Family Matters: It’s Important to Discuss Finances

It might come as no surprise that Americans’ confidence in achieving their financial goals and their optimism about the country’s financial future has declined significantly during the past five years. But despite their concerns, many people are failing to discuss key financial issues with their families, according to a study commissioned by Ameriprise Financial.

The economic downturn has had an especially significant impact on baby boomers. According to the Money Across Generations IISM study, about half (49%) of boomers say they are optimistic about the financial future of the United States, down from two-thirds (64%) of those surveyed in 2007. And despite their relative youth, boomers’ children (primarily members of Gen Y and Gen X) also report significant declines in their perceived ability to reach key financial goals.

So if adult children and their parents are supporting one another financially, how often are they discussing their money worries? It turns out, though boomers are much more likely to report that they regularly discuss money matters with their family than they were in 2007 (50% vs. 39%), these conversations are only scratching the surface. In fact, four-in-ten boomers (41%) admit they haven’t adequately discussed their current financial situation with their children and one-quarter (27%) say they rarely or never discuss retirement.

If your family tends to put financial discussions on the back-burner, approaching them now among challenging economic times may be intimidating. Keep the following tips in mind as you navigate these conversations.

1. Communicate your own financial plans. It’s important to make your immediate family members aware of your short- and long-term plans. Share any major financial and lifestyle decisions, including if you’re planning to travel or relocate in the near future or during retirement, what arrangements you’ve made for future health care needs and any legacy plans you have in place. If you’re currently providing financial support to a family member (or plan to in the future), speak honestly and set realistic expectations. Be clear about your ability to contribute funds for their specific financial goals or to provide support if your relative has a financial emergency like an unexpected job loss.

2. Let them know what they can expect in the future. It’s crucial to be upfront if you anticipate needing financial help from your parents, adult children, or siblings in the future. If you’ve identified a shortfall or may need financial assistance if certain circumstances arise, make them aware of this immediately. Discuss their ability and willingness to help and if needed, explore other options together. If you feel good about your financial situation, offer any financial truths you’ve learned along the way that may help them as they plan and save for their own financial goals.

3. Plan for the unexpected. An unexpected disability or death has the potential to greatly affect a family member’s financial situation and may even leave you with unanticipated responsibility. Ask if they have life and disability insurance, and if they’ve established a guardianship plan for their children in case of a tragic event. Also share with them the plans you’ve made. Provide information on where important documents such as wills, a written power of attorney, financial statements and contact information for your financial professional, lawyer and accountant can be found.

4. Listen and understand one another’s values. Whether you and your relatives usually agree about politics, religion or financial habits, it’s important to respect their wishes and allow them to follow their own path. Come to a mutual understanding about when financial conversations are appropriate and what types of financial decisions should be communicated between both parties.

Many families find it difficult to have financial discussions. But while these conversations can cause tension and lead to tough decisions, it’s easier to have them before an unexpected event occurs or hasty trade-offs have to be made. Consider inviting your adult children or parents to join you for a meeting with your financial advisor if you have one. A professional’s objective viewpoint can be especially valuable for financial conversations between generations of family members. For more information about the study, visit Ameriprise.com.

Jeff Mushen lives in the greater Seattle area and works with his clients in downtown Edmonds. He is a CERTIFIED FINANCIAL PLANNER™ practitioner and is licensed/registered to do business with U.S. residents in the states of Alaska, Illinois, Tennessee, and Washington. 

The Money Across Generations IISM study was commissioned by Ameriprise Financial, Inc. and conducted by telephone by GfK in December 2011 among 1,006 affluent baby boomers (those with $100,000 or more in investable assets); 300 parents of baby boomers; and 300 children of baby boomers at least 18 years old. The margin of error is +/- three percentage points for the affluent boomers segment and +/- six percentage points for the parents and children of boomers segments.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

© 2012 Ameriprise Financial, Inc. All rights reserved.