Families and Money -- A Prescription for Tension

Money and family -- is there any combination that is more emotionally charged and fraught with the potential for lingering resentment? I can't think of one! Why is this true? And is there any way to defuse the strong feelings money issues arouse in family members?

A family shares things -- a home, their time, values and experiences --and the members support each other through their individual trials and triumphs. Each person contributes his or her talents and efforts and has a vested interest in the success of the family and all of the members of it. Rough patches and misunderstandings arise, but thanks to their undying bond everyone keeps their egos in check and does whatever it takes to make it work. It's all about unconditional acceptance.

Sound like your family? Not mine either. Or any real family I have known up close. It's an ideal we might strive for, but reality is much more complicated and messy. In most families some members make personal sacrifices and may occasionally--or even constantly--remind the others of what they have done. Many families have an overachiever and an underachiever; an ant and a grasshopper. Because real families are made up of imperfect people, these differences in ability and temperament are handled (and often mishandled) differently by each family. And every person perceives the words and actions of the others through his or her own unique filter. All of this makes families, even loving, well-meaning ones, emotional powder kegs.

Add to this volatile organism money, which triggers intense feelings of greed, fear, shame and power. Talking about money is taboo in many famililes; regardless, everyone in the family knows who has it and who doesn't. Inequality almost always leads to resentment, though it may be suppressed for many years in the name of keeping the peace. But over time, children grow to adulthood, parents age, possibly become disabled and eventually die, and issues boil to the surface.

What, if anything, can parents do to manage such an inherently explosive issue?

• Decide what you consider a fair way to dole out resources. Do you want to give an equal amount to each child, or do you want to provide extra support to a child who has struggled or chosen a path that has not led him or her to financial security? Your personal or family philosophy will inform this decision. When you meet with your financial planner and estate attorney, tell them your wishes so that they can help you incorporate them in plans and documents. Talk to your adult children about your choice as well -- they may not agree, but at least they will not make inaccurate assumptions or be surprised by what happens later on in life.
• Some families create a shared loan fund and leave it to their adult children to govern its use. A pool of money is set aside in an account that is available to all family members. Siblings may borrow from the fund, rather than hitting up mom and dad, as needed for education, down payments, etc. All participants must agree to repay responsibly so that the money is there when someone else needs it. This works well for families with an equal and strong sense of fairness and obligation.
• One child often bears more of the responsibility of caring for aging or ailing parents -- due to proximity or a strong caregiving personality or both. Consider providing reasonable compensation for these services. Too many times, the caregiving child grows resentful, and the sacrifices he or she has willingly chosen to make are thrown in the faces of other siblings on a regular basis. We've seen cases as well, where the caregiving child has started finding ways to compensate him or herself on the sly, triggering anger and resentment in the other siblings. It's better to recognize up front that the services provided have value and pay accordingly.
• Choosing your most capable child as your trustee and/or personal representative seems logical, but it creates tremendous tensions between siblings. Suddenly, one sibling has authority over the others. This magnifies any brewing resentments. A better solution might be to name a more neutral party to these roles -- another close family member or friend perhaps.
• Educating your children early and often about money issues may be the best way to inoculate your family against future money wars. While openly discussing money may seem unnatural and even rude in our culture, assuming your children will just pick it up and figure things out makes no more sense with regard to money than it does with sex or drugs.

Every family is unique and extraordinary, and dysfunctional in its own special way. It's worth giving some thought and care to how money issues are handled -- no need to make things any more difficult than they already are.

Annette Simon

Copyright 2009 Money Dames

Who's Afraid of 50?

I turned 50 earlier this month. That's not unusual and certainly not newsworthy; thanks to the internet I'm in touch with many friends from my past who are exactly my age and everyone seems to take turning 50 pretty much in stride. But passing this big milestone has led to some reflection (and angst) on my part. I've been spending a lot (maybe too much) time thinking about my age, and what it means to me -- both emotionally and financially.

In many ways I feel relatively ageless. On the inside, I am more-or-less who I was at 18 -- fun-loving, impatient, analytical, casual, rule-bound... in many ways a bundle of contradictions. I have different people in my life, much more responsibility and experience to draw on, better impulse control but my thoughts and feelings on a day-to-day basis are very much the same. When I was in college, my faculty advisor once told me that she was stung by a student who said she (the student) couldn't identify with where the professor was coming from. My 50+ year old advisor told me, "I can completely identify with this girl -- I'm just like her." Although I couldn't imagine it to be true at the time, I get it now.

