I'm currently on vacation. This post has been written courtesy of Chief Family Officer, one of the personal finance blogs that's been around for awhile and that I read regularly (though she talks a lot about "girl stuff".) :-) Enjoy!
In order to have productive, fruitful discussions about your family's finances, such that everyone walks away feeling good, you'll need to lay some groundwork so that everyone is on the same page. First, you and your spouse need to talk. Depending on how long you've been together, much of the groundwork may already be laid. Topics that should be covered include:
- Openness about how much money each person has saved, how much each person earns, and how much each person owes. Each person should be able to report their current financial status without being judged.
- Personal views about money. This includes how your parents viewed money and whether they fought about money issues when you were growing up, your degree of interest in personal finance and investing, and your risk tolerance. For example, your risk tolerance might be low because your parents always talked about how little money they had and therefore you feel most comfortable with a huge chunk of cash stashed at the bank.
- Your family's priorities and goals. Financial goals can be discussed at the actual meeting(s), but before that, you should talk about things that are important to you, like what your dream vacation to Paris, whether you want to send your children to private school, and your desire to become a stay-at-home parent.
- If your children are old enough to understand money, decide whether you want to include them in the family discussions and to what extent. For example, I don't plan on letting my children know exactly how much money we make until they are in middle school at least, but I would like to involve them in budgeting decisions when they are in elementary school.
Once you've laid the groundwork, establish some rules:
- This is the most important rule: each person will listen and speak with respect for other family members. There should be no put-downs, name-calling, or statements that may make the discussion a negative experience. Additionally, when a family member doesn't understand something, everyone should exercise patience and restraint in bringing that person up to speed.
- Some families may not be comfortable with this rule, but I recommend that the main breadwinner not be given extra decision-making power simply because of the amount of money brought in. Giving both parents and the children as much decision-making power as possible recognizes each family member's contribution to the family. And if one parent stays home, this rule emphasizes the value of that parent's non-monetary contributions and sets a good example for the children.
- For each meeting set aside a time and prepare an agenda. Unless you can rarely meet or there is a reason you need to settle all issues immediately, schedule separate discussions for budgeting, financial goal-setting, allowances, updates, etc.
Obviously, family discussions about finances need not be formal meetings and can be held at a moment's notice when everyone is around. Making sure the proper groundwork has been laid and following a simple set of rules will help ensure that your family finance discussions will be productive and a bonding experience.
I think it's good to talk about statistics and bring out the charts, but sometimes it's also good to get some "girl stuff" advice as well. :)
-Raymond
Posted by: Money Blue Book | September 18, 2007 at 02:16 PM
Not to be discourteous to our guest blogger, but to involve children in financial decision-making? Oh, okay. Here, let me check with my 7-year-old on whether I should get a Roth this year. Pass.
Posted by: Todd | September 18, 2007 at 02:26 PM
Todd, I don't believe that was the advice. The advice is that the children should hear about these things because then they will be prepared for the future when they have to deal with their own finances. If they aren't taught they will only learn by trial and error. When it comes to playing video games that's fine, when it comes to playing life it's best to learn from others mistakes.
Posted by: Traciatim | September 18, 2007 at 05:30 PM
Why would I want to discuss my financial situation with my family? I earn minimum wage, I have a pile of debt, and close to zero prospects of getting a better job.
Posted by: Minimum Wage | September 19, 2007 at 12:54 AM
Trac, I'll admit I was being a little snide. There was something PC about the whole article that rubbed me the wrong way. It was very well-written and organized, though.
While I don't believe that children should be involved in family financial decisionmaking - at all - I do believe that it's important to set an example for one's kids. They need to know, for example, the value of hard work, making a budget, saving, etc. Those things can be taught without family conferences.
Posted by: Todd | September 19, 2007 at 02:07 PM
Todd: Maybe your kids shouldn't be helping to make the decisions, but they should see how mom and dad make them (especially the more tangible ones). For example, the family car is breaking down, and mom & dad have to decide what to do about it. Should they fix it (again), or trade it in and buy a newer car? If they buy a newer car, how much can they afford to spend, and what can they get for that money?
Personally, I had no idea how my parents made this type of decisions when I was a kid. Cars came and went without much explanation - the only one I really understood is when our station wagon developed holes in the floor. But I have no idea how my parents picked out the used mini-van that they replaced the station wagon with. Nor do I know what happened to the old car.
Also, if money is tight (it wasn't in my house), getting kids buy-in on where to cut spending may avoid tantrums in the future. That doesn't mean they're making the decisions, but it does mean that they understand where the decisions are coming from. Rather than simply hearing "No, we can't buy that toy", they'll know that the toy isn't in the budget for this month because the family "fun money" was spent on a day trip to the local amusement park instead.
Posted by: Anitra | September 20, 2007 at 10:51 AM
I love the post...it's triggered some lively discussion.
My parents never talked about money , and that secrecy got me in a lot of trouble financially.
I am a financial writer now, and since my children were small, I've been talking openly with them about money. I don't ask them what stock I should buy. But I absolutely share my thoughts on investing, savings, credit cards, etc.
It's made a huge difference in their comfort level with finance and their avoidance of debt.
I wish we could put an end to all the secrecy and silence surrounding money. The place to start is in the family.
Posted by: Barbara Stanny | September 21, 2007 at 06:07 PM