Talking about money is not a very ‘British’ thing to do. But in this day and age, are we perhaps too reserved when it comes to talking about money, and are there good reasons we should be more honest and open?
On the one hand, for people that are struggling with debt or meeting monthly financial commitments, failing to talk about money can only perpetuate problems further. Not seeking advice or professional help can result in the problem being ignored, leading debt to spiral out of control.
On the other hand, those in a more fortunate financial position will often not talk about money for an entirely different set of reasons. For one, it’s always been seen as vulgar and somehow impolite; no one wants to be seen as a show off or to make someone else feel uncomfortable.
But where should the line be drawn when it comes to the great taboo of talking about money? There is a difference between being honest and transparent about money with close family members and discussing your financial position with any man on the street.
Yet even within families, talking about money can be a difficult subject to broach. The problem is that without these conversations being held, decisions may often be made ‘in the dark’, which can ultimately result in time and money being unnecessarily mis-spent.
Here are three scenarios and the reasons why talking about money can prove helpful.
Discussing finances with children
Parents may not want to fully disclose their wealth with their children for a number of reasons. One of these may be the fear that children; thinking they have a significant inheritance on the way; sit back on their laurels when it comes to their own financial management.
Another issue is that although the majority of parents will ultimately want to provide for their children and grandchildren, many are reluctant to relinquish control of assets until fairly late in their own life, in case they may need to rely on the money themselves for care fees etc.
Not sharing information about money means that adult children may be left out of the conversation, and therefore the decision making process. Some children may have built up wealth themselves and may therefore prefer their inheritance to be passed directly to grandchildren via a trust, which could prove highly beneficial from a tax perspective.
Conversations about finances with children can lead parents to think about inheritance tax planning and potentially making gifts sooner rather than later. Children are generally in need of more help in their 30s and 40s due to significant financial commitments, particularly in the form of mortgages and the costs of raising a young family. Making gifts at this stage rather than waiting until later down the line can not only help with these financial strains, but also means it is more likely for seven years to pass, relinquishing the gift from consideration for Inheritance Tax.
The other matter that may involve children is planning for unforeseen circumstances including illness that leads to incapacity. This can be addressed via the use of Lasting Powers of Attorney – which allow you to elect who will manage your affairs, and also provide the option of choosing how your personal and healthcare is managed should you no longer be able to make your own decisions.
Discussing finances with spouses
Even between couples themselves, there can be a reluctance to have frank conversations about money. Where one spouse takes primary control of the household financial affairs, the other may be effectively ‘shut out’ of the family finances. In the event of the death or incapacity of their partner, they will then find themselves ill-informed or equipped to deal with financial matters without help. Sharing financial information can help to familiarise both parties with what is involved and allow a couple to jointly plan for various scenarios that could play out in the future. This may also prompt making or updating wills, which can go a long way to providing peace of mind.
Unmarried couples and finances
The other scenario we commonly encounter is happily unmarried couples who may not realise that without entering into a marriage or civil partnership, they are not afforded many of the rights that come with a legally recognised union. Financial benefits such as the transfer of Inheritance Tax allowance, the transferable nil rate band on primary residential property (RNRB) and being able to transfer taxable assets to each other during lifetime without CGT implications are all aspects that, between them, can quickly add up to thousands of pounds worth of taxation. Whilst ultimately it may still be that a couple choose not to marry/enter a civil partnership, having a conversation about such matters can at least allow for an informed decision to be made and potentially other plans to be put in place.
Talking to your family about money may be uncomfortable, but having these conversations can ultimately allow for a dialogue to be started that can then lead on to actions being taken; actions that may just help to save thousands of pounds. Other important conversations can also be sparked as a result of tackling financial matters – including how one’s financial and personal affairs may be managed in the event of death or incapacity.
As financial advisers, we are increasingly working with clients across generations. This can provide some reassurance that financial affairs will be managed effectively by all those involved, both initially and into the future.
We are not legal advisers, but we know lots of good ones should you require advice on any of the legal aspects covered in this article.