Talking about money is pretty much taboo within our Asian culture. So many times I've heard clients tell me they let their spouses manage their own finances, they think their siblings might have financial planning done and how they will only talk about finances when people ask. Finance is personal and thus an avoided topic. However, if everyone's financial literacy is not equal then financial issues which may seem like it's our loved ones' problem may eventually spillover and become our problem. In this article, I'll touch on the 3 biggest issues.

1. When one spouse is responsibly covered for unforeseen circumstances but the other is not

In recent months, the common observation I've made is how some couples plan their finances autonomously. Most of my clients are adequately covered so if they fall ill or pass on, they will not be leaving financial liabilities for their family to clean up. On the other hand, a number of them have no clue if their partners have sufficient coverage. They just assume they should have.

You see, if we just mind our own business, we will only find out if our partners are responsible financially when something unfortunate happens. By then it will be too late. Unless you can ignore the plight of your spouse, their problem will become your problem whether you like it or not. It does not matter if you have sufficient insurance coverage or not, if the unforeseen event happens on your spouse and not you, you can't activate any of your careful planning that you did for yourself to protect you from financial woes. The only way to protect yourself financially from the spillover effect of your partner's financial issues is to ensure both parties are adequately covered. You cannot achieve this without communicating with each other on your money matters.

Joint Financial Planning

Another common blind spot is the issue of assumption.

You see, because talking about finances is already sensitive, usually we don't dive into the details. Many times, adequate insurance can mean different things to different people. It depends on the degree of financial literacy in the person. A person might be covered for hospitalization, disability, accident, death and critical illness. Another person might only be covered for personal accident. I've even seen people with no other insurance except for multiple personal accident plans because they forgot what they bought and PA plans are cheap enough to buy without thinking. In both instances, the parties involved think they have adequate insurance.

Another issue with adequacy is the subjectivity of the matter based on when the last financial review was done. A person might have bought their insurance coverage as a fresh grad and never reviewed their policies again. This same person might be in middle management currently with a totally different kind of income to protect. Many times, it's not a question of whether the person has insurance but whether that insurance is enough. Throughout my career, I've seen people declining to get more coverage under the assumption they bought insurance already only to discover their sum assured to be as low as $30,000 months or a year later. What can you purchase with $30,000 today? A second hand car?

Even if talking about finances might be uncomfortable, I feel that every couple should review each others' financial portfolio to ensure that both are adequately covered and won't be a financial liability to the other party.

As much as this is important to couples, this topic is equally important to discuss with parents and siblings because if any party in these family dynamics encounter a problem they can't solve themselves, it'll still spillover to become your problem (depending on how much you love them).

2. When your loved ones have insufficient or no emergency funds.

This COVID19 economic crisis has sparked a new wave of retrenchment and the experts are saying that the worse hasn't happened yet. If in good times we avoid touching on the topic of finances, in bad times these issues will still make us face up to them and make the topic even more uncomfortable.

Do you like to lend people money?

Many times, a lot of people are not so financially broke till they spend every cent that they earn. However, it's very possible to have spouses, children, siblings, or parents who are poor managers of money. They may spend too much and too unnecessarily on a regular day that they don't have sufficient savings for a rainy day. When something unexpected like a recession occurs, some people might find themselves out of work and cashflow might become an issue.

How many of us like to lend money? I know I don't. To avoid this, sometimes it's better to have the uncomfortable conversations early. If someone has poor cash management, they may need an authority figure to advice them on their spending habits. A financial advisor might also come in handy to help them set aside some funds as forced savings. Contrary to popular belief, modern day financial instruments have greater flexibility in the shorter term and some solutions if implemented early can serve as a second safety net during situations like a retrenchment for people who cannot manage easily accessible funds.

3. When your loved ones did not make an effort to plan for their retirement

A group who may already be feeling the stress due to poor financial planning of the earlier generation is the sandwich class. The sandwich class refers to the group of people who have parents who are financially dependent on them and have children who are also financially dependent on them.

Very often when everyone has earning power, the need to invest may not even be a topic of importance. This is especially so if everyone in the household have no interest in financial related topics. A very common assumption among a lot of the working class is that as long as they do not spend more than they earn, there will be money left for retirement. However, the impact of inflation is often underestimated. What if you did something for your own retirement but your spouse or your sibling didn't?

Let's take a look at this scenario:

Now based on a hypothetical scenario above, John is looking forward to retirement as he knows he has made prudent plans and now wants to travel yearly to countries he has never been to during his working years. John has always assumed that his wife would plan for her own retirement and would have sufficient funds to travel with him. As Jenny has underestimated the power of inflation, she tells him that he either needs to pay for some of her expenses or they have to be thrifty during retirement. Suddenly, the fantastic retirement plan of John has to be re-adjusted and John is very disappointed.

A year or two later, John's brother Jason came to look for him to ask him for some financial assistance because he can no longer work due to poor health. Jason has always been earning lesser than John and hasn't thought much about retirement as he always expected to work till he passes on. Jason is single hence came to John for help. Now, John has a dilemma. Jason probably needs help for the rest of his life. How much can he afford to spare Jason? John feels guilty if he gives his only brother too little while he enjoys his retirement but feels upset that he needs to sacrifice his comfortable retirement to help.

If you are John, what would you do? Imagine you planned responsibly for your own retirement but because your loved ones around you didn't, you have to downsize your retirement to cater for them. Isn't that a major disappointment?

Very often we implicitly expect our loved ones to know what to do and manage their money properly. Yet everyone has a different interpretation of how money should be managed. The financially savvier ones would be better off and the financially illiterate ones would tend to suffer. Rather than putting off the conversation till a time when it's too late to do anything, it's better to provide thinking points for your loved ones to mull over now.

Summary

In short, it's very common for everyone to avoid talking about financial matters and take a default assumption that if their loved ones need advice or help on finance, they will ask. The problem with this approach is the need to realize a problem exist in the first place. If not nobody will think of asking for help! Very often, people do not realize their financial woes until they need money or gotten into some form of financial issue they are desperate to reverse. Often, it's either too late to do anything besides digging into your own savings to help or it'll result in an expensive lesson for your loved one. Instead of avoiding financial discussions and leaving ourselves expose to potential spillover effects, we should make the effort to create awareness on these topics so that people around us would start to become more aware and hopefully do a bit more to plan for their futures.

If you or your loved ones have not started considering the above mentioned, please speak to a trusted advisor. You can drop me a message if you would like me to help you with it. Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about financial planning. Like my page if you would like to read more of such articles. Follow me on Instagram if you would like to receive short lessons/updates on investment, personal growth and savings through my insta-stories. Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.