Family dynamics can be complicated to begin with, but once you add money into the mix, emotions often become even more heightened and issues more muddied. Money problems have the potential to destroy relationships if not handled with care. Learn how to recognize the life events that often trigger financial disagreements, and how to equip your family with the tools needed to quash tension before it starts.
Common Money Disagreements within Families
There are a variety of money issues that can occur among families, but some of the most common are triggered by major life events, such as job changes, aging parents, death, marriage, divorce and retirement. Tensions often arise because people have different reactions to change. Take retirement, for instance. I often see a mentality change for the person retiring when it comes to how they treat money. As long as a paycheque comes in every month, they are confident in their spending but the minute they retire, it sometimes creates an almost coupon-clipping mentality, no matter how big their wealth. The breadwinner often feels sudden pressure and responsibility to help everyone maintain a certain lifestyle (even if their portfolio and savings easily enables this), and their spouse or family members may not understand their new attitude during this transition.
Disagreements over inheritance and estates following a death are also common. Even with a meticulously planned will or previous agreement around the dining room table that everyone is going to get along, when you add money to complex family dynamics, problems can arise. And before the death, there may have been unexpected caregiver or medical expenses that have added up. In my experience, tensions can also manifest as the result of displaced grief, so it can be a difficult issue to navigate.
Even without major life events, the day-to-day management of investments can be stressful to relationships. Within couples and families, there may be different levels of financial knowledge, various opinions on how to invest, and competing long-term goals. Even if you’re able to completely detach emotions from the equation and look at things dispassionately, arguments can arise. Once you add relationship dynamics to the mix, those arguments can become even more heated.
Tip One: Establish Who’s Boss
Family members may have different priorities when it comes to money. For example, the older generation may want to use their retirement years to travel, while their kids may prefer they set up education funds for the grandchildren instead. There can sometimes be a sense of entitlement among various stakeholders, so it’s important to establish who is in charge of the decisions. Typically, whoever made the money should get the most say in how it’s spent. It also helps to work with a wealth advisor, who can put planning tools into place to ensure everyone is happy. They will advise you to consider options like life insurance, which is very tax efficient but also psychologically frees you up to spend your money because you know that your loved ones will be taken care of when you’re gone.
Tip Two: Open the Lines of Communication
Communication is key. Many people keep their wealth a secret, never discussing what's in their will or their assets, which can create an ingrained tension. A much healthier approach is to recognize the potential advantages and pitfalls associated with the money, how it affects each family member, and then have open discussions about it.
I believe it's best to have a touch-base type of conversation every six months to a year. Even if there aren’t any pressing matters to discuss, having regular state-of-the-union discussions sets expectations and trains everyone to have these types of conversations. It’s very difficult to cultivate a dialogue when none has ever taken place before. Having open conversations in advance sets a precedence, so when a major life event or disruption arises, everyone is used to talking about money and knows what to expect.
Tip Three: Get Professional Help
It’s often difficult to have these conversations on your own. Hire a good advisor who can facilitate the discussions, draw out the views and voices of different family members, and help you use that information to plan for the future.
A third party who is guiding the conversation can keep the tone very pragmatic, separate emotions from facts, and focus on the numbers instead. They will steer the chat towards assets, goals, milestones, etc., and keep everyone on track if feelings threaten to derail the proceedings.
When choosing an advisor, there’s no substitute for experience. More than letters beside a name, look for someone who has seen hundreds of family situations over the years, understands how human dynamics work, and has a history of handling conflicts. I always say that a good financial advisor is 49% wealth manager and 51% psychologist, because we’re not helping our clients if we only focus on their investments without taking into account what’s going on in the rest of their life. Look for an advisor who has the technical skills required to manage money, and the emotional intelligence needed to become a trusted confidante.