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

Are You Financially Literate?

We've been surprised by how little many otherwise sophisticated, successful people know about financial matters. The Madoff affair and the sub-prime credit crisis are both financial disasters that largely could have been averted if more Americans had a solid grasp of some basic financial concepts. Our hope is that the Obama adminstration recognizes this and will embrace the cause of increasing financial literacy.

Until they do so, here are a few questions to test your own financial literacy:

1. What is the difference between a stock and a bond?

2. How is investing in an IRA or 401(k) different from investing in a brokerage account or mutual fund?

3. What is the difference between term, universal and whole-life insurance?

4. Is $1 million enough to retire on?

5. How much income is too much to qualify for college financial aid?

6. Is real estate a better investment than "the market?"

7. How much can you reasonably expect to earn on a risk-free investment?

8. What is the average rate of inflation?

9. What are the basic estate planning documents everyone should have?

10. What types of insurance does everyone need to own?

11. What credentials, education and legal obligations are financial advisors required to meet?

12. How long will it take to repay your credit card balance making the required minimum payment each month?

13. Should avoiding taxes be your first priority in making financial decisions?

14. Which of these factors is the most significant determinant of portfolio performance: Security selection (which stocks and bonds you buy), asset class allocation (how much you have in stocks vs. bonds, large vs. small companies, etc.) or Market Timing (picking the right dates to move in and out of the market)?

15. How much cash do you need to keep in a checking/savings account for emergencies?

16. What is a mutual fund?

17. How much of current income do you need to save for a secure retirement?


If you can answer all of these questions accurately and confidently, good for you -- you have achieved an outstanding level of financial literacy.

The answers...? Oh you want the answers! We'll be addressing these questions and more in entries to come over the next several weeks. Stay tuned and submit your questions if we don't cover them.

Annette Simon

Copyright 2009 The Money Dames

Why Work with a Financial Advisor?

Does working with a professional advisor make a difference? We think the answer is a resounding yes. Here’s why:

1. We help clients set and stick to their most important life goals. That is huge. Most people think about what is important. Few write down those goals, even fewer monitor those goals, and an even smaller percentage measure to see if their goals are being met. Advisors who practice holistic planning help with that process. It is often profound for clients to realize after working with advisors for several years how much progress they have made toward their goals.

2. We lead clients through mature, objective and deep conversations about very important family planning issues. Most couples avoid discussing contentious money matters and when they do it often devolves to a very emotional exchange, even an argument. As an objective, knowledgeable and trusted advisor we facilitate difficult discussions in a non-judgmental way. Moreover we help by providing advice and feedback based upon our years of experience. Often, this is akin to counseling albeit with three cups of technical advice, a teaspoon of humor and a half cup of reality testing questions.

3. Fiduciary, fee-only advisors evaluate clients’ financial situations objectively and weigh their options with only the clients’ financial success in mind. Because we are paid by and answerable only to our clients, we can help them cut through and ignore the noise. TV, newspapers, and websites are full of conflicting and often contradictory advice; friends and neighbors brag about their investment successes. Often this random information sounds impressive and compelling – but it may not be accurate or appropriate for every individual’s situation. A professional who knows the totality and specifics of her clients’ personal circumstances can protect them from chasing after the can’t-miss investment of the week.

4. A good advisor is a great resource for clients to help them manage their busy lives. We know smart, ethical attorneys, accountants, mortgage brokers and professional coaches, useful websites, pertinent books, strategies for problem solving, etc. Clients are consumed with their day-to-day activities and seldom come up for air to think about alternative ways of solving issues. We have extensive networks and can refer them to resource professionals who can help make their lives easier.

5. We serve as a sounding board, helping clients think through tough issues. At times that may mean we protect them from themselves by heading off bad decisions. In the horrifying days of mid-October, who didn’t contemplate going all to cash and wondering if any of their portfolio should be in the equities market? We provide sound advice in the heat of the moment to help them stay calm, reduce the emotion and make a rational choice based on facts, not hearsay. That model of measured advice and help in difficult times only comes from a trusted advisor—not from a salesperson.

Annette Simon

Copyright 2009 The Money Dames

The Making of a Financial Planner

What makes someone want to become a financial planner? In my case you might call it a series of unfortunate events.

