With Lauren Brouhard, SVP Retirement Solutions at Fidelity Investments
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The subject of family money and assets is still taboo among parents and children, and not having the money talk can have serious consequences. There are a lot of different dependencies in families over time but, says Lauren Brouhard, children seem to have the right idea – to have those conversations sooner increases peace of mind. Some 75 percent of adult children and their parents in the survey agreed that it is important to have frank conversations about retirement expenses, eldercare and estate planning… yet only 44 percent have had detailed discussions about covering living expenses in retirement. Just 37 percent had discussed health care and eldercare in depth, and 59 percent had had detailed conversations about wills and estates. So it’s important that you know when to have that talk about money and aging between parents and their children.
The top reason for parents not wanting to have the money talk is so their kids don’t take this for granted and start counting on receiving this money before time – because circumstances often change over retirement and most parents would rather see their kids be financially independent. The top reason for children was that they did not want to upset their parents by bringing up the topic of death and money. But the most important part of this conversation is preparing your kids for the inevitable, having all legal documents drawn up, and setting expectations on how to tackle various aspects of parental aging and elder care.
For aging parents and their adult children, talking about big financial issues like retirement goals, estate plans and health-care wishes can go a long way toward reducing misconceptions and easing family tensions. But those talks don’t happen as often or as successfully as they should, according to a recent study by Fidelity Investments, which found that nearly two-thirds of families disagree about the optimal time for such discussions, with adult children generally preferring earlier talks than parents.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Not long ago, I interviewed a Fidelity spokesperson about their important Intra-Family Generational Finance Study. In this study, it was revealed that the subject of money is still taboo among parents and their adult children, and this can lead to serious consequences. To discuss this and follow up on a new study, I have Fidelity’s Lauren Brouhard, Senior Vice President in Marketing Strategy and Business Management to explore this further.
Lauren Brouhard: Thanks for having me.
Steve Pomeranz: So, what are some of the numbers about how many families are really talking to each other about these very sensitive but important issues?
Lauren Brouhard: So, the findings are not what we’d like to see. One of the main findings of this study was that almost two-thirds of parents and their adult children are at odds as to when to have detailed conversations on key financial topics, such as retirement, preparedness, elder care, and estate planning.
Steve Pomeranz: This conversation, I know, is difficult. I know that parents don’t necessarily want their children to know how much money they have. And children are afraid to ask. So, is there a psychological aspect to this, do you think?
Lauren Brouhard: Absolutely, like you said, money is a taboo subject.
And families are really struggling to have these extremely important conversations. And, interestingly, the study found that the top reason cited by parents for not discussing retirement plans with their adult children is that they don’t want them to count too much on their future inheritance. About 30% of the parents said that, while as you know, the top reason cited by children is that it would be upsetting for both parties.
So what we think is getting missed is that neither is really thinking about how everyone could work together to help ensure greater peace of mind for the entire family by actually having these conversations.
Steve Pomeranz: Yeah, I understand that idea of passing money on and worrying that they’re going to count too much on that, so in a sense, they may slow down what they’re doing in life knowing that there’s going to be some big payday in the future. Do you have any comments on that? Any ways to open up discussions in that way?
Lauren Brouhard: Well, I think what families need to realize is that that’s not really the most important part of the conversation.
The most important part of the conversation has to do with the real responsibilities that adult children may and will have to take on as their parents age and then, of course, upon their death. And making sure that the right legal documents and the administrative issues are in order.
So that should an emergency occur or should something happen unexpected in the family, that the right things are in place for decisions to be able to be made. And nobody’s left surprised that they aren’t able to, for example, access important financial statements or help make decisions. They may not be in power to do so and that can create real challenges in an already emotional time for families.
Steve Pomeranz: Yeah, I think when you frame it that way, it takes some of the tension off of this idea about that issue I spoke about before. So when is the right time to start this discussion?
Lauren Brouhard: Yeah, so this is a big area of disconnect in this study.
So whereas many parents would prefer until after retirement to have this discussion, their children generally want the conversation to take place well before the parents retire or experience any health issues. And on this topic, we side with the children. We believe that having these conversations earlier is more effective because it’s more effective to have these conversations before they’re needed.
Steve Pomeranz: Well, some of these children are in their early 20s. Do you think that’s an adequate age for them to really understand the implications of these issues?
Lauren Brouhard: Well, I think it depends on the age of the parents. And there’s different kinds of financial topics that we want to see families talking about at different life stages.
Here, we’re really talking about as parents are aging and approaching retirement, we want to be getting ahead of that in the families. And giving the children greater peace of mind, giving the parents greater peace of mind that the right plan is in place, that the right documents are in place, so as the family continues to grow, there aren’t any surprises.
Steve Pomeranz: There was an interesting fact that you wrote to me. It’s that adult children significantly underestimate the value of their parents’ estate by more than $300,000. And that was more than double what it was two years ago.
