Financial Taboos: What they are and how to deal with them
Within the category of personal finances, there is an acceptable amount of widely disseminated advice and information available to people. But there still remains a few topics that most people may feel uneasy asking others about. I call these financial taboos. My absolute favorite column to read in this regard is The Moneyist. Running through the Moneyist you will see articles rife with taboo topics, usually surrounding marriage.
Financial Taboos: #1 Spousal Finances
Should you combine your finances with your significant other after you have made the leap? If you’re like me, your parents probably wouldn’t have entertained the idea of keeping the finances separate in marriage. But I don’t think this has to be the case. My wife and I, for example, have been happily married for nearly 6 years without ever having combined finances. She has her checking and savings accounts and I have mine. She has her retirement accounts and I have mine. It’s not as strange as you might imagine and in fact, I think a growing population of people is doing the same thing.
When it comes to bills, she has her assigned bills and I have my assigned bills. Over the years we’ve slowly given and taken responsibility for regularly occurring bills from each other until we settled into an equilibrium of sorts. This process has worked very well for us and one observation I’ve made that may differ in mixed-finance relationships is that we almost never have arguments about money. Her money is her money and my money is my money. Of course, sometimes there are situations where one of us has to jump in and provide a few extra bucks to the other, but it has never been a big deal. For the most part, it works really well for us. But be careful! This arrangement cannot be made unilaterally. You both must come to an agreement.
Financial Taboos: #2 Drug Use
Another example is recreational drug use and life insurance coverage. Life insurance is unlike health insurance in many important ways. One of those ways is the ability of life insurers to medically underwrite their customers. Basically this means a life insurance company can evaluate their customers based on their health and medical history and charge them accordingly (unlike health insurance in the wake of the Affordable Care Act which outlawed such practices).
In many states, it’s perfectly legal for adults to consume cannabis in the privacy of their own homes. In other states (looking at you, Indiana), it’s not at all legal and yet people consume cannabis anyway. How might this practice affect their ability to qualify for life insurance?
You might be tempted when applying for life insurance to omit the fact that your consume any substances that might harm your chances or increase the rates you pay on your premiums or even get you in trouble with the law. But I think this would be a mistake for a couple of reasons. First of all, many life insurers will test the blood and urine of their applicants. If you are found to have misled the insurer on your application, it certainly will not impact your rates favorably. Indeed, the insurer may just decide you are too high risk to own one of their policies. Secondly and perhaps more importantly, you could be putting the legitimacy of your policy into jeopardy.
All life insurers abide by something known as an Incontestability Clause. An incontestability clause usually includes something like this; the insurer retains the right to void any claim on a policy in which the applicant materially misrepresented important information. This clause typically lasts for the first two years of the policy meaning, in the event that of your death, you could be leaving your family hanging out to dry because you misled your insurer about your cannabis use.
The effect this would have on your loved ones would surely be devastating. Do yourself a favor and don’t lie about it. You’re not going to get in trouble, even if it’s not legal in your state.
Indeed, many life insurers typically won’t decline coverage for something like cannabis. Depending on your health and frequency of usage, they may place you in a slightly higher “risk pool” (i.e. you may pay a little bit extra), but to me, this is a small price to pay if your goal is to make sure your family is covered in the event that something happens to you.
Financial Taboos: #3 The Close Moocher
One final example to consider: Covering close friends and family that are in a bind.
This can be an extraordinarily tricky subject with which to grapple. Some versions of the problem are easier to tackle than others e.g. should you loan your broke brother money to help him sell his underwater car he couldn’t afford in the first place. If you’re like me this question will be a pretty easy “No.”
Other versions of the problem might be a little more complicated. Consider whether you should help your child pay for college, when you yourself may still have made little headway towards financing your own retirement. Or what about your aging parents that you may or may not have to support in a long-term care facility? How do you even begin to go about making decisions that have a very real impact on the quality of life of your loved ones? Especially when their situation may be due to sheer circumstance and not due to any perceived behavioral shortcomings?
You may be saddened to know that I don’t have a magic answer to any of these questions. But I do think there are some important things you should consider. First of all, I think your best resource will be other people who have dealt with similarly difficult financial taboos. You may or may not know any such people first hand, but thankfully there is a whole world of such people. Read advice columns like The Moneyist, talk to your significant other, parents, siblings, etc. You’re definitely not the first person to entertain such scenarios.
People who have already had to make these decisions will be able to show you their thought process, their decision, and how they handled life after their decision. It may be tempting to close up and not even acknowledge difficult situations like this, as they may be very emotionally painful to think about, but I think you’d be doing yourself a disservice by not communicating with others who may be able to help you in such a situation.
So there you have it! Three financial taboos and how to approach them. The overarching theme throughout each of these topics is communication. You need to communicate with your partner about your finances, you need to truthfully communicate with your insurer about your vices, and you need to communicate with those in a position of understanding about awkard familial situations. Reach out to me if you feel like there’s a financially taboo topic you would like help with!
Erik Goodge is the President of uVest Advisory Group. He holds a B.S. in Economics and Cognitive Science from the The University of Evansville. Erik is a Marine Corps veteran of the Afghanistan campaign and Purple Heart recipient. He is from Evansville, Indiana and currently lives in near-by Newburgh with his wife and daughter.