To be successful mixing finances and family, remember to follow these three rules:
Involve both spouses
Educate your children
Communicate openly about issues
Rule #1: Both spouses should be in the know. Having one spouse handle most family financial matters may seem like an equitable division of labor, but unforeseen events like divorce or death could plunge the remaining spouse into unfamiliar waters. In fact, according to the Centers for Disease Control and Prevention, women outlive men by nearly five years. While wives often handle the checkbook, they may not be as involved in the investing. A recent MassMutual Financial Group survey found that only 25.9 percent of women feel confident making investment decisions, leaving a steep learning curve if they’re suddenly forced to handle investment responsibilities. Both spouses should understand their economic situation, including insurance, retirement and investments. Being armed with knowledge about how much money comes in each month, what is spent on fixed expenses and discretionary purchases, as well as the family’s short- and long-term saving goals will better prepare the couple for the unexpected.
Rule #2: Loop in the kids. According to EconomyWatch.com, the total amount of consumer debt in the U.S. was $2.4 trillion in 2010. Thirty-three percent of which was revolving debt, such as credit cards. The average debt per credit card holder was $5,100. The happy news is that parents can help reduce those numbers by bringing children into the financial loop early. In many families, money spent on the kids makes up a large part of the budget, and showering them with extras may give them unrealistic views about money. Lack of financial grounding at home may be one reason so many children have problems with credit cards when they transition to college.
Rule #3: Talk, talk and more talk. Transparency and a willingness to talk about family finances can go a long way toward minimizing common financial pitfalls. Spouses should discuss their human capital – their careers, education, and skills – as well as their financial capital. They should agree on an investment strategy, regularly review their progress and make adjustments as needed. Likewise, if all family members understand what they are saving for, such as college education and retirement, they may be more inclined to stick to the budget. And it will have a significant impact on your future financial plan. Go the extra mile and make the financial matters in your household a family affair.