Mind on Money: Different 'money cultures' require different approaches

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Each of us has an inherent personal money culture determining much of the way we think and manage our personal finances. In my experience, how we spend, save, invest and even earn money is determined in an often loosely perceived set of unique experiences, opinions and habits. Yet often these behavioral profiles end up being similar to other behavioral finance architypes as a financial adviser I have come to understand and appreciate over time.

As a parent, I find it interesting kids from the same family can have such different personal money cultures. My oldest daughter, at 26, is a frugal spender. She makes very practical decisions but will spend money when she wants something and has no problem accepting gifts or money from Dad. I once heard her say in the back seat of the car to a pal, “I’m very frugal, when it comes to MY money.” When it comes to investing, she’s skeptical, and I suspect she is secretly obsessing over her investments on a daily basis.

My second daughter borders on being a money hoarder. The idea of spending money rarely even enters her mind, which can honestly be a problem when things wear out or need maintenance. She would walk around with a broken iPhone and drive a car with bald tires without even thinking about spending some of the sizable savings she’s accumulated through working and gifts. She would never spend family money without asking, even for things like books for college. When it comes to investing for her, however, she is more open to investing and trading and seems to be able to accept financial risk better than her sister.

My 17-year-old son somehow always seems to have money for things like gas or Chipotle, yet oddly doesn’t seem to work all that often. Of the three older kids he has the smallest savings account, has no interest in adding to it, and has been caught a number of times spending family money without asking. I don’t think he spends any time focusing on money; as long as gas is in his car, he’s good, and beyond having money to hang with his friends he doesn’t really want much. Rumor is, he’s pretty good at poker and he took all my chips at the table during the last family vacation poker night.

Even my youngest, who is 11 and challenged by Down Syndrome, has a money culture. He knows what he wants, knows money will get it and relishes in doing chores to get more of it. What he doesn’t spend immediately he keeps in a crumbled pile in his room.

With these four distinct money characters in my life, my parental financial relationship is likely to be different with each child as well. Throughout time parents have backstopped their kids financially, and it’s possible at some point I may be called to do the same. But in the issue of fairness, all accounts must be settled in the end (which means when I’m dead), and I’ve recently observed a process in action using documented promissory notes that helped some client families progress through the estate administration process smoothly, and without hard feelings when one child had accessed the assets of the parents earlier in life when it was needed.

In the situation, one son had borrowed money from Dad repeatedly during his life. At each lending event Dad had documented the transaction through written promissory notes, had the son sign the notes, and then Dad placed the notes in his estate planning folder.

When Dad passed and the time came to settle his estate and accounts, the lending history was clear. The son who had borrowed accepted the documentation, and his ledger in the final settlement of the estate was debited for the promissory notes. Any hard feelings that may have been present regarding the transactions were dodged and the family was able to administer the process in a positive fashion, which I assure you is not always the case when families are settling estates.

After seeing how smoothly this process went, and how it avoided the emotional flares I’ve witnessed with other families, if the time ever comes to backstop one of my brood financially, I will be using the same method of documentation, and recommend the same.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.