Most affluent parents say little to their older kids about money.
On a routine visit, without warning, she handed me a plain manila envelope containing a list of all her assets and account numbers and values; contact information for her lawyer; and what felt like heartless instructions on accessing and emptying the safe-deposit box. (Among them: "Go to the bank before contacting the medical examiner." Uh, thanks, Mom.)
|Personal data||Social Security number, safe combo, passwords|
|Contact info for advisers||Attorney, insurance agent, accountant, financial planner|
|Locations of key records||Wills, powers of attorney, birth/marriage/military records, deeds, back taxes|
|Savings and investment accounts||Bank (including safe-deposit box), retirement, college, brokerage|
|Pensions and insurance||Employee/military benefits, insurance policies (such as life, disability, long-term care)|
Even at the tender age of 21, I realized this level of disclosure was unusual. But the contrast really kicked in years later as I learned from friends and my spouse how seldom money was discussed in their homes.
"We've had conversations about having conversations about money, but they stalled before getting anywhere," says my husband, Kimon.
That's definitely more the norm, according to recent studies. Only 32% of the boomers in a new survey from U.S. Trust, for instance, had fully disclosed their financial situation to their kids, and just 44% of parents over 67 had.
If you're among this tightlipped majority, you no doubt have your reasons. Maybe, as the research has commonly found, you were raised not to discuss money or, if you're doing well financially, you worry that full disclosure could have a negative effect on your children's work ethic. Or perhaps you simply haven't gotten around to having "the talk."
Understand this, though: Keeping certain key details about your money to yourself can be costly, both emotionally and financially -- an outcome you may be familiar with from dealing with your own parents.
Your adult children could be worrying about you unnecessarily, or they may be unprepared to help with your affairs if the need suddenly arises. And they may have unrealistic expectations about how much (or little) you're willing and able to help them with their finances. "Generally, the more open you can be, the better," says Baltimore financial planner Tim Maurer.
That doesn't mean you have to get into nitty-gritty numbers that you may prefer to keep private. My mother may be comfortable sharing her bank balance and portfolio value, but you don't have to, as long as you're open about certain essentials. The following guidelines can help you identify what's truly critical for your kids to know -- and what isn't necessarily any of their business.
The least they need to know
To ensure your children are able to honor your wishes if you become incapacitated and when you die, there are some details you must discuss, says Dan Brady, an estate attorney in Raleigh, N.C. -- especially if one or more of your offspring are likely to be the ones responsible for executing your plans.
This, as it turns out, was a motivating factor for my mom's tell-all. Her sister, mother, and husband had passed in quick succession, making her more aware of her own mortality, she explained recently. "I wanted you to know, if anything happened to me, that this information would be your bible," she said, adding that my being an only child necessitated promoting me to partner in her arrangements.
As my mother did, you can start cluing your kids in as soon as they reach adulthood, says Brady. There's no need to go into the same level of detail with each one (you know best who can handle what), but they should all know the same basics to avoid future rifts. The three must-shares:
Your estate plans. Let your children know whether you have wills, health and financial directives, and funeral arrangements, plus where to find the relevant documents. Also, provide contact info for your attorney, financial planner, broker, and accountant.
"Clients say, 'You'll tell my kids everything they need to know when I die, right?' " says Colleen Barney, an Irvine, Calif., estate lawyer. "Sure, but they need to know to notify me first that the parent has died."
Your child's role. When naming your executor or giving someone power of attorney, it's best to ask your top candidate if he or she is up for the task, says Brady. Already had your kid's name inked in legalese? Make sure Junior is aware of the role and what it requires, giving him a tacit opportunity to back out if necessary.
The toughest conversation: Especially when you give an adult child your health care proxy, "you have to talk about how you feel about life support," says Brady, who's seen cases in which the authorized offspring couldn't follow through with the parent's wishes.
Where to find your assets. Make a list of your bank and investment accounts, real estate holdings, and insurance policies (particularly life and long-term care). Don't forget the safe-deposit box: what's in it, where it's at, who has access.
Not comfortable giving all this info to the children? Store it with your financial adviser or attorney, then let the kids know the list is there. If you become incapacitated, your children will need access to this info to help you, notes Barney. "I have clients in their nineties who can't take care of themselves, yet their kids have no idea how the finances are set up," she says.
The list will also make it easier for your children to settle your affairs after your death, by expediting the dispensation of your assets and ensuring that stray accounts don't go missing and ultimately end up in state coffers.
What else to tell them about you
Think about what you needed to know about your parents' money. Probably topping the list was whether they had resources to live comfortably through retirement and pay for care if they got sick.
Guess what? Your kids want to know the same about you -- especially if they've seen you fretting over Grandpa's finances. Take note: One in two adult children of baby boomers is worried that his parents won't be secure in retirement, a recent Ameriprise study found.
Now that I'm older and my mom is in her early seventies (a fact she'll surely be thrilled to see in print), I'm comforted to know all I do about her finances, as it tells me that she has funds to provide for her modest lifestyle.
