My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Tuesday, January 4, 2011

Intergenerational Communication Gap

In an article for CNBC, author Jessica Rao quotes Dr. Nancy Molitor, Clinical Psychologist and Public Education Coordinator for the American Psychological Association, as saying “Money is the most taboo, fearful subject that we can encounter as people.” An inability to discuss this taboo subject can have tremendous implications when taken in context of families and their money.

We are all familiar with the term generation gap, but the lack of communication between generations can be very costly from a both a financial and social perspective. The substantial wealth transfer taking place in Canada from parents to children, or from children to parents, makes clear communication between generations more important now than ever, yet the communication is mitigated by this taboo topic of money.

So what am I talking about? Let’s consider Emily, a widower with two children. Emily’s husband Bob passed away a couple years ago, but during his lifetime he amassed a significant estate due to the sale of his composite hockey stick company ten years ago. Emily has two children, John, a Bay street lawyer making $800,000 a year and living in the upscale Toronto Rosedale neighborhood, and Susan, stuck in a bad marriage, who never finished University and married early.

Emily was brought up in an era where you don’t discuss your family assets with your children. John knows he will inherit millions of dollars when mom passes away, but gives it little thought as he is very comfortable and only acknowledges the inheritance in that he does not fully contribute to his RRSP. Susan on the other hand has had a somewhat strained relationship with her mom since her early marriage. Although they  are currently on better terms,  Susan is too proud to ask her mom for money and she does not think she would receive a warm reception even if she got over her pride and spoke to her mom about her finances. What Emily does not know is that Susan’s husband is a cocaine user and she would like to leave him, but she is concerned about how she could survive. She also would give anything to go back to University to become a social worker, but that is currently just a dream.

Now imagine if everyone felt comfortable discussing money? Those that know Emily, realize that she would give Susan some sort of early inheritance, but she does not want to insult Susan and she is not aware of her husband’s issues and Susan’s dreams. Further imagine you were brought in as a family friend and could open up the intergenerational communication gap. Emily would be thrilled to provide an early inheritance to allow Susan to leave her husband and pay for the legal bills and, with Susan free of her husband, she would have the financial ability to go back to school to pursue her dream of being a social worker.

How is this gap bridged? I can’t answer that question. But I know I have advised clients who have the financial means that they should try and have a heart to heart with their children in respect of their children’s financial needs.

How about the alternative scenario of children who have the means to support less financially secure parents? Sam is a widower. He was a factory worker who scrimped and saved to buy a house and put his two kids through school. Sam does not have enough money to retire and decides to obtain a reverse mortgage on his house such that when he dies, the mortgage owing is deducted from the sale proceeds of the house. This is often a costly form of financing.

Sam is too proud to approach his children about his financial situation. However, if you were able to bridge the intergenerational gap, you would be able to inform Sam that his children, who are both successful, feel that they owe everything to Sam and would be happy to either gift dad some money or provide him a loan at lower interest then the bank so he wouldn’t have to reverse mortgage the house.

The two scenarios above have many variations. However, pride, secrecy, and perceived “grabbing of the family money before the body is cold” prevent any kind of open communication.

I have no magical fix, however, if you are the parent, consider speaking to your children about their financial situations and dreams to see whether you can assist them in realizing those dreams. If you are tight for money in retirement, at minimum let your children know if you are undertaking a reverse mortgage or similar financial arrangement so they can potentially assist you or, at a minimum, understand that your estate has been compromised by a mortgage. 

If you are the child in need, have a frank conversation with your parents to let them know your issues so they don’t perceive you to be “money grabbing” and, if you are a successful child with a parent of limited financial resources, offer to help or to pay for your financial advisor to sit down with your parent.



Maple Leaf Rant

Little did I know that when my parents let me stay up late to watch the Toronto Maple Leafs win the Stanley Cup in 1967, that it would be the beginning of a Stanley Cup drought of 43 years and counting.

So when the Maple Leafs hired Brian Burke a couple years ago as general manager, I was pleased. Burke had success with the Anaheim Ducks, seemed to have the sense of humor needed to deal with the Toronto sports media and had an aura that said “Don’t worry, I know what I am doing and I will get it done.”

In my opinion, Burke also arrived at a time that Maple Leaf fans were so worn down by mediocrity and worse, that the Leaf Nation would allow him time to build properly using the draft and astute signings.

However, for some reason, Burke, who I am sure would succeed 8 times out of 10 as a GM, seems to have badly misfired in Toronto; as surprisingly, he, and not the Leaf fans, appears to have limited patience.

