Why Financial Planning Should Be a Family Affair

Money makes the world go round, but it is also a source of stress and conflict within families. High-net-worth (HNW) and ultra-high-net-worth (UHNW) families seek advice from family office wealth management experts to manage their assets and finances.

Financial decisions rarely exist in isolation; they affect everyone in a family. This article discusses why involving family in financial planning is important for better alignment, clarity, and security.

You save for retirement so you can enjoy your future. Meanwhile, your teenager dreams of studying abroad, a financial goal you probably haven’t considered. This is why discussions are needed. Talking about finances as a family gives everyone a platform to share their goals. You can explain your retirement strategy, and your kids can share their future visions.

This will help everyone understand how to support each other. Maybe you can prioritize saving for both, or your kids can contribute by getting a part-time job. This way, you can work as a team to fulfill each other’s dreams, which is important, considering the rising cost of almost everything.

Take education, for example. According to the Education Data Initiative, the average cost of tuition and fees for a four-year public college in the US is over $10,000 per year for in-state students and over $28,000 per year for out-of-state students.

Financial planning works better when it’s done in conjunction with financial literacy. Involving your family in financial planning gives them this valuable skill. The National Financial Educators Council says that a lack of financial literacy cost Americans over $352 billion in 2021. Talk about income, expenses, budgeting, and saving strategies with your family. It will help everyone understand how money actually works.

Younger kids can also learn about spending responsibly when you discuss allowances and how to save for a toy they want. Older kids and young adults can learn about budgeting for college, managing debt wisely, and planning for their future.

Financial secrets can quickly turn into tension and worry within families. Around 6 in 10 people, which is around 62%, do not talk about money, according to Empower. This can create misunderstandings and financial stress. Discuss your income, expenses, debts, and your hopes for the future with your family members. Everyone should be a part of this discussion. It also helps couples be on the same page.

When you have debt, this communication really helps. Talk about debt openly, be it student loans, a mortgage, or credit card balances, so your family can create a plan to manage it accordingly.

Unexpected medical bills, job loss, car trouble—sudden events can affect your finances. Nearly 37% of adults struggle to cover a $400 emergency expense, according to a Fortune report of a Bankrate survey. Financial planning is the right way to prepare for the unexpected. You need to create a backup plan for these situations.

Emergency funds, insurance policies, and estate plans should be the main components of your financial strategy. For example, creating a will or trust prevents disputes over inheritance and smooth transfer of wealth across generations. An emergency fund is another crucial part of this plan. Experts recommend having 3 to 6 months of essential living expenses saved in an accessible account. This will be a lifesaver during unexpected challenges.

Wealth transfer, philanthropy, and preserving family-owned businesses are all part of building a legacy. Everyone in your family should understand your wishes and should be prepared to prevent potential conflict in the future.

Discuss things like beneficiaries (who receives your assets), wills (your instructions on how your assets are distributed), and power of attorney (who can make decisions for you if you can’t).

Your family should be involved in financial planning. Knowing each other's plans, goals, and expectations makes it easier to create a financial strategy that works for everyone.

If you think it is challenging to align your plan with your family’s, you should consider getting help from financial advisors. They will guide you through these discussions and create a strategy to address both individual and collective needs.