Talk to Your Family About Your Finances
Thursday, November 22, 2012
Charles Rotblut, CFA
AAII Journal Editor

AAII Resources

The Risk of Cognitive Impairment
Nearly half of all 80-year-olds will be afflicted by cognitive impairment.

Family and Finances: Start the Dialogue
Discussing all aspects of family finances can protect your wealth.

AAII Discussion Boards
Members give their tips for talking to family members about your financial goals

Most Popular AAII Articles

  1. “Making Sense of Master Limited Partnership Tax Rules”
  2. “The Top Financial Apps”
  3. “Revised Model Fund Portfolio: Benchmark Impacted by Cap Weighting”

It is very easy to lose sight of what you are investing for. With so much focus on how the market performed on a given day or whether a stock rose or fell, long-term goals are often ignored. But everybody is investing for a reason and with certain goals in mind, or at least with the intention to build or preserve wealth.

If you are spending this holiday weekend with family, particularly sons or daughters, consider taking the time to share your goals and your plans with them. If you are just spending it with your spouse or significant other, talk to them. Express why you are investing and what your long-term plans are. If those plans involve your family members, elaborate on your desires. If you would like to leave a donation to a charity or religious institution, express that as well. Talking now can help better ensure your desires are met in the future.

I realize that every family dynamic is different. My first job in finance was at a business valuation firm. Attorneys came to us with family businesses and assets that needed a professional valuation for estate planning purposes, divorce proceedings and inheritance disputes. I saw the impact that healthy and dysfunctional family relationships can have on wealth. This said, if you do have a healthy relationship with family members, talk to them about your finances and your investment goals.

The amount of information you share is a personal decision. I would suggest giving enough information to allow someone you trust to manage your finances in the event you are unable to yourself. Key contacts and documents should be accessible. (I maintain a folder with pertinent information, including a list of all of our financial accounts and insurance policies, for my wife.) Even if you are in good health, unexpected events can happen. So, a little pre-planning and communication now will have a big impact in the future, should the unexpected occur.

I would also encourage you to consider discussing any big financial decisions with someone you trust. A second opinion can be helpful. Plus, Harvard Professor David Laibson has found that cognitive functionality peaks in a person’s 50s and deteriorates from there. Though the level of impairment varies by person, David points out that people aren’t aware that they are losing cognitive functionality. Finally, given that behavioral errors can hurt your portfolio’s performance, confiding in someone you trust may help reduce your mistakes.

Most importantly, realize that investing is merely a means to an end. If you have relatives spending this weekend with you, enjoy their company. No amount of money can replace time spent with loved ones.

Talk to Your Children About Their Investments Too

If you have adult children (or grandchildren), speak to them about their finances as well. Make sure they are saving for retirement and following an allocation strategy that is appropriate for their lengthy time horizon.

I bring this up because the Pew Research Center found that more than half of the adults between the ages of 36 and 40 are either “not too confident” or “not at all confident” about whether their income and assets will last throughout retirement. Pew also found that those aged 35 to 44 “lost the most wealth of any age group” over the last decade. (You will see more about the survey’s findings in the December AAII Journal.)

A person who started investing shortly after the start of the current millennium has not seen a prolonged bull market for stocks. Since 2000, there have been two bear markets, a terrible financial crisis, the bursting of both the tech bubble and the housing bubble and largely stagnant middle class wages. It is the type of environment that can cause a newer investor to mistrust the stock market and adopt an investment strategy that is too conservative. It can certainly cause a relatively novice investor to focus too much on short-term volatility, instead of long-term performance.

If you think membership to AAII will help them, we do offer a gift program. Your children will receive a personalized welcome card announcing your gift, membership to AAII, monthly issues of the AAII Journal, our Model Portfolios and more. Simply call Member Services at 800-428-2244 to find out more information and to give the gift of investment education. (Our offices will be closed on November 22 and 23 in observance of Thanksgiving, but will be back open on Monday.)

More on

  • Aging and Investing: The Risk of Cognitive Impairment – This is the article by David Laibson I referenced above that discusses the impact of cognitive impairment on older adults.
  • Family and Finances: Start the Dialogue – Gregory Salsbury elaborates on the importance of discussing finances with your family members.
  • 18 Recommendations for Minimizing Inheritance Conflict – If you are concerned about a fight breaking out over your estate, these tips may help.
  • What are your tips for talking to family members about financial goals? – If you have suggestions about speaking to family members about your long-term financial goals, share them on the AAII Discussion Boards.
  • AAII Sentiment Survey – Results for this week’s survey were not available when I wrote this yesterday, but you can see the updated results and take the survey on
  • The Week Ahead

    Just a handful of S&P 500 member companies will report earnings next week: Analog Devices (ADI) on Tuesday, Pall Corp. (PLL) on Wednesday, and The Kroger Co. (KR) and Tiffany & Co. (TIF) on Thursday.

    The first economic reports of note will be released on Tuesday: October durable goods orders, the Conference Board’s November consumer confidence survey and the September Case-Shiller home price index. Wednesday will feature October new home sales and the Federal Reserve’s periodic Beige Book. Revised third-quarter GDP data and October pending home sales data will be published on Thursday. Friday will feature October personal income and spending and the November Chicago PMI.

    The Treasury Department will auction $35 billion of two-year notes on Tuesday, $35 billion of five-year notes on Wednesday and $29 billion of seven-year notes on Thursday.

    Favorite Thanksgiving Dessert

    Though the latest AAII Sentiment Survey results were not tabulated when I wrote this yesterday, I was able to tally the results to this week’s special question: What is your favorite Thanksgiving Day dessert?

    Pumpkin pie received the most votes, picked by about a third of survey respondents. Coming in second was apple pie. Pecan pie and mince meat pie were essentially tied for third place. Prilosec received one vote. Many respondents said they prefer their pie served with whipped cream or ice cream (and I wholeheartedly agree with them).