In the past, I would often say that the biggest financial problems sometimes do not involve yourself.
Most likely, in your conversation with your close friends, some of them would complain to you about how their spouse can be out of control. Most likely, you would not provide any advice to your friend because firstly you may be well aware that you do not have good suggestions to help him or her.
Secondly, anyhow shooting any advice might make you the reason for a potential breakup.
It is always easier to structure a financial plan for yourself but if you involve parents, and spouse it becomes challenging.
The main reason is that in a relationship, we have to deal with not just our own financial and life challenges but possibly 4 different layers of financial and life challenges.
Before talking about the mechanical, mathy part of managing money, sometimes we got to handle the different sets of money stories.
Ramit Sethi wrote the best seller I will teach you to be rich, which is a very popular, yet radical personal finance book.
Recently, he started a podcast called The I will teach you to be rich podcast.
Ramit’s podcast is very unique in that every episode, he focuses on helping a couple of work through their money problem.
In each episode, you will be able to hear what the husband and the wife say about their problem and Ramit will try his best to bridge their money divide.
The interesting thing is… a lot of the couples are pretty high net worth or are on track to be very high net worth.
Yet even with high income, problems exist if not the money problems become tougher.
I urge you to listen to one or two episodes. You might like it.
If you have a friend who consistently ran into these money relationship problems, this may be the podcast to forward to them.
This week, Ramit went on Morningstar’s The Long View podcast to discuss his experience with his podcast and we are able to get a summary of what we can learn and implement in our lives to better communicate about money with others.
I thought that this would be useful for readers so I listed down some good takeaways in this post. But I think this post is meant more for our advisers.
They experience the complexity first hand when they deal with clients on a very frequent basis. Often, the husband and wife have disparate views about money.
If they do not detect certain clues, the financial plan crafted might be ideal for a spouse but not suitable for the couple.
If you are a financial planner who wishes to have better conversations about money with your prospects or client, this series of podcasts is highly recommended.
What was the impetus for him to start a podcast talking to couples about money?
When Ramit was getting married, they had a hard time talking about setting a prenup and talking about money (remember that Ramit is supposed to be the go-to guy when it comes to money).
So they have to go and see a therapist.
Thinking back, he wished that he have a way to hear how couples talk about money and their relationships.
Money problems between couples do not change much since the Pandemic
Here are some of the case study that was featured on Ramit’s show:
- One person spends far more than the other
- One person who earns far more than the other
- A Pakistani couple where the husband is expected to pay for everything for his parents and culturally he is obliged to do it.
What he wants to show others:
- Culture matters
- Gender matters
- Amount of money you have matters
- Sophistication with money matters
At 2:59, Ramit goes through how difficult it is to get people on the show. The couples were told that their case study may be shared and they can change their names.
What was surprising is that only 20% of the couples choose to change their name.
Ramit thinks that if there is a way that they can solve their money problems, couples can be rather open about their finances.
Couples do not have a shared vision of what is a rich life to them
Couples would come with a stated problem but usually, that is not the main problem.
A couple was fighting over the wife’s $50 overspending at Target. If we zoomed out, the couple is on track to be multi-millionaires. The couple has never considered that they could be rich. They did not believe they were that rich.
The problem: The couple have no shared vision of what a rich life is.
Many of us never considered what our rich life is. (They will often say “I want to do what I want when I want.” But when pressed what they really want to do, they have no answer.)
We were too caught up in our day-to-day life to consider what is our rich life.
Discussing a couple’s rich life is more interesting than talking about the mathematical nuts and bolts of finances.
What makes couple finances (and extended family finances) so complicated?
Here is the problem:
- Most of us are not very sophisticated with finances, especially the math part. We are not sophisticated about our financial views.
- You then overlayed one unsophisticated person with another unsophisticated person
- You then overlayed the above with a set of “invisible scripts” that both grew up with
Adding these up is what makes the problem incredibly difficult.
Couples do not have to agree on every money thing to be successful
The good news is that as a couple, both of you do not have to agree on everything when it comes to finances.
Both can live rich lives.
There should be a way:
- for both to reconcile the two
- create clear boundaries
- find out what he cares about
- find out what she cares about
- come up with a JOINT process to get there
Why our background influences our money decisions today
Two different people from different backgrounds can expect their partners and family differently.
Here is how Ramit tackles the conversation:
- Ask them “What caused them to be here?” What happened in the last 30 days when both of them are not aligned with money.
- Ask for specific examples with details.
- Find out how they grow up? How did they think about money? What word do you use to describe money? These will reveal clues to how each of them thinks about money.
What we are trying to do is become a detective to find all the subtle clues that lead both of them to where they currently are at.
A lot of their problems are related to their upbringing.
Ramit considers it a tragedy to live a smaller life
Ramit finds it quite problematic when people don’t have a vision or do not have an interest in doing anything.
A male in a relationship basically has no interest in spending money.
A lot of us were taught to save money, go to Florida, get some leathery skin and die.
Ramit expresses that we are all very taken in by the rich person who is still rooted and does not change their money habits. (Bill Gates wearing Dockers and Warran Buffett still living in his 1969 apartment)
Often people did not consider that these rich folks spend their money in other ways.
“Money changes people” is a phrase that is used in a negative way.
But Ramit thinks that money should change people in that if you have the means you should be more generous.
