Discuss Finances Openly – Deal with Debt and Achieve ReliefJun 30, 2015
Debt can be stressful. With debt-to-income ratios at record levels, it is certain that Canadians’ stress levels are high as well. This stress can have a negative impact on relationships, especially important relationships with those closest to you – your family members. What can be done to reduce these stress levels and help avoid family problems that they cause?
Many Canadians admit they are not entirely truthful about their financial responsibilities and financial problems with family members. A more open family discussion will reduce stress levels and help everyone understand the family’s financial position. Once issues are put on the table, alternatives like debt options can be discussed to deal with debt relief. In the business world, companies have annual meetings to keep shareholders informed about the business’ financial status and to discuss plans for the future. So why not have a Family Annual Meeting (FAM) to have a similar discussion with your family? A FAM provides an opportunity to review the family’s finances and ensure that everyone understands where things are at.
What to talk about at your FAM
Review the current financial position of your family.
- List all of your outstanding debts. For each debt include interest rates being paid, monthly payment requirements (minimum payments), credit available, and ability to make lump sum payments to pay off debt, and length of time to pay the debt in full.
- List all of your assets. Include investments like Registered Retire Savings Plans and Tax Free Savings Accounts. The listing of assets should include details of any debts associated with assets like mortgage and car loan balances. This helps you calculate the equity in your assets, which is the difference between the value of the asset and the debt owing on it.
Review the family budget. A lot of families attempt to deal with household expenses, bills and debt reduction without a real budget in place. In order to start working toward developing a budget for your family, a review of past spending and payment activity helps. Consider trying this – go back two months in your records (for example, online banking records) and summarize the following for each month:
- List all sources of income. This includes employment income, Child Tax Benefit, Universal Child Care Benefit.
- List all of your debt. This includes amounts paid for each debt or loan outstanding including mortgage, vehicle loans, credit cards, line of credit payments.
- List all of your living expenses. There may be more living expenses than you realize; make sure the entire family’s expenses are includes. Living expenses include items like rent, utilities, cell phones, groceries, dining out, gas, vehicle repairs, insurance, grooming, and clothing.
Developing a record of past activity will help you estimate future activity which will form the start of a family budget.
Discuss your family’s financial goals for the future. Encourage each family member to contribute their ideas for goals. Discuss all the goals as a family and then attempt to prioritize them, deciding which ones everyone agrees will be sought after. It’s important to remember to write your family’s goals down. Recording goals will allow you to review the progress being achieved to reach the goals and help you stay committed to the goals.
Teach your children about money management. We recommend that you include your children in the Family Annual Meeting. The age and maturity of your child will help determine the level of their involvement. Use the meeting to start the process of teaching your children about money management. Children learn a lot about finances from watching their parents. Letting your children see your budget, set goals and shop carefully will assist them in understanding the decisions that are made by the family. Here are a few tips for teaching your children about good money management:
- Give your child an allowance and let them make decisions on how to spend it. Allow them to live with the consequences of those decisions.
- Encourage your child to save regularly. Open a savings account in your child’s name and tie the deposits being made into goals set by the child.
- Teach your child about credit by lending them some money to make a larger purchase that they desire. Negotiate the terms of repayment including the concept of interest and the cost of the interest related back to the item being purchased. Have your child track the loan balance and associated interest costs so they understand the costs and their impact on the purchase decision.
There’s no doubt that debt is stressful, but having an open, honest discussion with your family about money issues like budgets, household expenses, and debt can help relieve some of the stress. Consider scheduling a Family Annual Meeting and get the conversation started with your family.
How do you talk about finances in your family? Share your ideas at #FamilyFinances