A Digest of Money Management Tactics for the Family Physician

Money problems are often at the root of marital troubles. In fact, financial stress--caused by lack of money or disagreement over how to manage it--is the number one cause of domestic discord.

The inverse is also true. Unhappy marriages tend to become financially unstable.

Money is sometimes used as a weapon, even in the best of marriages. Common tactics in marital guerilla warfare: He doles it out, makes her feel dependent...most common in one-income households. Another is "yours" and "mine" view of funds...the two-paycheck dilemma.

Other games: spite spending, secret hoarding, secret spending. In the end, no one wins.

Marriage is an economic relationship, a personal business partnership, regardless of whether it's a one- or two-income household. When he and she see eye to eye on money issues--common goals, how to spend, how to save--the personal relationship, in general, does better. The household balance sheet benefits, too. It's a win/win situation.

How to strengthen the financial partnership with your spouse:

• Analyze your own and each other's attitudes toward money. Does one like to blow a windfall, the other squirrel it away? Does one feel comfortable with a full debt load, the other nervous about borrowing? Share points of view in an honest, open exchange of ideas. Reveal all. Be candid. No holding back from yourself or each other. Listen as well as talk.
  
  
• Write down mutual goals. Put them on paper. This imposes order on all other financial decisions, helps you map out a strategic game plan for achieving objectives. A good starting point: Discuss where you both want to be one year, two years, ten years from now. Prioritize goals as you write them down. Then talk about ways to jointly achieve them.
  
  
• Look for compromises when you cannot reach agreement easily. Example: He likes to flash it; she likes to stash it. Solution: Once a mutually agreed upon goal of X dollars is put aside for savings/investment each month, blow some, put on the dog...together!
  
  
• Share all money decisions and responsibilities. Too often, one person pays the bills, balances the checkbook, knows what they can and cannot afford. The other has little knowledge or say about money matters. A better way is to establish joint responsibilities, handle finances together. Take a few minutes each week to pay bills and discuss how your money is being spent. This requires you and your spouse to come to grips with the economic facts. In the end, both the financial and the personal side of your relationship are strengthened.

Teens are wealthy. They spend $89 billion a year on such goodies as entertainment, clothes and food. But that total also includes big-ticket items, according to surveys conducted by Teenage Research Unlimited. Over half own televisions and 35% have their own VCRs. Fully 30% have bought their own car or truck.

The problem: The majority of teens don't know the first thing about money--in terms of how to manage, save and spend it wisely. Many earn thousands of dollars a year through part-time jobs and receive thousands more from their parents...yet are broke all the time.

The real issue is that they'll be on their own in a few years. They need to learn the real-world lessons about money management before leaving the nest.

To help your children learn responsible money management, you must retain control and demand accountability. Consider the following:

1. Teach your teens budgeting basics and help them create--and submit to you--their own budget.
   
   A budget will help them learn priorities (facing unlimited choices with limited resources) and help you set reasonable allowances. By the time they go off to college, they'll be accustomed to the process and be able to manage their own finances fairly well. This will also help you make your budget work.
   
   
2. Help them understand the need to save for big-ticket items by:
   
   

   (A) setting up a savings account when they are young.
   
   

   (B) insisting that they save a portion--even if it's only a dollar or so a week--of all income and gifts; and
   
   

   (C) matching dollar for dollar, all money put into savings.
   
   

3. Get them used to handling ever larger sums of money. This ties back into budgeting. Starting as freshmen, high school students should be given their entire week's spending cash in a lump sum to manage as they see fit. (If they elect to spend all their money on Monday, refuse to loan them any cash for the rest of the week.) By the time they're seniors, give them the entire month's spending at the start of the month.
   
   
4. Don't buy into the "It's my money!" line if your teens hold jobs. At least until they're 18, insist on accountability of how money is spent. (This helps you flag money and related problems before they can get serious.)
   
   
5. High school seniors should have checkbooks and be shown how to use and balance them.
   
   
6. Teens should receive an oil company credit card (in your name) when they start to drive. But except for one or two "practice runs," it should only be used for emergencies or with your prior understanding. Also, insist that receipts be given to you.
   
   
7. Forbid the use of credit, except for buying a car. The plastic habit is hard enough for adults to handle; help your children to avoid it altogether. Instead, encourage them to save for big ticket items. Or if they lack the self-discipline to save, they should do without.
   
   

The key: Discuss money matters with your children. Help them understand that successful money management takes self-discipline and fairly constant attention...but that it's well worth the effort.

Building a strong "financial house" can take a lifetime. There are few short cuts, no substitutes for sound money management. It's usually done one brick at a time.

A common mistake: Getting anxious. Some people try to move too fast, put money into penny stocks that should be in a savings account, take risks they can't afford. The result, too often, is a shaky house of cards, about to tumble at any time. If your goal is reliable, long-term wealth accumulation, develop a long-range strategy.

One of the most effective models for your financial house is the pyramid. A pyramid is the sturdiest structure ever designed. Constructed so it cannot fall over, there is nothing more stable.

Visualize your financial pyramid as a tiered structure. Each level contains different types of assets, generally categorized by amount of risk. Complete each tier one at a time. Start by creating a rock-solid base. Then work your way up, always reinforcing the lower tiers as you go.

