How to talk about money
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Talking about money is something that many people avoid, perhaps because finances can be stressful, or maybe because you fear the worst about the state of your savings or spending.
The reality is, money is the one conversation you shouldn’t avoid. An open and honest conversation about money could mean you are able to better understand and increase your wealth.
How to start
Like anything uncomfortable in life, the best thing to do is just begin the conversation. This may be with your partner, your parents, or even your children.
Whoever it is with, and whatever the circumstances, there’ll be all sorts of instances in life where you need to discuss your personal finances. The circumstances will be unique to you.
Think about your audience and how best to approach and word the conversation, ultimately it is just about having the talk, and perhaps realising the reality of the conversation isn’t as bad as the imagination of the conversation.
Speaking about money helps you to plan your finances.
Talking to your parents
With a parent, it could be important to know about their Will or Pension Expression of Wish.
Both the Will and Pension Expression of Wish are used to detail how your parents will leave their financial legacy, and it could be helpful to know if you are a beneficiary.
It could be useful to discuss the Pension Expression of Wish. A Pension isn’t usually part of an estate and therefore you wouldn’t normally pay Inheritance Tax if you are a beneficiary. It is worth keeping in mind that a beneficiary could still pay Income Tax dependent on the deceased’s age at death, but generally a Pension is a more to pass wealth between generations. Make sure it is a conversation that you engage in.
As well as speaking to your parents, it could also be worth speaking to a financial adviser, in order to understand how to best handle large sums of money that may be passed on to you. For example, if you are a Pension beneficiary, staying invested could mean you build further wealth.
Preparing now and understanding things in advance could mean that you are better prepared for knowing what will happen in the event of a death. This could help the process during the difficult period of sorting finances soon after a bereavement. It is better to talk about these things now, rather than be left with uncertainty when things are at their most stressful.
Talking to your partner
Another important conversation about money could involve your partner and managing your household spending. You may share a financial goal, such as retirement or mortgage payments. Discussions around insurance, credit cards, direct debits, shared bills and attitude to money are all subjects that will likely need discussing with your partner.
A joint bank account and investing together could make sense, as could setting a joint budget for essential spending and how disposable income is spent.
It may be an uncomfortable conversation if you need to hold your partner to account on spending habits, but it is better to confront your saving and spending habits together so that you can plan your future as one.
Talking about your finances may also help you to create a new savings goal. For example, if you have children you may want to speak with your partner about investing into a Junior ISA.
You may find that many of your financial goals are aligned, such as shared goals for work, travel and leisure. For example, if planning your holiday, you may want to put money aside together in a holiday savings fund.
And you’ll have bigger shared goals such as retirement, so consider how the combination of your Pensions could give you the retirement you desire. Likewise, consider your financial legacy together, talk with your partner about your Will and Pension Expression of Wish.
After you’ve talked about these financial matters together, you may want to go together to a financial adviser for further help in planning your shared goals such as retirement and financial legacy.
Talking to your children
If you have children then financial conversations will be necessary, even from a young age to teach them about the value of money. You can establish good money habits with pocket money for chores and showing how saving up money can lead to aspirational goals rather than impulse purchases.
If you are approaching retirement and have older children, then it will be important to talk to your children about your financial legacy. Explain your Will and Pension Expression of Wish, and perhaps discuss with them potential roles as e. It could be worth a conversation around Inheritance Tax, and how a could explain to them how upon receiving a Pension they could leave it invested to potentially benefit from further growth and even pass it on to their children.
It is important that the next generation know your wishes, where your documents are stored, and who to contact in regards to your financial legacy. Perhaps even involve your children in conversations with your financial adviser and establish that relationship.
What to do next
Set your goals and make a financial plan.
This will help you to identify the steps you need to take, and should make communicating about your finances easier. For example, with your partner, you can identify how much money you will need to enjoy retirement together, and then make a plan based on how long you’ll have to invest for and how much growth you’d need to achieve your desired Pension pot.
It could be a good idea to speak with a financial adviser, as they can advise you on how to set your goals, and the best course of action to achieve your aspirations.
With Investing, your capital is at risk. Investments can fluctuate in value, and you may get back less than you invest. Tax rules can change at any time.
The contents of this blog should not be interpreted as a personal recommendation or financial advice.