Building Financial Resilience: Lessons From Disruption
As this year has dragged on, a few words have become synonymous with 2020. From shutdowns and social distancing to outbreaks and hotspots—the overarching theme has been one of isolation and alienation. In order to move from fear to optimism, I would suggest we need to add resilience to our 2020 vocabulary. Broadly speaking, resilience is the ability to adapt well in the face of adversity, trauma, tragedy or stress. One area of much-needed resilience is in our finances, where growing and maintaining wealth depends on a family’s ability to anticipate risks, respond quickly to change and work as a team to craft a roadmap that plans for the unexpected.
We cannot control all of the external circumstances which are impacting us. But we can take steps, such as embracing open communication in our dialogue, to build the family’s resilience. Unfortunately, uncertainty is likely to be with us for the foreseeable future; but how we respond and adapt to that reality is within our control when we openly address our financial vulnerabilities and take steps to minimize them.
Understandably, it is easier to discuss our opportunities and wins rather than potential setbacks. Given that, I have detailed below a few strategies that can help your family approach wealth and money management with resilience as your cornerstone.
Identify Your ‘Weak Spots’ and Shore Them Up
In times like these, I often wonder how some topics can still be considered taboo. Many families are having frank discussions about current events and how these affect different facets of their lives. Money should also be part of the dialogue. With the disruption everyone has experienced, it’s time to rethink our “preparedness” and ask: Do we have any hidden financial vulnerabilities? Even if we have not faced significant economic stress, what could go wrong in the future? As a family, use your financial EQ to assess any anxieties family members might be feeling and discuss how family members can support each other.
How can you implement this during your next family conference call? Have an unfiltered conversation about where you may have financial blind spots. Beforehand, designate each family member as an “expert” for a specific topic that may affect the family’s finances. This may be the pandemic, unexpected changes in someone’s employment or education, challenges for the family business, stock market swings, personal health concerns, racial justice, natural disasters and more. Have each “expert” present their findings, and as a family, discuss whether these affect any family members and how your financial plans can address them. Not only will this allow you to explore vulnerabilities, it will also build each member’s skills and confidence in tackling financial challenges together.
In my book, The Business of Family, I write about the difficulties families have in thinking about potential threats and failures—it’s more natural and exciting to envision a positive future. But, just as major corporations have experienced, unexpected crises can occur that dramatically alter finances and futures. Just as businesses invest in risk management strategies, a family must have an emergency plan ready to deploy that not only addresses the immediate concern but recognizes potential future challenges.
Find Opportunities for Resilience
Following an honest evaluation of your current financial situation, it’s the job of any family to understand how to address changing circumstances. Take the learnings from the previous exercise and examine your existing plans with this new resilience mindset. Is your health insurance adequate to address potential health concerns? Does your personal security plan take into account increasing risk of cyber-attacks and online fraud? Given volatile climate patterns, do you need to rethink your disaster coverage? Do you have adequate funds available to address unexpected short-term financial needs? Are you comfortable with your investment strategy, and are family members as knowledgeable about how family assets are managed as they should be? Does a changing economy or reassessment of family values offer a new lens in which to view future investment opportunities?
A truly resilient family is one that manages its financial situation with a consistent awareness of both potential risks and rewards of the changing environment around them. Each family member should do a scan of their individual circumstances periodically and ask themselves—what is different in my life, and should I adjust my plan? These conversations should not only be left to the parents but should also include ideas from everyone in the family. From there, seek an outside perspective. Many of us have been with the same financial planners and wealth managers for years because we trust them and are comfortable with them. When was the last time you had your financial advisors meet with the whole family? Have a candid discussion that engages both knowledge and emotion—the family’s financial IQ and financial EQ—and pay attention to any flags raised. This is not an exercise focused only on your challenges; it will help bridge your financial gaps and foster a shift in your mindset allowing you to spot opportunities where your finances can be fortified, securing your wealth against future shocks.
Take Action as a Family
After flagging any potential weaknesses as a family, next it’s important to recognize the difference between problems that can be controlled and those that cannot be prevented. Preventable risks are those that arise from within and fall into the “we should know better” category. An awareness of this distinction allows us to react promptly to limit the damage. For each “pain point,” designate a family member to hold the rest of the team accountable. Here are some examples of ways families can take action against different issues, including:
- If your family is vulnerable around a health issue, designate medical advocates who can help navigate the health care system, or ensure that any known or probable health conditions that may damage the family’s financial circumstances are factored into financial planning.
- Digital security and privacy may be a vulnerability for some of us. Assign family members to set guidelines about what private information may be shared with others, especially online. Have members sign an agreement and hold themselves accountable to the new measures. Revisit these guidelines annually and make changes to reflect the times we live in.
- Conduct a review of all existing insurance policies with professionals to determine the type and amounts of insurance coverage that is prudent given your circumstances.
- Make financial education a part of your ongoing “wellness” plan as a family. Tap financial mentors within the family who can be resources to help interpret the ever-evolving economic environment around us. Where should new investments be made?
Building generational wealth requires that we always think about the next step, the next door we open and the next road we choose. Sound financial planning has been critical for many families’ successes, but without deeper insight, it will not safeguard against the constantly changing environment in which we find ourselves. Use these tools to harness the know-how and skills of each member of your family; doing so will help ensure that your business, wealth and relationships grow more resilient.