Tier #1: This is the foundation upon which everything else is built. The goals are safety and protection. Most people start with adequate insurance--life, health, disability, etc. That protects other assets as they grow. Also maintain a liquid pool of cash and cash equivalents (such as savings and money market accounts) equal to at least three months' income. Next consider super-conservative financial vehicles--U.S. Savings Bonds, Treasury Bills, and high-rated municipal bonds--for long-term stability and growth. They're short on risk, long on safety.

Tier #2: When, and only when, your financial base is firmly established, begin accumulating assets in the second tier. The goal here is to solidify holdings, with an eye on moderate growth. This is where your home comes in--one of the best long-term investments you can make. Add such low-risk equity investments as conservative mutual funds and/or historically stable (Blue Chip) stocks. This is also where many people consider a second (vacation) home or rental property.

It's not uncommon to spend a lifetime building these lower two tiers. Many people go no further, yet still retire in comfort.

Tier #3: This is the realm of the more aggressive investor. It is reserved for the financially established, men and women looking for above-average growth and/or tax savings. You must be willing to take a degree of risk with a portion (rarely more than 25%) of assets. Typical tier-three assets include aggressive securities, such as sector or growth income funds and higher-risk, over-the-counter stocks.

Tier #4: This is strictly for those who get a kick out of high risk, who enjoy the rarified air of highly speculative investments: limited partnerships, gold and silver stocks, bullion, penny stocks, options, futures, gems, art and other collectibles.

Recommendation: Stay within your comfort zone. You don't have to build a four-tiered pyramid. You may wish to stop at any level.

The pyramid is not a perfect model. None exists. Use it as a guideline and adjust it to suit your own objectives, risk attitude, and personal preferences.

But remember, as with any structure built to last, the strength of your financial house depends on a sturdy foundation. So until you've built a base of safe, conservative investments, avoid the all-too-common mistake of playing long-shot, speculative investments.

Only gamble what you're willing--and able--to lose.

You could be marching right smack into the biggest financial challenge of your life, one that could seriously test your family's economic stability...and domestic harmony.

The scariest part: Most people don't see it coming until it's too late.

For millions of families today, it's the dilemma of the 1990s: Squeezed on one side by the high cost of raising and educating their children...on the other by the financial demands of helping aging parents. That's why couples between age 30 and 50 are sometimes known as members of the "sandwich generation."

The result can be tough choices...scaling back on standard of living, reducing support for college age children, leaving parents in the lurch.

We expect the kid costs...they're the accepted price of having a family. Still, expect to shell out from $151,000 to $293,000 to raise your child from birth to age 18.

Then add the high cost of higher education--between $31,000 and $110,000 today for a four-year degree, and projected to be $75,000 to $250,000 in 15 years.

It's the unanticipated costs of helping our aging parents that blindsides many of us. The problem: They don't plan to become financially dependent. In fact, many appear to be well set when they retire.

There are two factors at work:

1. People live longer than ever before. Today there are more than 31 million Americans over age 65, and the numbers are growing. More significantly, the ranks of octogenarians are expected to swell 31% by the end of the century. While a blessing, it is a mixed one...since life expectancy can outlast financial resources. As it is, the median income for people 65 and older is just $14,000 for men and $8,000 for women...which leaves little room for belt tightening.
   
   
2. Medical expenses can cripple financial health. Coverage for retirees is consistent...with wide benefit gaps. One major illness could wipe out a parent's entire retirement nest egg.
   
   

The burden of support often falls on adult children. Between you and your spouse, you should assume that at least one of four parents will require financial or physical assistance. Currently, nearly eight million Americans provide personal care for parents or other elderly relatives. (Nearly 40% are simultaneously raising children of their own.)

The result: Financial and emotional strain on the care-giver family...and a loss of dignity for the parent. Fortunately, there are alternatives that can reduce the problem.

The key: Plan in advance. Meet with your parents and candidly discuss potential problems and options. Don't be caught by surprise. Among the choices you might consider:

• Look into long-term care insurance. This coverage can protect your parents' assets if they are hospitalized or confined to a nursing home facility for an extended period of time. But it can also protect your immediate family. Helping out a parent with predictable LTC premiums can be less costly than paying open-ended nursing home charges.
  
  
• Set up a small, joint checking account so you can meet on-going expenses during a short illness.
  
  
• Update wills...a good idea not just for your parents, but you, too. This simple step can save time, frustration and thousands of dollars in estate settlement costs in the future.
  
  
• Discuss establishing a power of attorney so you can act in your parent's behalf under certain conditions.
  
  
• Consider a reverse mortgage. Three in four retirees own their own homes, but many are cash poor and house rich. If you're in a position to buy your parents' home and rent it back to the, you can receive mortgage deductions (and very often rental property depreciation, for a tax loss that benefits both of you). Also, they may be eligible for the $125,000 one-time home exclusion on the sale.

IMPORTANT: There are tax implications--both pro and con--to many of these choices. So talk to your attorney. But it could well be worth it. The steps you take--or fail to take--today can have dramatic impact on the well-being of all members of your family.