Friday, December 2, 2011
When Financial Secrecy May Not Be a Good Idea
One of the areas of life we tend to be most secretive about is our finances. That's a broad category of course, encompassing our income, expenses, assets, debt levels and credit standing. Now for obvious reasons we want to be secretive when it comes to giving out financial information as a matter of protecting our identity-that goes without saying. But the secrecy I'm talking about here deals with people, as in those closest to us.
It's easy enough to see why we don't want other people to know too much about our financial affairs-too much income and assets and other people might resent us; too much debt and poor credit and they might judge us. Who wouldn't want to avoid that?
While we can argue the pros and cons as to how much of our financial lives we reveal to family and friends, there may be times when doing so is in our best interest.
As much as we might not like the idea of driving on a road that's monitored by traffic cameras, it's equally true that we tend to behave better when we do. So it is anytime others have sight of what it is we do. It's called accountability, and it's a way of keeping us on the straight and narrow.
At a minimum, we need to keep our spouses in the loop as to what we're doing with our money. While this might be self-evident, in my experience in the mortgage business, I'd come across people who didn't want their spouses to know a about a certain savings or investment account, or about a debt or even a collection of credit cards. There may be all sorts of logical sounding reasons for this practice, but it's doubtful that it leads to a happy place.
"Whoever conceals his transgressions will not prosper, but he who confesses and forsakes them will obtain mercy."-Proverbs 28:13
But beyond our spouses, there's also an argument for having a close friend or family member (parent, sibling or adult child) aware of at least some aspects of our finances. By having someone else in the loop at least regarding the general state of our finances, we're more likely to do the right things-or at least to stick to what it is we've declared to others we plan to do. It's like have a "second pair of eyes" keeping watch over us.
When you have money problems
It's ironic that the one time we most rebel against financial transparency is probably the time we most need to be open about it. Maybe we shouldn't broadcast it to the world, but it's generally better when a small number of people very close to us know what's happening.
You should never go through a financial crisis alone; at a minimum you need trusted people to bounce ideas and strategies off of. In addition, when we're going through troubles we're not always thinking clearly, and that's when an outside opinion becomes absolutely necessary.
Achieving savings, investment or debt payoff goals
If no one knows what our financial goals are it will be a lot easier for us to give up on them when the going gets tough. This is especially true if your goal is to pay off debt. Sometimes the pain of the effort can be offset by the greater pain that comes with disappointing people whose opinions really matter to us.
In general, financial goals are not always best accomplished in private. If you make a plan to begin saving money or to pay off debt, letting one or two others know what you're doing is a way of making the plan official with an announcement. Think of it as an unwritten contract. Once that's done, you'll have greater incentive to follow through with the plan, if for no other reason than to show people you trust that you can be counted on.
In making your final arrangements
Grief and financial management are not compatible. Even though you commit your final arrangements to paper through a will, you still need to have at least one other person from outside your immediate family who will act as a point person at the time of your death to help your family cope with your loss. That person should have intimate knowledge of your finances beforehand.
Though we might think that our spouse-armed with a will-will be up to the task, that isn't always true. Our immediate family may be too overcome with emotion to handle our financial affairs at the time of our death, to say nothing of dealing with banks, creditors, courts and tax authorities in the months that follow. Assigning beforehand a person that YOU trust to help settle your affairs can be one of the best provisions you can make for your loved ones.
How much of your finances do you keep hidden from close family and friends? Have you ever had problems because no one knew anything at all? Have you ever had problems because you revealed too much?