The challenge of financial planning for modern families

In these days of dynamic growth and change, when the Modern Family has its own television show, it's not enough for a banker to focus only on facts and figures.

As the portrait of the Canadian family continues to evolve, bringing with it new complexities when it comes to managing money and finances on the home front, financial advisors are finding it increasingly valuable to learn a bit about human psychology and what makes us tick.

TD Bank has been diving into this topic of late after noticing some significant changes in its customer make-up.

While married couples still make up two-thirds of all families in Canada, other family arrangements – such as common-law couples and lone-parent families – are gaining ground.

Notably, a recent survey for TD found many of us (one in five Canadians, in fact) who are divorced, separated or widowed are starting over again in new relationships. And we’re blending families like never before: One in 10 children in Canada live in step-families, about 40 per cent of which involve blended families, according to the 2011 census.

Of course, that’s not all we’re bringing together. The survey found more than half (54 per cent) of those who’ve found new love and family also place a high priority on blending their finances. For most (71 per cent) the priority is on organizing daily finances. Others are looking for savings and budget efficiencies (60 per cent).

Navigating the money talk

For financial planners, this is the tricky part - finding the common ground in a new couple's financial relationship usually means wading into the delicate yin-and-yang balance that brought them together in the first place.

“Often there are different personalities at play, both in terms of how the relationship works, but also in terms of finances and who is going to make sure how the bills get paid,” said Cynthia Caskey, vice president and portfolio manager at TD Wealth Private Investment Advice.

Kimberly Moffit, a Toronto psychologist and relationship expert, believes it's vital for new couples to get the money issues out on the table as soon as possible if they want to avoid future problems.

Money is already a significant source of conflict in any relationship. For those tackling couple-dom for a second or even third time (bringing with us all the baggage from our past), the picture is even more complicated.

Moffit is a big fan of financial planning. She recommends scheduling a family meeting to talk about what it is important to the new family unit, and working together to find a complementary approach to more easily navigate through potentially troubled waters.

Conversations about money can be fraught with emotion, but Moffit urges us to clearly communicate all our expectations early on – whether it's about how frequently we expect to order take-out meals in a week, sending the kids to private school or putting extra funds towards a larger monthly mortgage payment.

“Be honest about those things so that you are not disappointed down the road,” she said.

The importance of planning for the future

In an interesting trend, Caskey noted second-time-around couples appear to be so absorbed in making their daily finances work, they may be missing out on long-term opportunities to save.

According to the TD survey, many respondents cited opening a joint bank account as a priority, but only a third (32 per cent) said maximizing their investments as a couple was a top concern. The latter statistic runs contrary to the frequent findings of other polls where retirement planning ranks among the top priorities (often, the very top).

To maximize efficiencies, Caskey suggests couples consider streamlining by making savings automatic with pre-authorized transfers into a tax free savings account (TFSA), registered retirement savings account (RRSP) or a child's registered education savings plan (RESP), or towards an extra mortgage or credit card payment. New couples may also want to consider income splitting as a means of keeping more of their hard-earned money in their pockets, or putting it towards investment.

Above all, said Caskey, couples need to work together to develop a common vision towards such things as investing for retirement, putting money aside for their children’s education, paying down debt and everyday spending. They also need to work together to ensure they create a safety net in the event that the new family unit encounters an unexpected life event such as a job loss.

“It is important to plan to success all the way along,” she said.