By: Leah C. Schulte, CFP®, MA, LPC
Talking to your children and adult children about the family finances can feel like a cumbersome and overwhelming task.
From birth, you have scrounged, earned, saved, and risked in order to provide for their basic needs and find ways to give them necessary opportunities to grow. This post is applicable to all walks of life and for all caretakers and parents. As soon as you decided to become a parent, you decided to transition to a more generative version of yourself.
As a parent, you are charged to educate your child and open their eyes to the world. You teach them to take out the trash, have quiet time, get an education, and communicate respect all for the good of the family system. Taking time to involve them in the family financial picture will also yield fruitful results that will work to strengthen the family system even more.
How do you start this conversation?
1. Stop putting it off. Not many people enjoy talking about death. Conversations that confront the reality of mortality don’t typically begin until after a death or crisis has already happened. It isn’t only the parent that wants to put these conversations off; children also say conversations with their parents about death and finances make them supremely uncomfortable. However, putting off the conversation only works to exacerbate future stress.
As a financial advisor, there are few things more emotional than helping an heir sort through and identify dying or deceased parent accounts and bills.
When you realize how many different passwords your dad had for each of his many elusive account numbers, it is painful to reach for the phone to call him, only to realize he won’t be there at the other end to answer your questions.
2. Talking with young kids about budgets (see my next post on more tips on how to talk to your kids about finance) A great way to start talking to young children about money is by educating them on budgets and working with them to develop a budget of their own. Simple inflows and outflows are the easiest topics to avoid in finance because they can be illustrated with, really, anything physical.
If your kids are not yet dealing with legal tender, why not use leisure activities, treats, or games as “currency” to help them learn what it means to earn and spend? Chances are, you are already doing this as a major part of guiding their behavior. Have you ever told them that they could go outside and play for fifteen minutes if they cleaned their room? If they score a goal at the next soccer game are they rewarded with ice cream?
If these things sound familiar, it means you are already teaching your kids what it means to earn.
How about taking it a step further? Instead of offering your child dessert if he finishes his broccoli tonight, set a weekly budget, instead. What will the child have to do to earn dessert? How many can he earn? When is he allowed to “spend” his dessert?
For example: John’s chosen legal tender is Oreo cookies. Right now, the family is offering John seven Oreos a week for various assignments he can complete around the house. Pay day is on Friday night. He can choose to eat all of his earned Oreos right away or he can choose to save them and eat them at a later date and time.
Pretty cute, right? Want to make it more realistic? Take two cookies away to illustrate the impact of taxes on earnings.
3. Financial Values What does the family believe about money? Where do these beliefs come from? Are your beliefs experience-based? Learned? Happened into due to hard times or luck? Are your beliefs cultural?
Having a conversation with your adult children about what they want out of their own lives can serve as a jumping off point to helping them understand why you decided to spend, save, and earn the way you did as they were growing up, (and how you plan to spend, save, and earn going forward).
This may also be the time to tell them what you plan to do with anything left over after your death. Some families believe wholeheartedly in giving every penny to charity. Most of the time, children expect to receive an inheritance from their parents. If you don’t intend for this to happen, now is the time to tell them. If you do intend to leave them assets, reveal what they should expect.
4. Explaining your debt and assets Let's say there is a person who owns multiple businesses. This person was recently diagnosed with terminal lung cancer at 75 years old. His adult children did not choose to enter any of the businesses within the family name and were far removed from the mechanics of each. This person desired to leave the businesses to his children rather than sell before his death because he was emotionally connected to each and wanted to attempt to leave a legacy behind.
His adult children had no idea this was his plan and once they learned what he wanted, they obviously had a wealth of questions. Do you want us to keep the businesses and find someone to run them? Is it ok if we off-load the businesses and take any profits? What debts are attached to them and what are they worth? How would we go about getting them appraised? Who are your most trusted employees at each? Do you have an accountant you trust?
Even if the above does not apply to your family in the least, your kids are still going to wonder about what to do with your assets and debts after you die and will feel more comfortable once they know what you have and what to do with it.
This involves ongoing conversation rather than simply leaving behind a Will with instructions or a Trust agreement with stipulations.
Perhaps forming a spreadsheet for the family and having quarterly or annual meetings to discuss could help this conversation continue seamlessly.
5. Cover it all and keep it light Try to keep at least initial meetings about finance light. It is also helpful to meet in person, if you can, or meet by web video. Your facial expressions and vocal tone will make or break a sensitive conversation.
Smiling and speaking calmly about death and your estate is more comforting than sending an email with the subject “Let’s talk” and mapping out fifty bullet points on everything you want your kids to know.
Other estate planning topics to consider discussing involve long-term care policies, life insurance, trusts and wills, getting the kids in contact with your financial advisor, lawyer, and accountant, pointing out funds set aside for funeral expenses, sharing which child will be responsible for important end-of-life decisions such as “pulling the plug” or serving as Power of Attorney, and who will be receiving which assets and why. It can be overwhelming to discuss finances with your children, especially if you are not feeling like an expert on finances, yourself. For this reason, it is a great idea to reach out to a financial advisor, accountant, lawyer, and therapist to get some help running these discussions. Looking for a great therapist? Check out the team at nayaclinics.com.
The financial teams at Brass Tax and Schulte Group are ready to talk when you are.