Helping blended families focus on financial wellbeing
With blended families now increasingly the norm in our society, more and more people are facing the challenge of getting to grips with a new family unit. The Stepfamily Foundation estimates that around 64% of all American families are blended, i.e. involve married or unmarried couples living together with a stepchild and/or offspring from a previous relationship. Bringing together and catering for all the needs associated with this new family dynamic demands time and commitment, but on a practical level it also requires money. A new study entitled ‘LoveFamilyMoney,’ carried out by financial services organization Allianz, suggests that this is one of the most challenging issues for blended families, with many living a hand to mouth existence as a result of cash commitments from previous relationships and other economic baggage. Making decisions about money for the good of any family requires careful consideration about issues such as savings, investments, college funding and estate planning, but for a blended family these issues become more complex. Here we take a closer look at what the latest research and other studies discovered and consider some sage advice for blended families seeking a more rewarding financial future.
Lessons from LoveFamilyMoney
The ‘LoveFamilyMoney’ report[i] is a result of a study involving over 4,500 online panel respondents from right across the United States. The general message coming back from blended families who participated was loud and clear – the combination of lack of support from some former spouses and ongoing financial commitments to others is having a detrimental effect on their finances. Blended families averaged only $158,600 in savings or investable assets – the comparative figure for traditional families was $264,300. Over half of respondents from blended families admitted living from paycheck to paycheck and almost one third were not in the habit of accumulating savings for the future.
A separate study carried out on behalf of the U.S Census Bureau also highlighted how the great recession from 2007 to 2009 amplified the financial challenges of blended families[ii]. Parents who had children with more than one partner were found to be disproportionately worse off as a result of the recession with many falling into the poverty trap[iii].
While these collective findings may sound rather bleak, the good news is that with a renewed focus and concerted effort, blended families can take steps to improve their financial position.
Money management tips for the blended family
Falling in love again and joining two families can be an exciting time for many blended families, but as those who have trod this path know, the new family structure needs to be built on a strong foundation of openness, mutual respect and honest communication. Adopting the same approach to the household finances can be of major benefit in terms of financial wellbeing. Here are a few practical tips to get started:
Lay your financial cards on the table – It may not be the most romantic subject of conversation, but having a full and frank discussion about money is a must-do before the blended family comes together[iv]. Both partners should provide full disclosure of their current financial position detailing income, outgoings, debts and any other commitments such as child support. Explore each other’s financial past and if information is not forthcoming, probe further.
Compare attitudes to money- Getting to know your partner over a period of years is all part of the gradual development of a relationship, but money is one area where an accelerated learning process is required[v]. Many partners entering into a blended family have been fiercely independent for years and have established their own way of managing the household incomings and outgoings. Find out more about what that approach is – who is a spender and who is a saver for instance? Is there a shared sense of importance about paying bills on time or is one partner more relaxed on this issue[vi]? What are the household financial priorities –are these goals shared? Flesh out each other’s opinions and find some common ground – otherwise this may emerge as a source of conflict in the future.
Make a plan- Once all the information is gathered and money styles identified, agree a plan for the future[vii]. Assign roles and responsibilities from the detail of who pays the bills right up to what the process is for making significant investment decisions. Estimate the costs of big ticket items such as college funds and put together a workable agreed plan. Update important documents such as life insurance policies and wills[viii] to incorporate any changes required by the creation of the new family unit.