent you are hit with a flood of emotions that can leave you reeling and second-guessing the decisions you make at that time. Having their estate plan provides a road map for following their wishes, which is just the first part of the equation. Working with them before they pass to create a list of accounts and assets can be the difference between an efficient estate settlement or a scavenger hunt that will cause unwanted delays in the process.
Having an understanding of your parent's finances as they age can provide you both with a sense of security. Knowing where they stand financially will allow you to help them as they are faced with making decisions on where they spend their final years, their health care, and the legacy they will leave behind.
Comments