But if I look at myself today through the eyes of 18-year-old Annette (or my 17-year-old daughter) I see a very different picture. I see a middle-aged mom who is reasonably fit for her age, knows nothing about current music, loves movies, television and books, seems to be pretty successful professionally, secure financially and is lucky to have a very nice husband who puts up with her many quirks.

Not exactly what I imagined thirtysome years ago. Back then, I thought I could do anything if I decided I wanted to -- an assurance (or delusion?) I now see in my own sons. An ardent feminist, I dreamed of climbing to the top of the corporate ladder or building my own business empire. Things came easily to me at that age and it was wasn't hard to envision myself on top. I couldn't wait to escape my small town life and take my place in the big outside world.

But my younger self never anticipated that I would be unhappy in corporate life and would flounder about professionally for many years trying to find the right path. It turned out I had neither the drive nor the discipline nor the stomach to thrive in the cutthroat world of big business. After graduate school, a series of jobs in consulting provided me with a great education but the long hours and excessive travel made me miserable. It took a break from the workforce and a few dramatic family crises to bring me to financial planning.

I didn't have it all wrong wrong at 18. It turns out I was a city girl trapped in a small town and to this day I love urban life. When we moved to a house just a block from downtown several years ago I had finally realized my dream of city living and have loved every minute of it. Being in the city makes me feel more alive, younger I guess. And, I have been part of building a modestly successful business and have served in several leadership roles in my professional association for the past 13 years. I'm not the CEO of GM (thank goodness!) but it's been challenging and rewarding and fits my personality perfectly.

Financially, I've had a rare luxury. My husband and I were starving students after college, barely making it with our part-time jobs and begging for loans from our parents when we fell short. Until the birth of our oldest child, I earned more than my husband -- yes, the entire first two years of our marriage I was the "primary" breadwinner. Since then, the next 23 years, he has earned more, and even now much more than half our total household income. His financial success has allowed me to figure myself out while we put away money for college and retirement. We won't be retiring at 55 as we once dreamed, but we're in pretty good shape and on track to cut back and take things slower sometime after 60.

It sounds like we're living the dream, and in many ways we are. But I'm a planner, and I know that in life, autopilot doesn't work. In my 50 years I've seen unplanned pregnancies, parents die young or end up prematurely disabled. I've seen couples who seem completely happy together call it quits and model husbands announce their wish for a divorce by having their wives served with papers. I've seen accomplished professionals laid off and unemployed for extended periods. And don't get me started about can't-miss investments that have gone completely afoul. Everyone needs a Plan, and a Plan B and a Plan C.

Life is a series of unexpected events. I think that's something I know at 50 but had no clue about at 18. Back then, I thought I knew what lay ahead; now I never know what's coming next -- but that's what keeps it interesting. I haven't concluded that being 50 is better than being 18, but I wouldn't go back for anything. I'm more interested in seeing what happens next.

Annette Simon

Copyright 2009 Money Dames

Are We There Yet?

After just three up days in the market, some people are starting to check their account balances to see how much of their losses have been recovered. If only it were so easy!

Here's a depressing lesson in portfolio math that we'll all need to keep in mind as we (hopefully) dig out of the hole the market has fallen into since last summer. When the market drops by any percentage it always needs to rise by a greater percentage to get back to where it started. Take this simple example:

Say the market index you are using is at 100 and drops suddenly by 50%. Now the index is 50. If it rises 50%, the index will not be 100 again, it will be 75. It has to rise 100% to get back to your starting point of 100.

How does this translate to what's going on in the markets? Using the S&P 500 as a measure, the market lost over 56% of its value from the high in October 2007 to the low (to date) on March 9. To make it back to that 2007 starting point the market needs to gain 130%. The 10%+ gains we saw this week are a start, but we have far to go.

Annette Simon

Copyright 2009 Money Dames

I am SO not into this World View

OK, so last night I went to a chick flick. I knew it had received bad reviews, therefore should have expected all I got and don't have the right to vent. But I'm doing so anyway.

The movie: He's Just Not That Into You (HJNTIY) playing in the local suburban theater. The audience: all the pre-teen kids in the neighborhood (or so it felt) and us - Annette, me, and a friend. There was a smattering of other grown-ups but we were in the minority.

The back-drop: From the kids - kicks, giggles and ushers escorting selected parties out for behavior. From the adults - Sshhes and hisses - completely ignored, of course.

The basic premise: women are pathetic and desperate, and men are inconsiderate commitment phobes. This theme was foreshadowed by a preview of a movie that appeared to be a cross between Fatal Attraction and The Hand that Rocked the Cradle. The preview showed a crazed woman vindictively chasing a happily married guy. The twist? She is very blonde and he is African-American. This being the movies, they are naturally both very attractive, as is everyone else in the cast.