Burke’s first puzzling move was signing Martin Gerber late in the 2009 season to bolster a weak goaltending situation. As a fan, I was ecstatic that the goaltending was weak. The Leafs had a chance to get into the lottery for a top pick and poor goaltending may have helped them lose games and achieve a higher draft pick. However, Gerber won several meaningless games for the Leafs that year to move them down to the seventh draft pick. Considering Gerber was then released following the season, his signing was the first perplexing move made by Burke.

The second odd move occurred when Burke started signing veteran free agent defensemen the next fall. Once again, one would have thought he would have traded all the veterans for younger players to build from youth and to ensure a high draft position the following season.

The third and most puzzling move was the trade of two number one draft picks and a second round draft pick for Phil Kessel. One can understand Burke’s thinking in that Kessel was young and his acquisition was like getting a guaranteed number one choice. However, the Leafs gave up three draft picks and if Kessel (a player whose temperament has been questioned) performed well, he would seemingly only help the Leafs to maybe fight for one of the last playoff spots.

Well, we all know that last year, the Leafs did poorly and Boston got the Leafs’ second pick in the draft and it now looks like the Bruins may get another high pick this year. Burke may end up building the Bruins, not the Leafs. Meanwhile, the Leafs only have a few individual players who appear to be useful for the future and no draft pick again in 2011.

The whole direction Burke has taken has been very confusing and disappointing and I now have gone from having confidence to being sceptical that Burke can fix the Maple Leaf mess.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

6 comments:

  1. It is so difficult to discuss money issues within a family. Difficult, but necessary. Take Emily and her daughter Susan, for example. Perhaps Emily and her daughther Susan's relationship only deteriorated after Susan married her cocaine-addicted husband. Maybe Emily could see that Susan's husband was 'trouble' but couldn't tell the much younger and love-struck Susan. Years later, Susan is paying the price.
    If Susan and Emily were able to communicate openly, I'm sure Emily would love to provide financial and emotional aid to Susan to help extricate her out of her disaster of a marriage.

    Instead, the silence grows, and the trouble stews, and nobody wins. Instead of Susan starting the conversation off with the bad news about her husband, she should instead start it off on a positive note, informing Emily that she would like to return to University. That way, the lines of communication would be opened, and the conversation could eventually lead to talk of independence and eventually they could discuss Susan's desire to leave the marriage.
    I think once Emily sees Susan is taking the 'right steps' Emily would be more open to providing Susan with financial assistance.

    Great blog, thanks!

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  2. Thanks, your comment cracked me up (not the same crack Susan's husband is using). I hope you are a soap opera writer in real life.

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  3. Is it taboo or ignorance ? I am not sure; I have been battling to make some sense out of this so that I will not do the same. I recently read a case where the parents left the family cottage for the common use of their four children through their will and due to financial and logistical reasons the children had serious issues regarding the usage and sharing of common cost. Now the four are not even on talking terms, they all agreed that had the parents sold the property during their life time and divided the wealth amongst the children the family harmony would not have been affected.

    Just last week end I was speaking to my wealthy relative who lives in the US who is in his 90’s but very concerned how the wealth he has accumulated in India will be used. His worry is how his Berkley educated only son who is not familiar with India and its complexities will utilize the wealth; everything he owned has been left through a will sitting in a bank locker in India.

    The Canadian landscape has substantial wealth sitting accumulated in investments such as cottages without effective transfer to children during the parent’s life time. I doubt many people are willing to consider disposing their property during their life times so they can transfer them to children to avoid family disputes later.

    I believe reasons are many; cultural, fear of death, losing control and fear of children abandoning the parents when they need their help. No one really wants to accept the reality of death and also there is the fear of transferring their hard earned money to their children. In places like Singapore they have laws in place that would punish children who abandon their parents.

    I agree with you that this is very personal issue within the family. However, there should be greater awareness on the issue. I believe that this should be discussed in the media, churches, synagogues, temples etc so that people will not fear discussing it over dinner table with their children as they grow up. Society has to develop a healthy attitude towards death and proper transfer of wealth from one generation to another.

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  4. John, great comments. The cultural angle is also very interesting as is your comment about Singapore. Funny, I just returned from Singapore a few weeks ago and such a law is not surprising based on all the rules enforced in Singapore, although it is a country that really seems to work; more importantly Sinapore has great food since each meal you can choose from or often combine American, Chinese and Indian food.

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