Talking to Your Parents About Money
How to bring up this touchy topic in your family
Our parents are our first and greatest teachers. From an early age, we learn everything we need to know about life and the world from them. But there comes a point when we realize that in order to grow, we have to leave the nest and discover things for ourselves. Often, this may lead us to forming ideas and opinions about the world that are different than those of our parents.
When Robert was young, he had two fathers that he looked up to and learned from. His natural father was an educator, a very intelligent man who had traditional views of money. His rich dad was an entrepreneur, who had no college education but was one of the wealthiest men in Hawaii.
Both fathers taught Robert tremendous lessons about life and finances, and when he grew up he had to decide which mindset he wanted to adopt. His choices led him away from the path his poor dad had taken.
As we grow up and our parents grow older, we experience a dramatic reversal of roles. All of the sudden, we find ourselves taking care of our parents the way they once took care of us. One of the most difficult parts of this transition is trying to help your parents take care of their finances.
Many parents are so set in their ways that they have a hard time letting go. They don't want to broach the subject of money, estate planning, or retirement with their kids, for a variety of reasons.
In some households, attempts to have conversations about money become battles. In other families, parents and children avoid the subject altogether, leading to many misunderstandings. In fact, according to Fidelity's Family and Finance Study , "4 in 10 families disagree on adult children's roles and responsibilities as their parents get older."
It's vital that you talk to your parents about their finances, sooner rather than later. But how do you open the floor for discussion?
When to start
When is the right time to start talking with your parents about their financial plan? Right now.
In an article in Forbes, Kevin Ruth, head of wealth planning and personal trust at Fidelity, says, "Delaying conversations until a life event forces the subject means making decisions during a time of crisis that are often driven by emotion - by this time, options are fewer and time is tight - having conversations and a plan of action well before one must make a financial decision allows family members to take more time anticipate, plan and make informed decisions."
No matter where you parents are in their lives or careers, it's important to start discussions about money as soon as possible. If you can lay the groundwork early, and ease some of your parents' initial discomfort, you'll be much better prepared to help them in times of crisis.
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How to start
The most important thing to remember is that all these conversations must come from a place of care. You want to make it clear that you have your parents' best interests at heart, and your motivation to help them doesn't come from a selfish desire. Rather, these conversations should be about making sure your parents are secure, and living the life they want in their retirement.
Be direct and honest. Don't criticize or complain, but also don't be too timid to get a real answer. It can be difficult finding that balance, especially with the people who raised you, but it's the only way you can have open communication.
Start by asking simple questions to get a feel for their beliefs and goals. A few examples include:
- What does your ideal retirement look like?
- When would you like to retire? What age?
- What is your plan to make your retirement goals happen?
- What retirement plans do you have aside from a 401(k)?
- What does money represent to you?
- What are your preferences for your future care?
- What kind of help do you need?
And, the most important question of all, "How do you want to handle this?"
Remember, this is your parents' life and retirement. You want to help them, guide them, get them thinking, but at the end of the day how they handle their money is their decision. All you can do is open the door to conversation and help where you can.
Your parents taught you a lot, and now it's time for you to teach them. The older generation plays by the old rules of money. Members of the Baby Boomer generation often have outdated beliefs and expectations about money and retirement that will not serve them well as the world changes.
If your parents aren't completely open to discussing their own finances with you, try a different tactic by educating them on the new rules of money.
You can start by giving them a book like Rich Dad, Poor Dad, or articles that they can read to learn about the problems many retirees are facing. You can turn your next family night into an educational game night, and challenge them to play and learn from CASHFLOW.
You may also want to sit them down and explain concepts like the difference between assets and liabilities, the Cashflow Quadrant, why you can't depend on a 401(k), and how they can invest wisely to ensure their retirement years are comfortable.
There's a lot to learn, and it won't be easy. Teaching an old generation new tricks is often very difficult. Which is why it's essential to start early, introducing them to new concepts over time that will make a difference in the long run.
What not to say
Many parents might be resistant to talking about money or giving you personal information about their finances. That's why easing them in might be the best strategy, starting off with small questions or sharing information.
But there are a few things you should avoid.
Don't try to take control of the situation, or take your parents' money out of their hands. That's not the point of having this discussion. The point is to work with them to find a solution that's best for them. Not the solution you think is best.
Every step of this journey should be about open communication. Offer to help review their finances, or accompany them to a meeting with a financial advisor. Never put yourself at the head of their decisions. Even if they ask you to take over, still consult them at every turn to make sure you are meeting their expectations.
You should also recognize that your parents have worked hard in their lives to get to where they are. All the money they have, they've earned, and they might be a little cautious about letting their child teach them new things. Don't talk down to them, but work from their perspective, recognizing their areas of knowledge and expertise.
Where to go from here
Once you cross the initial hurdle, and have that first conversation, make sure you regularly schedule future conversations with your parents to discuss their plans. As you know from balancing your own finances, making a plan is not a one-time activity. You have to constantly tend to and nurture your investments and finances, to make sure your money is working for you. Or in this case, your parents.