Column: Why protecting the family finances means putting Mom in charge
Editor’s Note: Below is an adapted excerpt from the book, “Smart Mom, Rich Mom: How to Build Wealth While Raising a Family” by Kimberly Palmer.
There’s a simple reason why moms need to be the ones to take charge of the household finances: The chances are high that at some point we are going to be calling the shots on our own.
Women are far more likely than men to outlive their spouse by a factor of four to one, and just over four in 10 marriages end in divorce by age 46, according to the Bureau of Labor Statistics. Indeed, Fidelity estimates that at some point in their lives, 90 percent of women will be handling their finances on their own, usually as a result of death or divorce.
In her 2015 memoir, “Leaving Before the Rains Come,” Alexandra Fuller writes poignantly about being forced to quickly learn how to manage investments after her divorce. “I didn’t have a credit card in my own name; there was nothing under my own Social Security number,” she writes. She started attending financial literacy classes and took out a credit card in her own name for the first time.
We need to be prepared for those kinds of jolts in our own lives. Our kids are depending on us to create financial stability for them. Just as we protect our kids’ health by taking them for routine pediatrician visits, we should also give ourselves basic financial check-ups: Would we be able to manage our money solo if we suddenly had to? Could we still afford our mortgage and other basic costs if our partner’s income suddenly disappeared? Do we have the estate-planning documents and insurance policies in place that would help us transition into life as a single mom if we had to?
Smart moms are not in denial about the almost certainty that we will be managing our money on our own one day for one reason or another. Most of the smart moms I interviewed manage their finances throughout all stages of their relationships so that when they have to do so on their own, it is not a shock. They know which folders and documents to turn to in case of a health emergency, they use financial tools like life insurance and disability insurance to guard against life’s unexpected events, and they see their potential futures with open eyes. They protect their finances like mama bears defending their cubs, because they know doing so means protecting the security of their families.
Feeling a sense of mastery over your finances and preparing to handle unexpected events starts with getting household paperwork in order. The task is quite challenging, especially when you have small children that seem to rack up as many government-issued documents in their first few years of life as you have accumulated over your own decades-long one. But taking the time to create your system makes it easy for both parents to easily step into managing the health insurance, investments, savings and other household accounts when necessary.
These guidelines for setting up a household planning system can be adapted to fit your own circumstances:
- Select one location for the family’s most valuable documents, including birth and marriage certificates, identification cards, records of assets (including homes and cars) and Social Security cards. These documents are important, because they’re often needed when filing for reimbursements or opening new accounts, like a 529 college savings account.
- Find a secure place to store all financial accounts, including any debt like a mortgage, investments, college savings, estate-planning documents, life insurance and other assets. This way, you can review them regularly and make any necessary updates or changes. Keep at least one copy of your account details along with any contact information.
- Create a file for work-related benefits accounts, including flex-spending accounts and the related receipts, so you can easily file them each year before the deadline.
- Create a file for the current year’s tax receipts or have a method for storing them digitally (apps like Shoeboxed can help with online storage).
Make sure a partner or trusted person has at least a general knowledge of where to find these files in case you are unavailable when they are needed. Even moms get the flu, break legs or face a number of other life events that keep them out of the game long enough to have to let someone else temporarily take over. Financial systems should get a regular review at least once a year to pare back older papers and shred the ones that contain personal information but are no longer needed.
While most of us could get by using a jerry-rigged system of shoeboxes and piles of paper, a system that doesn’t make sense to anyone but you could make it very difficult for someone, even a husband, to take over in your absence, whether you’re on a work trip or in the hospital. And having a system that’s practically worthy of a Container Store photo shoot makes running the household easier and more enjoyable for you in the meantime, too. It can also save you cash: It’s much easier to negotiate with your cable company or ask for a refund on a misprocessed health insurance claim if you have the paper trail to help you make your case.
Another major benefit to investing in this level of organization is that it makes it easy to explain what you’re doing to your children. After showing my six-year-old daughter how I paid the utility bills each month, she started making suggestions for how we could use less water. Those kind of financial conversations with our children can help break the stubborn cycle of the gender gap when it comes to finances. As early as their twenties, young women are earning less, saving less and investing less than their male peers. As moms, we have the power to start talking to our daughters about money early and get them on a more empowered path to financial success.