When it comes to discussing finances with loved ones, there is room for improvement
by Kristen PhillipsMs. Phillips is the senior vice president, Corporate Marketing, Communications and Strategy. Visit www.lincolnfinancial.com
Consumers who dread having financial conversations with loved ones are not alone. According to Lincoln Financial Group’s 2019 Financial Conversations study, 47% of Americans struggle to talk about long-term financial planning with loved ones—even though the majority (94%) understand the importance of these conversations. The research shows that the more people talk, the better they feel about their future. Conversely, avoiding financial conversations can negatively impact Americans’ ability to make a financial plan and can ultimately reduce their financial confidence.
Lincoln Financial commissioned this survey to understand how Americans perceive the importance of financial conversations in their lives. Completed in July 2019, the survey asked 1,002 Americans about their personal experiences around financial conversations, including the emotional and financial impact.
As consumers kick off the new year, it is an ideal time to commit – or recommit – to planning one’s financial future. It all starts with having a conversation, but first, it is important to get a deeper sense for why people are not talking.
Talking About Finances is Emotional
Getting to the heart of the issue, Lincoln found three key reasons why people avoid having financial conversations with loved ones.
It’s overwhelming. The details behind finances are complicated. Without the right support or resources, people are less likely to start the conversation.
It’s awkward or uncomfortable. Many financial conversations involve difficult topics like death, unforeseen medical problems or having enough money for retirement. Avoidance can also stem from feelings of embarrassment or social taboos about sharing future goals and personal financial situations.
There’s no existing plan to speak of. Consumers find it difficult to talk about the future without having a plan in place. But taking the time to talk about and reflect on their current state, as well as their future goals, is an important first step toward building that plan.
The research also found that a person’s upbringing, age or life stage may contribute to their reluctance
to have financial conversations: One in two people said their parents did not talk to them openly about their long-term financial plan. Yet four in five wish they had, saying that having these kinds of conversations would have helped them feel more secure in their ability to plan for the future. In comparison, those who grew up talking about a long-term financial plan with their families feel more comfortable talking about finances as adults.
Surprisingly, 71% of younger respondents, aged 25–44, are having financial conversations while only 58% of people aged 45–64 are doing so. Yet that is the crucial age period to plan for major financial expenses such as retirement or long-term care for older parents, so it’s important to have a conversation about keeping plans relevant.
More than half of parents expressed that they struggled to have financial conversations versus 37% of non-parents. While this may seem surprising, it could be that parenthood comes with a lot of responsibilities, particularly financial responsibilities, leading to difficulties approaching financial conversations.
Our research revealed not only the many emotional reasons people avoid financial conversations, but also that not having a conversation can lead to financial insecurity.
The More People Talk, The Better They Plan
Opening up about finances helps people feel more confident and prepared for the future. Among those who have had a conversation, 86% currently have a financial plan and 85% also feel confident about their retirement plan and their long-term financial protection plan. By comparison, only 52% of those who have not discussed finances with loved ones feel the same. Finally, 55% of people who have had a financial conversation feel they have saved enough to protect themselves and their loved ones versus 17% who have not.
A significant number of people expressed finding financial conversations valuable, describing them as productive, positive and helpful. The key is to set up the conversation by establishing intentions. Make it clear that the conversation comes from a place of love and caring. Remind loved ones that the goal is to help everyone live better, more secure lives. Recognize that a little goes a long way. The sooner people have the conversation, the better – but they should also not feel pressured that everything has to be solved in one day.
Conversations and Moments that Matter
We found that outcomes not only improve if Americans have a financial conversation, but also when. Financial conversations can play a crucial role in preparing for a stronger financial future, particularly when approaching significant life moments. But we found that these conversations are not happening as often as you’d expect. Consider these statistics:
- 38% of those approaching marriage said they did not talk to their spouse/partner about each other’s financial situation before getting married/committing to a long-term relationship.
- A quarter of people approaching retirement (aged 55–64) have not talked to their loved ones about a financial plan for retirement.
- Almost one out of five respondents say they don’t know if their parents would be able to cover all the costs associated with an illness in their old age.
- Those who don’t have conversations about finances are less likely to have a plan, and among those respondents, confidence is alarmingly low:
- 86% do not feel they have saved enough for retirement
- 51% do not feel confident that they would be covered for living expenses in the event they or their partner pass away.
- 55% are not confident in their retirement.
- 88% do not know or do not feel they have saved enough to protect themselves and their loved ones in the future.
While having tools and resources can help people get started, we also found the role of the financial advisor to be important in the process.
Financial Advisors Can Help Consumers Take Action
A financial advisor can be helpful before, during or after having a financial conversation with loved ones. People who had a financial advisor were 74% more likely to have had a conversation about their finances with a loved one versus those who did not. The second most cited reason for having this conversation with their loved ones was advice from their financial advisor, following the top reason, “it felt like it was something that just needed to be done.”
Further, respondents with a financial advisor were almost twice as likely to have a financial plan for the future in place. Having a financial advisor keeps people on track and prepared for critical life moments, like retirement:
- 6% of people who had a financial advisor discuss retirement with their loved ones versus only 38% of those without one.
- 87% of those with an advisor feel confident about their retirement plans versus only 45% of those without one.
- When asked if they have saved enough for retirement, those with a financial advisor are more than twice as likely to say yes.
Financial advisors help keep conversations going and keep plans relevant. The goal is to have these talks frequently to ensure that as life changes, financial plans change with it.
In conclusion, the 2019 Financial Conversations Survey gave great insight into what can often be a taboo topic. Although there are heightened emotions and uncertainties before having financial conversations, people feel positive and productive afterward. Our goal is to get people talking, one conversation at a time.
Headquartered in Radnor, Pennsylvania, Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates.