Many families avoid talking about money because it feels uncomfortable or emotional. When parents discuss wealth, they worry about setting expectations, while their children avoid bringing up the subject for fear of appearing to be only interested in inheritance. However, by having difficult conversations about money sooner in life, you can make better financial decisions.
Why families avoid money conversations
In the UK, money has traditionally been treated as a ‘private’ subject, and it’s not uncommon for families to avoid or delay talking about finances. Regardless of the family dynamic, there can be a degree of emotional discomfort when conversations start focusing on money matters. As a result, important financial discussions can sometimes never happen.
Conversations around money can create fear of judgment or conflict between generations. From the parent’s perspective, there might be concerns about creating a sense of entitlement or certain expectations around inheritance.
When it comes to siblings, there might be a sense of rivalry or unfairness, especially if one child has received more financial assistance than another. There might also be a lack of confidence or knowledge about financial matters.
The risks of avoiding financial discussions
Putting off important money conversations for too long could result in having them at the worst possible moment during a crisis. As an example, don’t wait until a family member is losing mental capacity to discuss the need for Lasting Powers of Attorney. You could lose the ability to make crucial decisions about their health, welfare, property and finances.
If you or a family member doesn’t leave a will, there could be uncertainty around inheritance and estate distribution. This can lead to stressful family disputes after death due to surprises or misunderstandings, as well as higher inheritance tax (IHT) payable. Earlier conversations can help you plan more tax-efficiently, using gifting strategies or trusts.
By helping your children understand your current financial situation and what you’d like to achieve, you will be educating them to make better financial decisions. Poor financial decisions are often made by younger generations when they lack sufficient guidance.
How to start a conversation about money
Starting a difficult conversation about money with family members isn’t easy. The key is to choose the right moment. Avoid discussing money matters when there’s a crisis or problem. Begin with practical topics rather than sensitive figures that might evoke certain emotions.
In the first instance, instead of focusing on wealth, structure your discussions around planning and protection. Use life events as natural discussion prompts, such as buying a home, having children or retirement plans. Your conversations could gently examine the impact of these events on the family from a practical perspective.
Helpful tips for having conversations about money
Below are some tips to help you manage family conversations around finances:
- Keep conversations ongoing rather than arranging a one-off “big talk”.
- Prepare any talking points in advance to help reduce any potential awkwardness.
- Be transparent about your intentions, even if the finer details need to remain flexible.
- Encourage open questions and avoid shutting down, even when things start to feel a little uncomfortable.
- Focus on clarity, not perfection. You might not resolve everything in one conversation, but at least you can start talking more openly about money.
Lastly, get professional advice from certified financial planners to help you bring in a qualified, neutral third party.
The role of a Certified Financial Planner
Our financial planning team can help you have difficult conversations about money. We can facilitate a structured family meeting to give you a professional perspective on your financial position. We’ll explain any tax implications for your estate such as IHT thresholds and gifting rules. We can advise you on trusts and wills, ensuring your legal documents are in place and up to date. Our financial planners will also align your financial plan with your family values.
Here’s a common scenario:
A parent plans to leave assets equally between their children, but they’ve already helped one child with a house deposit. If this isn’t discussed, it could lead to a perception of unfairness later on. Early conversations can help to manage expectations, and everything can be documented clearly in the parent’s will. The parent might decide to ringfence an equivalent sum for the other child and put this either in a trust or an investment product.
Always get a clear picture of your financial position before you start gifting to children. When a parent has gifted to one child but not the other, conversations around money can quickly escalate and become heated. However, your financial planner can meet with your whole family and provide a balanced, outside perspective on the situation.
Carry out a cash-flow modelling exercise with a professional financial planner to help you plan your legacy fairly and in a tax-efficient way.
Chartered Financial Planning
Having open conversations with your family about wealth and loved ones’ relationships with money creates transparency and trust. Start small with a simple conversation focused on one subject before moving on to more complex topics like inheritance planning.
At Balance: Wealth Planning, our chartered financial planners can support your family with difficult money conversations. Whether you need everyone present for your free initial consultation or for subsequent meetings, we always encourage open discussions about your financial plans. The sooner you have important conversations about inheritance matters, the more we can achieve when it comes to securing your family’s financial security.
Get in touch to book a family financial planning review with our team.
Sources:
https://www.nationalnumeracy.org.uk/news/why-uk-doesnt-talk-about-money
https://finura.co.uk/news/why-we-dont-talk-about-money/
https://www.cityam.com/failing-discuss-your-finances-loved-ones-could-cost-you/
