Money talks - under 50s

Talking to your loved ones about money can be one of the hardest conversations of all, as well as the most important.

Here are some tips for those difficult financial conversations.

Talking to your spouse

A great first step toward reaching your goals — and avoiding money arguments — is to make sure you share the same vision for your future.

Begin by talking about how you’d like your life to look in 5-10 years time. Do you want to have the mortgage paid off? Switch to part-time work? Save for the kids’ education? With a clear, agreed vision of where you’re going, you can work out how much you’ll need and motivate yourselves to start some serious saving.

Keep the conversation solution-focused. If you find you’re not on track to achieve your agreed financial goals, ask: “What can we do now to make them a reality?” Then decide on specific actions, such as making greater mortgage repayments, starting a regular investment in a managed fund, or visiting a financial planner. You can also start the process of tracking exactly where your money is going and avoid frittering away your hard-earned cash. 

Talking to your kids

Teaching your kids about money can make a significant difference to their future. In fact, research suggests it can help improve their long-term psychological wellbeing.[1]

One of the most important lessons you can teach them is the importance of developing good saving habits early. For instance, imagine you gave your 12-year old $500 to kickstart an investment earning 7% a year. If they contributed just $15 a week in pocket money, they would have more than $10,000 by the time they turned 21. In another five years, they could almost double their money again, to around $19,000 — all for the price of a weekly movie ticket.[2]

While kids always want the latest gadgets, teaching them to sort out wants from needs will help them lay the foundation for a better life in the long term. By saving their pocket money regularly for something they really want, they can enjoy the satisfaction of working towards a goal and achieving it.

With credit so readily available, it’s very easy for kids to develop a “buy now, pay later” mentality, setting them up for a lifetime of debt. Explain the dangers of mobile phone plans, where they can unwittingly rack up huge bills, and other open-ended commitments such as credit cards.

And, when they’re teenagers, a casual job can reinforce the message that money earned is finite but rewarding if managed wisely.

Talking to your parents

While no one likes to think about it, chances are your aging parents may need some type of care in the future. And, while it’s never too soon to talk about money with your parents, impending government changes have made those conversations more urgent than ever.

Today, seniors moving into aged care facilities may be able to negotiate lower daily care fees by paying a higher accommodation bond upfront. Not only does that help them plan for the future, it could also help them access a higher age pension by reducing their means-tested assets.

However, new laws from 2014 propose to limit the size of accommodation bonds to $500,000, while daily care fees are set to rise. That may leave some retirees holding assets that could reduce their age pension entitlement — especially if they plan to sell the family home. As a result, some seniors may be better off acting before the laws change.

You could also contact an Aged Care Assessment Team (ACAT), to help work out whether your parents are eligible for any government-funded community care, including services which may help them stay in their home longer. Go to http://www.agedcareaustralia.gov.au/ and look under ‘help staying at home’.

It makes sense to talk to your parents about their plans sooner rather than later. While this is a sensitive topic, approach it from the position that you want to know what their wishes are to ensure they are taken care of.

Tips for better money conversations

1. Share your vision: Be clear about your goals, discuss them with your family and make sure they are aware/agree when you’re making financial decisions that affect them.

2. Set achievable steps: It’s easier to stay disciplined if your plan is realistic and achievable without large sacrifices - even a small investment can turn into something substantial over time.

3. Get good advice: Visiting a financial planner as a family is a great way to crystallise and prioritise your individual goals, and identify potential risks and issues you may not have considered.

[1]Australian Securities and Investments Commission, National Financial Literacy Strategy, March 2011.

[2]Based on returns of 7%, with all earnings reinvested. This is a hypothetical example given as an approximate guide only. For more information, see the NAB Personal Finance Calculator