Strategies for Those Awkward Financial Discussions

There may be people close to you (spouse, parents, children) who are practicing financial behaviors that are unproductive or destructive. You want to help them get back on track, but you don’t want to come across as judgmental or condescending or put them on the defensive.

The Key Takeaways

  • Living within one’s means liberates spending for high-priority purchases.
  • Financial discipline, and correcting bad behaviors, leads to financial security.

Correcting Bad Behavior Leads to Financial Security

Financial security falls squarely on living within one’s means. If financial security is desired, being financially irresponsible works against the person’s own interest. People often waste money a little here and a little there, and this lack of discipline can sabotage their primary spending goals. Correcting these bad behaviors can help the person meet their top spending priorities. Through budgeting, and avoiding trivial spending, the person can see that important goal can be met.

What You Need to Know

The core issue is often psychological. People often overspend out of insecurity, low self-esteem, or a deeper need that is not being filled. Addressing the core issue can be helpful in changing spending habits.

How to Begin

Sometimes having a meeting to address the entire family’s finances can be less confrontational than singling out one family member. In either case, you can bring up the subject by mentioning a situation you have seen on the news or that has happened to someone you know and suggesting that a conversation could be helpful to your family before a problem occurs. Realizing that other people are also having financial worries or difficulties can make it easier for a family member to talk about their own struggles.

Actions to Consider

  • Be an enthusiastic example. Tell others about ways you have found to save money (like inexpensive sources for food, clothing and household items; restaurant coupons and bargain movies) and what you are doing with the savings (paying off debt or saving for college, a vacation, or retirement)—and how good it feels!
  • Don’t co-sign a loan; if the person defaults, your credit score could take a hit. Also, be very careful about lending money to family or friends. If you feel you must, write an agreement, set a reasonable interest rate and be clear about repayment—then consider it a gift. (Chances are you won’t be repaid.) Never give more than you can afford.
  • Instead of giving money, offer to help go over income and expenses and find ways to cut expenses. Most people in financial trouble have a money management problem. But if more income really is needed, you could pay the person for work you might hire someone else to do or help them find a part-time job, in parallel with your coaching.
  • Once someone agrees to discuss their finances with you, schedule time to convey the importance of the subject.
  • Start with an education session. Explain how interest is added to a credit card balance. Calculate how much interest was added to the balance in the last couple of years. Questions you can ask:
    • “What could you buy or what bill could you pay if you didn’t have to pay the interest on your balance?”
    • “What did you buy with your credit card? How meaningful are those things to you now?”
    • “If I could give you, in a lump sum, the balance on your credit card plus the interest you have been paying, what would you want to buy that would have real meaning to you?”
  • Describe how every company works through a budget. Questions you can ask:
    • “Why does a company have employees operate on a budget?”
    • “How does a budget help a company manage effectively?”
    • “At the end of the year, what do you think happens to those companies that met their budgets compared to those that didn’t?”
  • Describe the structure of a budget process including net income, current obligations, amount spent by category and the remaining amount.
  • Help the person determine and list spending priorities. Questions you can ask:
    • “What’s most important to you?”
    • “What can you live without?”
    • “What do you want that can be purchased less frequently or at a lower cost?”
  • Discuss the rewards that come with good financial management by asking:
    • “If you’re able to meet or beat your budget, how do you think you’ll feel?”
    • “How would you reward yourself if you did so?”

If you live in Philadelphia County, Montgomery County or Bucks County, Pennsylvania or Southern New Jersey and would like to discuss how to create the best estate plan for you, please contact our office.