Everyone in HJNTIY also is very attractive but that doesn't stop Jennifer Anniston, Ben Affleck and sundry from drowning in angst. We have 5 women in various categories : single, living with someone, married, slut and flake.

The single woman wants a man (any man), the shacked-up one wants a wedding ring, the wife wants perfect bathroom tile and a baby - apparently in that order, the slut wants someone else's husband, and the flake will settle for a 'real' rather than a virtual date.

Their behavior? Endless analysis, whining, spying, and stalking. The women are so uniformly annoying that by the end of the movie, I was completely on the men's side.

The ending? The single woman (very improbably) gets a guy, the wife dumps her husband, not for cheating but for smoking (a worse sin perhaps in our PC world?). Jennifer Anniston gets her ring, the slut gets a singing gig, and the flake (the most sympathetic character in my opinion) gets a relationship.

What do the men get? Not clear.

What does this have to do with women and money - the theme of this blog? Nowhere, by any of these women, is there any discussion of self-reliance, independence, savings and planning, or an exploration of finding fulfillment via a challenging and interesting career. Its all about the guy - finding, pursuing and getting him.

It stings to see the way popular culture stereotypes women. Maybe this movie bothers me because I am now single and recognize some of this behavior in myself and my friends? Could be. No criticism hurts as much as one with a grain of truth in it. All I can say is this single is going back to PBS for a while ...


Veena Kutler

Alternative Investments -- Money Dames-Style

Has the relentlessly falling market got you wondering what to do with money you would normally invest? Are you leaving extra cash in your checking or savings account rather than adding to your retirement or investment account?

We continue to believe that the market will turn around and that it could happen fairly quickly. By waiting for a sign that it's safe to get back in, you risk missing out on the biggest gains; and missing just a few of the highest return days can reduce your overall returns quite dramatically.

Our prescription: Think about how much of the money in your investment portfolio you will need to pay for expenditures in the next three to five years, then set that amount aside in a money market fund or CDs. What's left in your account should be long-term money -- funds you will not be drawing upon for five or more years. This money should be invested in a diversified portfolio incorporating a moderate level of risk that allows it to outpace inflation but still lets you to sleep at night. If you are not planning to draw upon your investments for five or more years and have the ability to contribute to your accounts, it makes sense to continue to do so and to buy securities at what will in the long run probably look like bargain prices.

We've been repeating this mantra since the downturn began and stand by it as the most sensible course of action. But, many people have reached the point where they don't want to hear it anymore. Adding to accounts that seem to shrink on a daily basis is more than they can stomach. They are accumulating cash -- building their checking, savings and money market funds rather than put any more money into the bottomless pit the market has become.

If you find yourself in that camp, here are some ways to make good use of your excess cash until you feel safe getting back into the market:

• Accelerate your mortgage payments. Paying extra principal will reduce the time it takes to retire your loan and yields a guaranteed rate of return -- the interest rate on your loan minus the value of tax deductions (for interest you will not pay in the future) you are forgoing. Reducing your debt increases your overall net worth just as much as increasing your assets -- and it's a sure thing.
• Prepay tuition. Check with your child's college or private school to see if they will allow you to prepay for one or two years of tuition. Tuition increases have outpaced general inflation for years, and if you believe the market will continue to drop it makes sense to pay future tuition bills now rather than waiting for your education fund to shrink further. Our caveat on this -- don't pay too far ahead -- especially if your child is starting at a new school or not entirely happy with the school she attends.
• If you definitely plan to purchase a house, remodel, buy a car or other big-ticket item in the near future, it might make sense to dive in now. You'll have great bargaining power in markets that are starved for buyers.
• Invest in yourself. If you've been thinking of going back to school to improve your job skills or train for a new career, use some of your cash-on-hand to cover the cost.
• Remember to look for opportunities to harvest lossses in your taxable accounts. Sell losing securities to capture the losses (up to $3,000 each year can be deducted from income, the remainder can offset realized gains this year or in years to come). Invest in another, similar fund if you want to be positioned to participate when the market rallies, or keep the proceeds in money market or other stable asset classes if you can't bear the risk. Just remember that you're locking in losses when you sell in a down market and don't reinvest in equities or stocks.

And a final reminder: you should always keep enough cash on hand to cover at least six months of living expenses, more if your income is at risk or irregular. These suggestions are only for investors who have a reliable income source that leaves you with excess cash you would normally be adding to your retirement or investment portfolio. We are not endorsing an irrational spending spree or depleting your cash reserves to pursue the ideas above.

Above all else, be sensible and plan to return to regular saving and investing as soon as possible.

Copyright 2009 Money Dames