Much has been written about how a spouse should know where the property is, and how it can help in the event of an unexpected death. There have been many cases of widows being seduced Inheritance by cunning relatives and unscrupulous operators. learning takes time and effort personal Finance, but it is not so complicated that one spends all his life in ignorance about such an important matter. Involving the family in financial decisions is something many families hesitate to do for a variety of reasons, and the results are not always pleasant.
A young couple regularly spends more on their credit cards. Interest accrued and they continued to pay the minimum balance due. When the husband finally came to the credit counselor’s office, he admitted that he let his wife spend whatever she liked, as he considered it his responsibility to find it. Pennies for such expenses. He felt very guilty and ashamed that he was not earning enough. The counselor explained to me that an expense is something one cannot afford, it is not a statement one likes to make. Many men and women live with unrequited pride and denial that they can’t afford something they want to do.
A middle-aged neighbor was upset that he could not afford to send his son abroad to pursue a master’s degree. The boy told that all his friends were leaving and he would face the prospect of low earnings and poor employment opportunity, as his father is denying him this right to study abroad. Strange as it sounds, they saw it as a privilege and considered the father to be a miser who would not liquidate some property to fulfill it. Surprisingly, the father was reluctant to discuss the house property with the son and proposed that the son take an educational loan instead.
Why is it that discussions about money don’t happen in a household as it usually should? Why don’t people explain what is earnings, what should be the spending limit, what are assets and why have they been achieved, what are the financial goals and how are they being funded? There is a lot at stake, and a lot of heartburn and frustration can be avoided if there is some transparency in financial decisions. People acknowledge the merits of involving family members in discussions about financial matters, but rarely act on it. what can we do about it?
First, it should be part of the general conversation about allocating money to specific uses in a home. It is no longer fashionable to make a household budget. But the practice has a great merit in involving family members in discussing options and making decisions. Except for the ultra-wealthy families, most have a limited amount of money that must be allocated for various uses. Instead of treating every spending decision as a bottomless pit, into which any amount can be poured on a whim, the family can use them to make serious decisions on choice and allocation.
Try letting your child know that you are willing to allocate a certain amount for their birthday celebrations. On clothes, on gifts, on the party, on decorations and food, on friends and movies – allow them to make decisions about where to spend that money. This decision should not be one where every wish is accommodated only by the beggar parent, but is made considering the cost and options. Your child will learn finance first hand. Understanding the opportunity cost is precious when making financial decisions. Your child will not easily like to give up expensive gifts for movie trips with friends and so should be.
Second, make savings goals a joint decision of the family. There is no need to be secretive about what is being saved and what is being invested. The family should know what the big goals of the future are, and why sacrifices should be made in the present to fulfill it. The ability to procrastinate instant gratification and think long-term are important skills that everyone in the household will benefit from. Big financial goals like buying property, funding children’s education, saving for retirement are important for everyone in the family.
Involve the family in the discussion with the financial advisor and let them know how the goals are being projected, and how they are going to be funded. Tell them how choices are being made about asset allocation. Let us have a healthy discussion on whether buying more gold or property is meeting the needs of the house for future needs. Be prepared to define and hedge investment options. It helps a lot to hold the household accountable for the asset allocation decision.
Third, fostering a household wealth culture by being rational and consistent when making financial decisions. Value for money, caring for objects of value, valuing objects on experiences, developing emotional intelligence about money, these are all habits that a home must build over time. Money decisions are made every day, and some see it as troublesome to bring up too often. This is why establishing and following broad principles helps. Mandatory expenses on food, education, utilities, EMIs, transportation may only require a one-time discussion on how much and what are the limits. But discretionary spending on entertainment, holidays, sudden purchases, etc. may increase. If these remain impulsive decisions that are made on the fly without any consistency, then no one learns to make them. Be aware of the dangers of centralizing these decisions.
When you make these choices together, you’ll find that everyone gradually learns what the family owes, and how it makes its money decisions. Don’t trade this precious bondage and openness for unspeakable secrecy.
(The author is chairperson of the Center for Investment Education and Learning.)