What got you to become rich might not be what you need once you are rich.
Gender Stereotypes about Money
Recent changes in trends:
- Young women in urban areas earn more than men
- Women graduating at higher rates than men
This reshapes views on money, dating.
- Woman tend to be the one in the relationship that is more scarcity-minded
- Money values were passed down from mothers and grandmothers.
To bridge this gap, Ramit encourages open conversations between couples.
Here are some questions to ask each other:
- How do you feel about money?
- Where did you learn that from?
- What will the numbers do for us?
Our feelings about our financial situation are not so related to the amount
Ramit came to one conclusion that our feelings about money are highly uncorrelated with the amount we have in our bank account.
There are people with $6 million and they feel unsafe.
They feel like they do not have enough.
They are looking through this with one main lens: Their numbers through the spreadsheet.
Ramit states that your 4% safe withdrawal rate is not going to make you feel safe.
Children will observe their parents and concoct their own stories about money
Ramit explains that people with a scarcity mindset likely were drilled over and over again by what they observe around the dinner table when they see their parents struggle with money.
One lady was so traumatised by what happened during her childhood that her sense of security is tied to buying her own apartment.
She just wants something that is hers.
After her conversation with Ramit, she said she never drew the connection between her obsessive need to own an apartment and why she would felt that way.
To overcome this problem, Ramit’s strategy is to “pull all the different threads” to make them understand why they are feeling and behaving this way.
Lecturing the hard facts usually do not work.
When they finally understand why they are feeling this way and why they would do things this way, then they are more open to the more sophisticated financial decisions.
It is very challenging to teach people to spend money
Ramit says the whole financial industry is more geared to teach us how to cut back on our spending.
Not many are out there teaching people how to spend.
When you ask the question “What do you like spending money on?” people have a hard time answering.
We are repressed to talk about our spending.
Ramit introduces his “Money Dial” concept: Spend extravagantly on the things you love as long as you cut costs mercilessly on the things you do not love.
The Big Myth: You would one day feel safe to spend your money.
“What age or what amount would you suddenly feel safe to finally take that vacation?”
They will usually give a number e.g. $1.8 million but chances are when they reach that goal, they will move the goal post to a bigger one.
People don’t turn 50 to 60 years old and suddenly is able to spend.
Spending is a skill that you need to build, cultivate and develop throughout your lifetime.
Evaluating our options through not just one main money lens.
Ramit thinks it will be challenging for someone who has not to have a hobby to decide what they would like to do when they retire at 50-60+ years old.
Very Few Advisers Talk about the Lifestyle Part of Retirement.
What he likes to do for people is to lead them and visualize how their ideal lifestyle would feel like.
Encourage them to think about what would make the trip extraordinary.
Typically, we all view things through a few money lenses.
The main lens is cost.
Using only cost as an evaluation is like playing one note in an orchestra.
Here are other lenses that can be used:
- Relationship lens: Who to bring with you on the trip?
- Safety lens: What can you spend on so that you can feel more secure?
- Delight lens: What can you do on this trip to knock the socks off your spouse?
Asking them these questions allow them to look at their choices in other ways they never thought possible.
3 Practical Steps that Every Couple Can do
- Audit. These are not the typical questions found on the financial planning questionnaire. Ask each other the fun or touchy money questions that you did not discuss previously. Make it fun and not judgemental. Such as
- How do you grow up with the money?
- What do you remember about your parents teaching you about money when you were a kid?
- What is something you think we could spend more on?
- What is something you think I should spend less on?
- Create your rich life vision. Come up with your rich life vision in the next 1 year. And then for the next 10 years. Come up with the rich life that both want to do together.
- Create a system that brings this rich life vision to reality. Discuss this periodically, set up an investing and saving system to accumulate towards your rich life goals.
When both of you periodically review your system, you may get more excited as you get closer to your goal.
How to Tackle Couples with a Disparate Set of Goals?
Each should not have to agree on everything.
Some questions are larger and more consuming. Questions such as how do we want to raise our children? Public or private schools?
Ramit will take a 50,000-foot view of their finances. Often, one spouse will say “we cannot afford it.”
They would wield this we cannot afford it as a weapon but often the spouse has no idea about their finances. To them, the reality is they cannot afford it. Take a look at their numbers to see if they can truly afford it.
Then it is a matter of whether they can afford or not afford it.
What are the “deal breakers” that we should watch early on in the relationship to detect money incompatibilities?
Here are some red flags:
- Lying about money.
- The inability of wanting to change.
- Very strong disparate goals or lifestyles.
Ramit’s advice to Advisers to Handle Money Conversation with Clients Better
Never use these words at the start of your conversation with a fresh client:
- Compound interest
- Tax advantages
These are loaded phrases that nobody wants to hear. They are negative and restrictive.
It is not the right time to talk about compound interest and tax advantages during the first meeting.
Discuss and use the following words/phrases:
- Rich life
By doing this, it shifts the conversation from something mechanical to something more meaningful.
Also, focus on the female spouse or the spouse that tend to be least vocal. Try to get them to talk about what is considered a rich life. Most likely, their partner has not asked them.
Ramit also said that the financial industry has focused too much on the mechanical aspect of financial planning. But the is that client’s come in with the mindset that they expect mechanical deliverables.
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