Give us some background on that.
Lauren Brouhard: Yeah, that was an interesting finding. We think that generally adult children are just guessing, to begin with, because these conversations really aren’t happening at that level of detail. And I think specifically this question around how much are you worth, is one that is particular taboo, right?
And I think that the gap from when we last asked that question, when we last did this study, the difference there probably has a lot to do with the market and assets just accelerating. But generally, this is an area where we don’t think there’s very good transparency in the family, to begin with.
Steve Pomeranz: Yeah, you discussed this phrase that caught my attention, it’s called the “voice not vote” rule. “Voice not vote,” what is that?
Lauren Brouhard: So we hope this is one way to break the ice a little for families that are feeling the initial stress of getting these conversations started.
And we hear lots of questions around, well, there might be two or three siblings in the family. How do we get to agreement or is that going to create a lot of tension? And the “voice not vote” rule basically says that when it comes to finances, it’s not a democracy.
So, while family members should have a role in the planning process, the ultimate decisions are going to be made by the parents in terms of what will happen with their assets. And who will be responsible for taking care of different elements of the plan?
Steve Pomeranz: Yeah, there’s questions like, who’s going to handle the caregiving? Are there documents in place that will act as for power of attorney?
Lauren Brouhard: Exactly.
Steve Pomeranz: Or healthcare surrogates. These are the issues that you’re talking about which are not necessarily monetarily related.
Lauren Brouhard: No, and I would like to highlight the point about elder care. So, in the study, we found that there’s a major disagreement over who will care for a parent if they become ill.
And nearly half of the adult children expected that they or a sibling would be helping handling caregiving duties. But only a very small percentage of parents, only 6%, expect this. So, this just shines a light on an opportunity for a really important conversation in the family. Where parents, maybe they’re somewhat in denial, maybe they’re healthy and just don’t expect that they’re going to get sick ever.
Or maybe they don’t want to be a burden on their children. But they may not realize that one or more of their children are ready, able and may be expecting that they’ll be part of that caregiving. So really, they could learn from each other about their wishes and make sure that people are lined up to take on responsibilities that they’re ready for.
Steve Pomeranz: It’s very interesting, we do an exercise with our clients that asks questions, in so much, what does this money you have mean to you? What is the purpose of it in your life? And other questions like that and one card—we use a series of cards—is not to be a burden to my family.
And that card gets picked quite a bit.
Lauren Brouhard: Yes, we see that in a lot of studies around aging.
Steve Pomeranz: Yeah.
Lauren Brouhard: So, what are people worried about? Yeah, certainly a common worry is, is their money going to last throughout retirement? But the one that you just mentioned about not wanting to be a burden on others is a very common concern of today’s population as they’re aging.
Steve Pomeranz: Well, you can break that down. There’s being a financial burden, which I think in most cases is what these people mean because they know how tough life is, and perhaps they had to take care of their own parent, which was a financial difficulty. So, they’re saying they don’t want that for their children.
But there’s other aspects of caretaking that are not a burden and, actually, children would really like to do them. And it’s important as a family for them to get involved.
Lauren Brouhard: Yes, and we really want to offer and emphasize the positive effects of breaking through the initial stress in having these conversations because we see even from this study that when families are having these conversations, there’s less confusion, there’s reduced anxiety. And that over the long term is really going to help minimize poor financial choices that may have otherwise been hard to course correct at a time of emergency.
Steve Pomeranz: Many of these people deal with advisors like myself.
And so what are some of the questions that you think advisors should ask or meetings that they should bring together?
Lauren Brouhard: Yeah.
Steve Pomeranz: What do you advise in that area?
Lauren Brouhard: Well, I think it’s interesting, and you know this firsthand, which is that a financial professional or an advisor can actually play a very important role in helping facilitate these dialogues because you are an objective third party, at least as far as the end family, emotions, and dynamics are concerned. So a financial advisor can certainly play an important role. And I think that a great starting point, as we discussed, is what’s the checklist? What’s the checklist of common policies, documents, financial statements?
Steve Pomeranz: Sure.
Lauren Brouhard: Is everything in place? Has a power of attorney been determined? Has a health care directive been determined? Those are questions that you may not get all the answers in the first discussion, and we don’t think this is a one and done kind of discussion. But we want to open those conversations and have those questions serve as a catalyst for then deeper discussions that really get after the parents’ hopes and wishes for what will happen as they retire, age and ultimately pass on.
Steve Pomeranz: Of course, we’re just skimming the subject here. And there’s a lot more to be discussed. But at least, if you’re listening to this and this is resonating with you, you get the idea of how important it is to start thinking about this. And kind of getting over your reticence about sharing this information with your parents or with your children.
My guest is Lauren Brouhard. She is Senior Vice President with Fidelity Investments. Thank you so much, Lauren.
Lauren Brouhard: Thank you for having me.