Don’t Avoid Family Conversations About Money

One of the first discussions a young couple may have when starting a family is about affordability. How will they pay for child care? Will one spouse quit their job to stay home and raise the child? Here are a couple of interesting facts that may enter that equation:1

• The average income for first-time mothers drops 30 percent and never catches back up.
• The income level for fathers increases by approximately 20 percent more than men without children.

That makes for quite a family discussion: Should the couple have children and risk the mother’s income potentially dropping but watch the father’s career soar? Of course, these figures are averages, and the scenario may be different based on each family’s situation.

That’s just one example of family conversations surrounding personal finances. The dynamics between money and family can be challenging. However, it’s important to have periodic family discussions about money. If you avoid talking about money — whether between spouses, parents, children, siblings or grandparents — assumptions creep in that may not be accurate, feelings can get hurt and resentment can emerge.

We can help facilitate these conversations. It helps when your financial advisor knows about all the people who factor into your financial decisions both now and in the future. You may want to schedule periodic meetings that include family members so we can help explain financial concepts and strategies. If you’re looking for ways to help nurture family discussions about money, please give us a call.

Another potential source of family discord is lending money. A recent study found that in the United States, one in five homeowners received financial help from a family member — as either a gift or a loan — to buy their home. Here are some other findings:2

• The average amount given as a gift or interest-free loan was $39,000.
• This phenomenon makes the “Bank of Mom and Dad” cumulatively the seventh largest lender in the United States.
• More than half of parents and grandparents drained their cash savings to help younger family members purchase property.
• 7% of those parents postponed retirement, 15% lived with a lower standard of living and 14% felt less financially secure;
• 48% of those parents made gifts or loans without first getting professional advice.

Before loaning or gifting money to a loved one, carefully consider how that may impact both your short- and long-term financial security.

Another awkward family conversation involves heirs and the potential for future wealth. There are lots of considerations in this area. For example:3

• If your children believe they will inherit significant wealth, will they no longer focus on building their careers?
• If you pay for an ambitious child to go through medical school and eventually earn a high income, for example, should you leave a bit more money to another child who did not have such ambitions, but who did not cost as much money to support?
• Should you leave a bit less to the daughter who had an expensive wedding (for which you paid) or more to your sons, whose weddings didn’t cost you as much?
• Do you know if one or more of your children want to continue running your family business?

While these types of discussion are certain to be animated, consider the animosity that may exist if they are not addressed before you pass away. Listen to all family members and try to come up with equitable solutions that help everyone understand your choices.4

And through it all, don’t forget to have the big conversation: Preparing for a time when you may not be able to make your own decisions. While it helps to have money, that doesn’t replace the burden of who will make decisions in your stead. You’ll need to appoint a health care proxy and a durable power of attorney and make your wishes known about how and where you want long-term care arrangements, for example.5

The more everybody knows, the better you can help to maintain harmonious family dynamics.

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm.. Insurance products and services offered through B.O.S.S. Retirement Solutions. Marketing materials provided by Infinity Marketing Services.

1 Jessica Dickler. CNBC. April 30, 2019. “First-time moms see a 30% drop in pay. For dads, there’s a bump up.” https://www.cnbc.com/2019/04/30/first-time-moms-see-a-30percent-drop-in-pay-for-dads-theres-a-bump-up.html. Accessed May 27, 2019.

2 Ginger Szala. Thinkadvisor. May 17, 2019. “’Bank of Mom and Dad’ Would Be 7th Biggest Lender in US: Study.” https://www.thinkadvisor.com/2019/05/17/bank-of-mom-and-dad-would-be-7th-biggest-lender-in-us-study/. Accessed May 27, 2019.

3 Matthew Helfrich. Kiplinger. May 22, 2019. “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth.” https://www.kiplinger.com/article/retirement/T021-C032-S014-to-prepare-heirs-for-wealth-don-t-hide-the-truth.html. Accessed May 27, 2019.

4 Michele Lerner. Forbes. April 30, 2019. “The Family Dynamics That Make Estate Planning Hard.” https://www.forbes.com/sites/whittiertrust/2019/05/09/the-family-dynamics-that-make-estate-planning-hard/. Accessed May 27, 2019.

5 T. Rowe Price. April 9, 2019. “Family Conversations.” https://www.troweprice.com/personal-investing/planning-and-research/t-rowe-price-insights/retirement-and-planning/personal-finance/family-conversations.html. Accessed May 27, 2019.