Dawn Doebler, MBA, CPA, CFP®, CDFA®
Senior Wealth Advisor
February 4, 2019
Early in the New Year, we wanted to suggest that as you set your New Year’s resolutions, you consider making at least one related to managing your money. A good resolution to consider is to have money conversations with those who share in your wealth. If our suggestion to talk about money makes you feel uneasy, rest assured that will help to make these conversations less terrifying and more approachable. With practice, your money talks can lead to healthier relationships and support for your financial well-being in the new year.
Starting with a manageable target of at least three money conversations in 2018 may make our suggestion less daunting. And with our 5 Tips To Better Money Talks included here, you can start the new year knowing you’re taking steps to secure the financial future for you and your family members.
According to a biennial study conducted by Fidelity, nearly half of couples polled indicated they have “no idea” how much they need to save to maintain their current lifestyle in retirement. Similarly, 47 percent are in disagreement about the amount needed. The degree of disagreement about capital needs is highest among Baby Boomers (those born between 1946 and 1964). Perhaps one of the reasons is that many Boomers self-manage their savings and investments into middle age. By that time, however, retirement is fast approaching and the stakes are higher. If this sounds like you, it’s time to start talking to your mate about retirement.
If you’re not currently married but are living together, your conversation may instead focus on splitting your financial obligations, or how best to protect your separate assets while merging households. You may want to use our Living Together After 50 Quiz to help you confirm all the areas you should be discussing with your partner.
And no matter your relationship status, perhaps the biggest money concern is the mounting cost of healthcare, and how to provide for potential long-term care needs. You can begin to address these concerns by having a dialog about your vision for how you wish to age and how you would want to address end-of-life decisions. It can be helpful to think about your own wishes independently, then schedule time to have a conversation together. Once you have a meeting of the minds, you can take steps to ensure your wishes would be executed by completing appropriate legal documents such as a Living Will or Powers of Attorney.
Oftentimes, having conversations with your own partner raises questions about the financial preparedness of your parents or other older relatives in your family. Special family circumstances such as special needs or divorces and remarriages often make these conversations more difficult, but also more important. And sometimes conversations with parents may be just about joyfully reminding them to update their estate plans if there have been new babies born into the family so those children can be included in any estate planning.
One reason to engage your parents in money conversation is to help understand their preparedness for the likelihood of a long-term care need. These considerations are important because recent statistics published by AARP indicate that 52 percent of people who turn 65 today will develop some form of severe disability requiring long-term care support. And the average lifetime cost of long-term care in retirement tops $250,000. Because women live longer and have higher rates of disability than men, they are even more likely to need assistance in their home or another form of long-term care.
Some suggestions on getting parents to talk, in spite of their reluctance, include framing the conversation in a less threatening tone such as “let’s talk about a backup plan in case we ever need one” or “I want to make sure I understand what your wishes would be to ensure I’m clear about your priorities”. Or you might inquire about whether they have a long-term care policy. If they do, at a minimum, get the details about the policy and know where they keep a copy of it in case you need to access the information. For more ideas on how to talk with your parents, see our article Aging Parents Aging Us: Helping Parents As They Age.
As parents, we are the first, and sometimes, the only money teachers for our children. There is very little money education in K-12 and in college, so unless your kids study finance or economics they may never receive any formal guidance on money. Too often, this lack of financial education is exacerbated when parents shoulder costs such as cell phones, insurance and other living expenses for “adult” children. We can put our own economic independence in peril if we are not raising financially independent children.
Of course, our money conversations with our children will vary and develop over time as appropriate for their age. Our main goal is to talk to them about money so they grow up in an environment where questions are encouraged and knowledge is shared. There are many apps available to help families when children are small, like FamZoo and as children become teenagers with their own jobs, there are practical ways to instruct them about spending, saving and investing along the way.
If you have yet to talk with your kids about money, take the opportunity while college kids are still home on break. Or make a plan to use your next meal out with younger children to teach them about managing credit and living within a budget. The more comfortable parents are with managing their own saving and investing, the easier it is to talk to their children about these same concepts.
Now that we’ve suggested the three money conversations to have this year, let’s review some tips on how to have these conversations in a way that’s comfortable for everyone.
1. Find common ground
Not knowing where to start is often the reason these important family talks never happen. So, we suggest you plan ahead before opening the discussion. Consider ways you can establish common ground. For example, if you’re speaking with a spouse who has previously made the majority of the financial decisions, you can suggest the conversation as a way for you to get comfortable with what you both have put away, and how it’s invested for your future security.
And consider potential areas of sensitivity. For example, if you’re talking with parents, are they likely to feel ill-at-ease because they think they’re not adequately prepared financially. Or if there is significant wealth, maybe a more general conversation would be more comfortable for parents who might not want to disclose too much information.
If you find your parents are completely unwilling to share their information, at a minimum, you can inquire whether anyone has reviewed their financial situation, and ask if there is anyone you should contact should a crisis arise.
2. Start with the facts
Another effective way to open a money conversation is to start with the facts. Creating a net worth statement showing you what you own and where it’s located is often a good start. Then you can do what I call an ‘x-ray view’ which looks at your entire portfolio asset allocation all together. Ask yourselves if your investments are appropriate? Do you know the risk level of your portfolio and are you comfortable with it? Be curious about the fees you are paying for each account, including expense ratios.
If creating a net worth statement is more work than you want to take on, then simply compiling all your account statements and reviewing them with your spouse or your parents can be a start to understanding the overall situation. In fact, the beginning of the new year is a great time for this activity since you should receive your year-end account statements by mid-January.
3. Articulate your fears
No matter the level of wealth, stress about finances is common. And most people tell us they feel relieved once they take the first step toward talking about, and working on their finances. Women often tell us they feel less fear, because they can set realistic goals and have a better understanding of their options.
Sometimes fears are based on conjecture and not on the reality of the situation. Other times, the people involved in the situation may have different fears. Being aware of our own money fears often helps us identify how our money actions are a reflection of those fears and ensures that each person is aware of the other person’s concerns. The bottom line is by having open conversations about money, you can replace the fear of the unknown with facts—your facts. It’s the best way to have a productive conversation.
4. Make a plan
One of the best ways to reduce money fears with partners, parents and children is take time to define your goals and establish a plan to meet those goals. For couples, that may be talking about where they want to live in retirement, determining how much that might cost and making a savings plan. For parents, you may want to discuss their goals around the legacy they want to leave. And with young adult children, acquisition of their first car or paying off college debt can be goals for framing spending and savings conversations. Talking about real goals and actual progress towards them helps replace fear with hope.
Once you have clarity and agreement on the goals, you can discuss roles for each person and agree to support achievement of those goals throughout the coming year. Some examples include setting dates by which you and your spouse will articulate a spending budget, or making a plan for your parents to meet their estate attorney to revisit their estate plan.
5. Close with an agreement on next steps
An important final step is to agree on when to re-engage in the conversation. This agreement establishes your mutual commitment to keep the lines of communication open and to take seriously the concerns you expressed in your discussion. The more often you have these money conversations the easier they become. There will be opportunities along the way to celebrate together as you achieve various money goals, and you’ll likely find relationships become more harmonious when money concerns are not avoided, but discussed and addressed.
We encourage you to start the new year with a plan to engage in these three important money conversations. By talking about your money in a way that is powerful, and by engaging your closest family members, you can get off to a good start in building your personal wealth in a healthy, constructive way.