Enrico Louw, General Practice Principal at Old Mutual Personal Finance
Age-appropriate conversations about household finances can give children their first practical lessons in money management and put them on the front foot when they enter adulthood. Despite this, many South Africans remain reluctant to have open discussions about money.
Money is a deeply emotional and personal subject, and individuals often derive a sense of self-worth from what they earn and how they provide for their families. “People would rather talk about anything other than admit to struggling with debt, salary or savings, or being unsure about their financial future,” says Enrico Louw, General Practice Principal at Old Mutual Personal Finance. The result is that critical conversations about family finances only take place after a disaster occurs, when emotions are running high, and it is potentially too late then to course correct.
Families that avoid open, transparent conversations about money can face dire outcomes. It is common, for example, for a surviving spouse and children to learn about significant debts only after a breadwinner dies. “Financial secrecy erodes trust in families and can seriously affect financial planning outcomes,” says Louw. “Examples include spouses hiding debt or spending habits from one another, or relationships outside a marriage that could result in future claims against the estate. This can reduce the funds available for goals such as tertiary education or debt settlement.”
Transparency does not require partners to justify every cup of coffee, but to strike a sensible balance between personal independence and shared accountability. Anything that affects the family’s overall financial well-being should be openly discussed between spouses, including debt obligations; emergency funds; income; insurance; major purchases; retirement and short-term savings for education or holidays.
Couples should try a once-per-month coffee or breakfast session for a relaxed, non-confrontational update on the household budget and personal financial developments. And families should have regular age-appropriate money conversations around the dinner table. You do not have to share intimate details about monthly income with children, but informally explain how much of the household income goes to paying for things like the bond, the car, school fees, groceries and short-term savings. “You will be amazed at how your children respond to this openness,” Louw says.
Telling your children there will be no Spur visit this month becomes easier if you explain it in the context of emergency spending on new tyres for the car, for example. This teaches young children the trade-off between nice-to-haves and genuine emergencies. As children progress into secondary school, you might discuss the household budget in the context of career ambitions and saving for education. Families that make money part of the conversation help to prepare children for the responsibilities they will face in adulthood compared to not being exposed to these conversations during childhood.
One of the biggest pushbacks that advisers encounter when encouraging customersto discuss finances with their children is the lack of financial education. “Your financial adviser can help you to verify the financial information you want to share with your family and make it more relevant to your circumstances; you should ask your financial adviser to walk this journey with you and your family,” Louw says.
A family financial plan can be strengthened when the adviser’s relationship extends beyond the customers to include the immediate family. If a customer dies, the adviser serves as a pillar of support for the spouse and children, assuring them that the event was foreseen and planned for, and guiding them on important future decisions. “Without financial advice, children may face pressure to spend their inheritance on things the money was never intended for,” Louw says.
Open and honest conversations about money can help families navigate some of the financial challenges they face, notably the demands placed on breadwinners by the wider family. “It is very difficult when the main breadwinner is supporting both children and parents, because much of the monthly income is spent on someone else,” Louw says. This is equally true for young graduates who start work only to face requests for financial support across the extended family.
Financial advisers are accustomed to these situations and can help find solutions. “You have to balance how you show up for others while securing your own financial future; you cannot sacrifice your own long-term financial security to support others indefinitely,” says Louw. He encourages salary earners to have the tough conversation and find a sustainable balance that allows them to support their loved ones while protecting their own family. There is usually room for manoeuvre by sharing the load among siblings, or managing family members’ expectations on the level of support you can continue to offer.
Asking ‘are we living within our means?’ supports a general financial planning conversation that is useful to all households regardless of income levels. “We need to extend the money conversation beyond the customerto make the entire family part of the financial planning journey,” Louw concludes. “Families that have honest conversations about money and make important financial decisions together will find themselves in a much stronger financial position than their peers.”
ENDS