Monument, Colo., financial planner Mary Alpers says she wishes more of her clients would communicate their sense of security to their children. "It's one of the best gifts they can give." How to have that conversation depends on where you're at.
If you think you'll be able to remain independent: You don't need to tell your children your 401(k) balance, the size of your pension, or the value of your other assets. You do, however, want to offer some evidence beyond a vague "don't worry about us."
To do that, let them know where your money will come from in retirement -- for example, you might say you have a good-size 401(k) plus emergency savings to supplement Social Security, suggests Columbus financial planner Jill Gianola.
Add that you've run calculations to make sure you're on track, and have found that you should be able to cover your day-to-day expenses indefinitely after you stop working, with some left over for unexpected bills and fun. Fill them in on whether you've bought long-term-care insurance to cover nursing-home costs in case you become ill, or how you plan to pay otherwise.
If you work with a financial adviser and feel comfortable doing so, you could also let your child look over the projections that person has run showing your ability to support yourselves in retirement. Or you might arrange a family meeting with your planner to convey the message.
If you're not sure you'll be okay, or don't know: Uneasy at the notion of talking with your kids because you fear your savings are inadequate? Maybe you feel embarrassed and don't want them to worry about how you'll manage or whether they'll need to support you one day. Take your discomfort as a wake-up call, urges Alpers.
First, run the numbers to see how big a shortfall you could be facing. Do the results confirm the worst?
If you're still employed, quickly kick up your retirement-account contributions to power-save your way into a better situation. As long as you're aggressively working to improve your prospects and you have time to truly alter the outcome, you can hold off filling in the kids for a while.
Those already in retirement probably need to focus more on cutting expenses -- perhaps downsizing to a smaller home or even moving to a lower-cost area. And as tough as the conversation may be, you should let your children know your situation. They may have suggestions, and if they want and are able to offer financial help when needed, they can plan accordingly. In this case, says Gianola, "sharing the numbers becomes more important."
What to tell them about them
Parents who intend to leave money to their kids or help with a big expense may be reluctant to talk about their plans, partly out of concern they'll compromise the child's work ethic, the U.S. Trust survey revealed.
That's one refrain I heard from my in-laws when I asked why they'd been reticent about money with their sons: They didn't want to build dependencies. "I'd like our children to make it in the same way we did," my mother-in-law, Elaine, explained.
Parents may be right to worry. "When someone knows they'll get money that is not attached to work they do, that can kill their drive to succeed," says psychologist and financial planner Brad Klontz, co-author of "Mind Over Money." This is most true, he adds, for young adults in their twenties and thirties, who aren't settled in their careers and haven't yet developed good savings habits.
My father-in-law, Vassilis, also worried about judgments the boys may make or expectations they may develop. A good point, given that you might have a few million today, but what if the market tanks tomorrow? Or you need extended nursing care? Or decide you really want a Ferrari Spyder?
Experts say these concerns are reasonable, but some advance notice can also help your children prepare for the future. Staking out the right middle ground depends on the gift you have in mind. Here's what to say about ...
Your plans to help while you're still around. Intending to, say, pay for a chunk of your grandkids' tuition? Keep it to yourself until you're certain about what assistance you can give, says Rapid City, S.D., financial planner Rick Kahler, co-author of "Wired for Wealth."
Otherwise children may anchor on a vague promise. "You say, 'Honey, my intention is to help you pay for graduate school,' but they may hear, 'I'm going to pay for graduate school,' " he says.
Not only do you risk disappointing Junior, but you could also undercut his motivation to save for the part you didn't intend to pay for. In this case you'd be better off specifying the number of years you'll cover or the amount of money you're planning to give.
Your plans to leave them money. Unless you're so rich that there's no scenario in which you could run out of money, don't promise your kid an inheritance in your fifties or sixties.
"For most boomers there are too many unknowns, particularly about your health," says Alpers. "Once you get to your mid-seventies, your children are older, your financial situation is more known, and your chance of living another 30 years is slim, so you can be more open."
Letting your child know then that you hope to leave her money provides an opening to talk about how you'd like the funds used. Just don't be definitive about the dollars. Say something like, "We think there might be money left over for you when we die. We can't give you a specific amount because our circumstances could change, but we want you to know it's a possibility."
While you're at it, clarify anything that could come as a surprise in your will, such as disproportionate bequests.
"Suspicion over why Mom left your sister 80% and you 20% is the kind of thing that breaks up families," says estate attorney Dan Brady.
Frame the conversation in terms of your values, says Barbara Nusbaum, a New York psychologist. For example: "I'm so glad I was able to give you the down payment for your house. To be fair, since I didn't do the same for your sister, I'm planning to leave her more in my will. I hope you understand."
In fact, the values you convey in any of these conversations about money may be your child's most important takeaway.
Looking back, I realize that envelope from my mom contained a lot more than financial data -- the contents demonstrated to me the rewards of saving diligently, as my parents did, while the act of passing the information showed me how much my mom prizes financial security and independence.
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