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The Importance of Money ConversationsSubmitted by Flourish Wealth Management on August 28th, 2018
By: Kathy Longo, CFP®, CAP®, CDFA
I am happy to confirm that my first book Flourish Financially: Values, Transitions, and Big Conversations was published just a few weeks ago and will be officially released on September 17. In writing the book, I had the benefit of reflecting on my own money story as well as the money stories of the many clients with whom I've worked over the years. Upon reflection, I identified one very common thread among all these stories—Communication. Whether it was the lack thereof, the abundance of it, or an ineffective or inconsistent approach, communication was the cornerstone of each and every story.
Why do you think money conversations are so difficult? I pondered this same question and while the answer seems obvious, as communication is the foundation of relationships, the real answer lies in something more nuanced. Money and finances come with a great deal of emotion, on top of the practical details to get along in the real world. Communicating about money and finances comes with even more emotion because one must become vulnerable and open about their strengths, weaknesses, challenges, successes, and failures with money. One must also let go of judgment to truly have an open and honest discussion about financial decisions and their impact on life.
Talking About Money is Hard
Money is a common point of contention for many families. How much you have, how you spend it, and when you need it are issues across income, age, education, and location. And regardless of where your family lands on the range of money conversations, any discord about money and finances is most likely due to a lack of communication.
Why? The main reason that money is so hard to talk about is that money is intertwined with our personal values, and everyone’s values are different. To talk openly about finances and to reveal those values and priorities puts us in a vulnerable place.[i] If a household has conflicting money values, then conversations about finances will involve compromise. Although these conversations are difficult, having them is very important to get everyone on the same page. Agreeing on how money should be budgeted and spent will save a lot of long-term stress.
If one person is a spender and the other is a saver, or if one finds debt objectionable and the other finds it a useful tool for building credit and equity, those are conflicts of financial values. It is important to foster positive money conversations to understand the unique money values of the people in your family. Finding a balance where everyone walks away feeling both heard and comfortable is the best option.
Getting Started: How to Talk About Money
- Schedule a time when everyone involved can be present to have a discussion. It’s better to plan this when there are no active crises or problems. Picking a location that is comfortable and where there will be few interruptions is ideal. Planning to meet on a regular basis to address situations that arise and changes that occur is important as well.
- Have a plan of what will be specifically discussed. Money is an emotional issue and discussions can become heated, old issues dragged out. So, plan in advance what the main focus should be and what needs to be agreed upon together.
- The primary breadwinner in the household does not get exclusive authority over the budget or financial decisions as money is not the sole contributor to a well-structured relationship or household. Make sure all members whose voices should be heard under the circumstances are able to have a voice in the discussion.
- Because money talk can be volatile, encourage “I” statements (I think, I feel) and discourage “you” statements (you never, you always). Allow equal space and avoid interrupting. Each member should leave the discussion feeling heard.
- Listen and ask questions. Be ready to negotiate and compromise. The goal of money discussions is to come out with a realistic plan of action that makes sense for everyone in a household and that does not leave anyone feeling resentment or undue burden.
- Make a written agreement at the end of the discussion. Have everyone sign it. If some are not ready or willing to do so, that means the issues are not resolved and more time needs to be taken.
Your Money Values
Through our lifetime we are building up memories, experiences, hopes, and desires for the future. We've been inspired by our parents’ and grandparents’ relationships with money, along with where we grew up, our neighborhoods, our socio-economics. Was money always a cause of stress? Or was it something private and never discussed? All of this combined history creates our money values. And to have healthy and productive conversations about money with your family, it’s important to take the time in advance to think about your own money values.
Based on my experience working with a wide variety of clients, there are specific areas to think about and discuss with your partner and family. These areas are, in some cases, specific to particular stages in life, but whether you took the time in the past to begin your money conversations or you’re taking the time now to reflect and establish a stronger communication for the future, it’s important to cover a few key topics when trying to improve the way you talk about money with those you love. Some of our most important client conversations include budgeting for needs versus wants, long-term financial considerations for children, trade-offs for various residential decisions, near-term sacrifices to build a successful long-term retirement plan, and refining a realistic vision for the future that can be incorporated into all of the other topics. Each of these areas leads to emotional conversations that provide opportunities for all of the family members to safely share their Money Values in an effort to work together for the future.
When You Have Money Problems
Hindsight is often twenty-twenty and in a perfect world, all families would have Money Talks long before they needed to have them. But life doesn't always work that way, and often by the time the conversations are being had, things are off the rails or heading that way. So, let's look at the four main causes of money problems in a household:
- Conflicts in Money Values. No couple will have identical money values, but a family with very different attitudes toward spending or saving, toward luxury purchases, toward college tuition or mortgages may be in for some challenges.[ii] This can cause real hardship in a household. Both parties are working toward different goals with the same money. Thinking about your own values and communicating with your partner about theirs is the first step to getting your money values in sync.
- Unrealistic Lifestyle and Goals. Getting into debt to keep up with unrealistic lifestyle goals will only create stress and frustration.[iii] Overextending and living beyond means to keep up with exterior pressures is a common theme in modern society. But trying to meet a perceived level of outward success can have real consequences financially. It’s better to have a realistic budget and debt discussions and seek out satisfaction from the things in life money can't buy.
- Emotion and Money. Emotional money use comes in many forms. Some examples are compulsive overspending or gambling, committing financial abuse by withholding or controlling the money or using money as revenge or punishment to other family members. These are all toxic examples of using money in an emotional way.[iv] The first step is recognizing the type of money abuse and then seeking out help for your family.
- Not Planning Ahead. A lot of saving and financial mistakes are not big expenses, but the small nickels and dimes. Daily trips to stores and coffee shops, the rise of basic household expenses, not having enough emergency savings, or carrying a credit card balance.[v] Looking at overall spending, setting new goals and breaking costly habits is the best approach.
Your Money Talk Script
Now you’ve thought about your money values, you evaluated the possible problems in your household’s budget, and you’ve scheduled the meeting. How to get started and what questions should be addressed?
- Discuss the way that you feel the family talks about money (well, not enough…)
- If it were up to you, what is the ideal situation for the household?
- What needs work/help?
- What kind of help is available? (downsizing, planning, investment advice, financial consulting, debt consolidation, family counseling, etc.)
- Find a way to talk about other household member's financial mistakes. (Using "I" statements)
- Discuss any potential financial issues before they happen and plan for it.
Solving Problems Together
With each financial hurdle, it’s best to be as specific as possible and focus on one at a time. Open the discussion to the group to brainstorm possible solutions and write them down. This is a safe space for a family and it is important to let everyone feel heard. Go over the list of solutions and determine if are any of them are doable. Are they practical? Can you, as a family, agree to one or combine some together to solve the problem together? And once a solution is agreed upon, then you can start planning how to implement the plan to address your problem. Make sure to go over any possible roadblocks or challenges to solving your problem and make strategies for dealing with those.
Money discussions can be hard and emotional. But, by talking openly and approaching challenges frankly and as a family, you can approach any challenge stronger and more prepared.
For more reading and resources, you can read our Perspectives Blog or either purchase a hard copy or digital download of my book, Flourish Financially: Values, Transitions, and Big Conversations. If you are in the Greater Minneapolis area on September 17, please join me at the Barnes and Noble – Galleria in Edina at 6:15 pm for the book launch. There will be hors d'oeuvres and wine, and I will be discussing my book and holding a Q and A after which I will be available to sign books for those who are interested. Seating is limited so click here to reserve your place.