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Tips for Your Family's Smooth Financial Knowledge Transfer

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February 3, 2016
A smooth pour: transfer financial knowledge to your partner and heirs for a richer experience

There’s more to creating and sharing a family financial legacy than simply making sure your loved ones know where the accounts are held or what the passwords are (although be kind and share those, too!). A smooth financial knowledge transfer is a prudent and powerful gift.

If you and your spouse aren’t already co-piloting the household budget, college savings, and retirement nest building, it’s never too late to begin sharing these duties. It can lighten the load and can keep a spouse in the know should the unforeseen happen.

At the least, household members who shoulder this important job should consider the value in continuity of operations. Fortune 500 companies typically put a secession plan in place when one CEO moves out of the corner office and another slides in. Why can’t this mindset feature in your household? What’s wrong with grooming a spouse and your children and grandchildren to jump into financial markets, speak the language of stocks, bonds, and commodities, and invest with the confidence that got you to the point of even having a financial legacy to pass on?

1. Worse than the Birds and the Bees? Get Over It. There’s nothing wrong with talking money—often. It may be rude among strangers, depending on the context. But it’s dangerous to consider this important talk taboo within the family. In fact, you might first talk about what makes this conversation so touchy. Says AARP: About 4 out of 10 parents haven’t had in-depth conversations with their children about covering living expenses in retirement as well as health care and elder care costs. As a result, many adult children aren’t aware of their parents’ financial situation as parents age. According to AARP, older generations tend to think that too much money transparency can leave younger generations expecting a future inheritance, so they won’t work hard themselves to plump up that nest egg. Younger generations, on the other hand, worry they’ll offend mom and dad by asking about any potential inheritance. The silence is deafening.

2. There’s No “Right” Time, and Some Tomorrows Never Come. Yes, that’s a little sobering. But a financial knowledge transfer doesn’t have to be a gloomy gathering that risks tipping into the morbid. In fact, you might make it less roundtable meeting and more living by example. Include family members in the financial news you read, the stock decisions you make, paying taxes, paying bills, even periodic meetings with your financial advisor. And, it’s never too early to start with basic, age-appropriate financial literacy.

3. Finances are Fickle. Financial professionals and individual investors can sometimes fall into the trap of only thinking about planning in tidy categories: house-buying; starting a family; saving for college; investing for retirement. The reality is that the lines between the stages can blur, swap order, or never materialize. The number of ways your gloriously messy life might intersect with your finances has become increasingly complicated and hard to predict. Doesn’t it make sense to share financial knowledge with those along for the wild ride?

4. Retirement Has Changed. Parents may in fact owe it to the next generations to educate them on retirement demands. Consider it an extension of child-rearing basics. Because of Social Security challenges and the shift from workplace pensions toward individual retirement accounts (IRAs) or employee-sponsored plans including 401(k)s, guaranteed income in retirement isn’t a sure thing. Plus, younger generations could be blessed—and challenged—to finance longer life spans. Help them.

5. Put a Little Skin in the Game. One of the best ways to take financial talk out of the abstract is to open accounts that family members actually have a stake in. Elevate your talk from basic financial literacy to strategy and measurable market results. This might include opening college savings accounts or custodial brokerage accounts for minors. Even retirement accounts can be started at any time, and then they’ll be there ready for your child, grandchild, or another family member to contribute once they launch their career.

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