My father died from pancreatic and liver cancer almost 15 years ago. In the last year of his life he suffered terribly not only from the ravages of his disease but because his financial life began to unravel at the same time.

For most of his life he had been a successful businessman. He and his brother sat atop a small empire of retail stores and a variety of investments in local businesses in my Midwestern home town--a family business my grandfather built after emigrating from the Ukraine. We lived very comfortably in our small community while I was growing up; in fact I'd say my brothers and I were pretty spoiled, never wanting for anything. I saw my dad as a savvy businessman and a person of the highest integrity.

Our fortunes first began to turn when my dad and uncle decided to open a new store halfway across the country in Nevada. Until then I had been unaware that dad was unhappy with his life, but he was restless and looking for a big change. Boy, did he get it! Our family voted (four to one -- I was the only one opposed) to relocate so that dad could manage the new venture. Soon after moving the family he left my mom and filed for divorce.

Not surprisingly, my mom chose to leave Nevada and headed back to the east coast where she had grown up. During her marriage mom had paid the bills, but dad really managed all other aspects of the family's finances. Every element of money management was new to her -- living on a budget, buying a house on her own and making big financial decisions -- and she was ill-equipped to deal with any of it. Over the years she was victimized by salesmen and brokers who won her trust and sold her inappropriate products with no regard for what she really needed.

Meanwhile my dad fell in love and remarried. While his love life was flourishing, changes in the IRS rules created massive tax liabilities for the family business. It was a financial blow dad never really recovered from, but he hid it from the rest of us even cooking the books to keep his brother in the dark. I think he believed his fortunes would turn and he would make it all right, but he got sick and ran out of time.

After his condition was diagnosed, dad began to count on a large life insurance policy he had purchased to keep the business afloat and to provide an inheritance for his wife and three adult children. The plan was in place and might have worked as dad hoped, but less than a month before his death my step-mother convinced him to transfer ownership of his life insurance policy to her. She promptly made herself the sole beneficiary and received the entire death benefit when he died.

That sounds like the end and enough to motivate me to want to learn more about financial planning, doesn't it? But there's more!

Dad's life insurance policy was what's known as key-man insurance, intended to carry his business partner--his brother--through several months during which he would find someone to fill dad's shoes and keep the business (which my dad had thrust deeply into debt) afloat. So it wasn't really dad's policy to leave to his children or his new wife, and it certainly wasn't his to transfer to a new owner. It's probably not too surprising that my uncle sued my step-mother and after months of very ugly back-and-forth they came to a settlement. She bought him out; over time she paid off and negotiated down the remaining debts. She owns and runs my dad's business to this day.

While all of this was happening I began taking CFP courses. I wanted to learn how to spare others from the mistakes my family had made.

Initially, I saw my step-mother as the villain who stole my inheritance. When my uncle sued her and won, he joined the bad-guy team. But as I learned more about personal finance I realized that my dad and my uncle had an agreement and dad had broken it first by changing the beneficiaries of his life insurance policy and then by giving it to his wife. So my uncle was a victim too. Even my "evil" step-mother was going to be stuck with credit card bills my dad had hidden. I could eventually see that she was doing what she needed to just to keep his wreckless acts from dragging her down financially. She wanted to save her house and the assets she had built up over a lifetime. I can understand why she did what she did.

My dad blew it by failing to plan, by denying the reality of his financial limitations, and of course by lying to everyone along the way. I'm even willing to see him as a victim -- a victim of unfair tax laws and even more a victim of love! He was so eager to please his second wife he didn't want to confess his failings; he wanted to give her everything.

And in the end, I don't really see myself and my brothers as victims at all. We were clearly last in line for the insurance money. We didn't receive any inheritance at the time of his death, but my dad put us all through top-notch colleges and instilled a work ethic that has allowed each of us to survive and flourish on our own. And his missteps brought me to a profession I love--that's a pretty good silver lining in my book.

Annette Simon

Copyright 2009 Garnet Group LLC

Welcome to Our Blog!!

Welcome to our blog! Veena and I hope to provide valuable financial information for women of all ages in this space. We’ll talk about what’s happening in the world and the markets as well as the financial challenges in our own lives that might be affecting many of you as well. We want to hear from you as well so please share your questions and comments.

Annette