Near the beginning of each month, many in the personal finance community share, with varying degrees of detail, their financial situations. We see net worth reports, and some of them are even itemized. I always enjoy reading these reports and find them quite interesting — and sometimes inspiring. However, I have always been vaguely uncomfortable with offering too many details about my finances. A lot of it has to do with my upbringing in a family that did not talk much about the particulars of finances with those not in the immediate family.
While I think that this taboo is part of my reluctance to share details about my family’s financial situation with friends and family (and the wider PF community), for many of us, there are probably other factors at work. Especially if embarrassment about the financial situation comes into play.
Reluctance to Admit We are Poor
In many cases, being poor is embarrassing. We don’t like to admit that we can’t afford to buy something, or that we don’t make as much as our friends make — or as much as we think they make. It becomes a matter of pride to avoid sharing details that could reveal our circumstances.
Another compounding issue can be debt. I graduated from college with more debt than I should have had. While I admit that I had debt at my graduation, I am, frankly, embarrassed about the magnitude of it all. As a result, I don’t share dollar amounts. I’m lucky that I haven’t fell into this rabbit hole yet, but the funny thing is that the embarrassment of being poorer than friends and family can actually make us go further into debt, as borrowing more becomes a way to “prove” ourselves by buying things that we can’t really afford.
Debt can affect us in other ways. Namely:
1. Lost Opportunity
Few of us think of the costs associated with a lost opportunity. However, debt carries with it a lost opportunity cost. When you have to repay debt, with interest, you can’t direct your resources elsewhere. With debt hanging over you, you might not have the money to accomplish other goals or take advantage of money opportunities that come your way. This can cost far more in the future than the short-term gratification that comes with being able to buy something on credit immediately.
Consider: What if, instead of paying interest each month, you were able to invest the money in the stock market? You would be able to build up a portfolio over time that would allow you to create an income stream that would benefit you for years. The time you miss cannot be replaced. Instead of the opportunity to compound interest in your favor, you are instead paying compound interest.
2. Emotional Stress
Money can cause a great deal of emotional stress, and anxiety related to money is often strongest when associated with debt. Worry about paying down debt and how you will meet your obligations can cause true emotional problems and fatigue. Not only that, but the emotional strains can cause difficulties in your relationships. It’s hard to maintain good relations with your family and friends when anxiety and emotional stress are wearing you down. When constant debt is a worry, it can color aspects of your life, preventing you from sleeping enough and eating right — leading to health problems that can in turn cost more.
3. Your Credit
Carrying debt can also start to erode your credit rating. Indeed, if you have a high debt to income ratio, it will affect your credit score. If your debt problem becomes severe enough that you start paying late, and missing payments, your credit history will be affected further. It is vital that you consider the costs of having poor credit. A negative credit report can affect the following areas of your life and finances:
Ability to get a job
Ability to buy a home
Ability to buy a car
Security deposit on a rental
Service provider (cell phone and TV) transactions
Poor credit can mean higher insurance premiums, and hurt your chances to qualify for a mortgage to buy a home. Some employers look at your credit report and may decide to hire someone with a better financial reputation.
Reluctance to Admit We Are Rich
Another difficulty arises for those who don’t want to admit how much money they actually make. Being poor has lost some of its social stigma now; the recession has created a whole financial movement that rejects consumption and values frugality. This means that it can be somewhat embarrassing to admit how much we have in some cases.
And, of course, there is the issue of what constitutes “rich”. Many of us are worried about being labeled “rich” — even though we don’t feel as though we are financially wealthy. It can also seem embarrassing when we find that we make more than someone else. It can be awkward to admit that we make more money, especially if friends or family are struggling financially.
Finally, there is also the issue of not wanting friends and family to know how much we make. Concerns about relatives asking for money because they think that we “make enough” can be a real deterrent to sharing how much we managed to save through the years, and contribute to a reluctance to talk about finances.
In order to avoid the awkwardness that can come with sharing financial details with friends and family, I just say that I make enough to live comfortably. And we do. My son and I have a comfortable lifestyle for our location, and we enjoy our discretionary income. I am uncomfortable discussing the details with the public though. I’m not even sure I want to become comfortable with the idea of sharing, although I admire those who do.
What About the Immediate Family?
Having said that, I can’t let my embarrassment stop me from sharing my finances with my son. After all, one of the most important subjects you can talk with your kids about is money. Having money discussions with your children can be a good way for them to get a handle on what is happening in your family, as well as provide information that they can use later on in life. The discussions can also serve as a valuable resource for your children, as well as draw the whole family closer together. Here are a few tips on how to get started.
How to Talk About Money as a Family
First of all, it’s important to assess where everyone is at in terms of maturity. You want to cover topics that are general, and that most of your family members can understand. Think about the terms that you will need to use in order to make the discussion understandable to younger children.
Realize, too, that you don’t need to go into detail about family finances. There is no reason to pull out the bank statements and go through every item with the whole family. You can, though, talk about your budget in general terms, such as saying, “We have $XX for entertainment this month. Would you rather go to a movie, or go out to eat?” In tough economic times, explain that money is tight, and everyone needs to cut back. Tell your family what you will do to help the family finances, and encourage each member of the family to name something they can do to help.
A money discussion is also a great time to talk about shared financial goals. You can talk about planning a vacation, or saving up for a new TV for the whole family. Create a plan that shows how much is needed, and how much the family needs to set aside each month to reach the goal. Encourage everyone to contribute. Children will see how to plan for purchases, and you can encourage them to follow the same process with their individual wants.
Set aside a regular time to talk about finances. You should check in regularly with your life partner anyway, going over the budget and addressing problems or planning to reach goals. You can have a regular family budget meeting as often as you like. I think once a month is enough for a family money discussion, but others might want to meet more often than that. Create a regular time to talk about money so that family members have time to figure out what they want to talk about.
You can also set aside time to answer questions about money. Prepare “mini-lessons” on money, addressing basic topics of financial literacy. This way, you can make sure that your family understands the concepts behind money.
Are you comfortable sharing your finances with family and friends? What about your immediate family?
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