28 November 2012
March 10, 2002
By Graeme Addison
Even the most sharing, caring families tend to sink or swim without
the benefit of collective responsibility. Yet money matters are too
important to leave to the assumed goodwill and good sense of each
family member, and young people can only benefit from being involved
in financial decisions, writes Graeme Addison.
Carol is the wife of a senior lecturer at Rhodes University in
Grahamstown. She lives in a restored 1820 Settler home and assists
local charities with fund-raising and administration. All the signs
of good family management are there, from a well-stocked pantry to
the tastefully furnished lounge befitting the image of an academic
In the home office, three computers – one each for Carol, her husband
and their teenage daughter – reside on neatly kept desks, and
outside, the DSTV satellite dish draws international culture from the
But Carol has a dark secret – at least as far money goes. In her
locked wardrobe lies a shoebox. In the shoebox is a sheaf of about 25
brown envelopes containing cash, each envelope marked with the
budgetary item – food, clothing, school fees, petrol, doctor,
entertainment, repairs, disaster stand-by fund – on which money must
be spent that month.
At the beginning of every month Carol goes to the bank and withdraws
most of her husband’s salary in cash, leaving only enough in the
account to cover the monthly debits on the house bond, car payment
and insurance policies.
The reason is that husband Ron is a spendthrift – not an alcoholic,
not a gambler, he simply can’t keep money in his pocket or ATM card
long enough to spend it on worthwhile things. On any day of the week
he might go out and buy on impulse from upmarket shops. Expensive
coffee-table books, CDs, knick-knacks for the mantelpiece, car
accessories – you name it, Ron collects these things like a magpie
lining its nest.
Carol’s biggest fear is that Felicity, their daughter, will develop
the habit. She worries that Felicity might start a whole new cycle of
extravagance in any future family she might have.
The envelope system is a pretty crude one, Carol admits. It is her
equivalent of a box under the bed, but at least Ron has approved the
plan because, like an alcoholic, he realises he can’t control himself.
The system seems to be working. They are even saving a bit: Carol
keeps a personal savings account that Ron knows nothing about. There
is a lot wrong with the system, of course: the money does not
accumulate interest, it could be stolen, and even Carol goes on the
occasional spending binge, dipping into the envelopes for cash. But
it beats having no money at all.
Carol’s financial situation is an extreme – but real – example of how
secretive and stressful the financial systems of families can be.
Even when they are not this dysfunctional, many families have only a
vague idea of what they earn collectively, how and where they
disburse it, and why shortfalls occur.
Earning and spending come as naturally as living and breathing, but
don’t ask the average family member whether a budget exists for this
or that – they simply don’t know. Choices are generally made
haphazardly, without foresight.
In these circumstances, financial harmony in the home depends on luck
and the dynamics between personalities in the family. And that
creates enormous scope for friction.
The strategy all the experts – from financial advisers to
psychologists – recommend is holding regular family meetings at which
money issues, among others, are raised, and opinions and suggestions
invited from everyone. The principle is that if you look after the
little things in a practical way, when the big decisions must be
taken, or disaster looms, everyone will have had practice talking
about money. It’s then so much easier to reach sensible agreements.
“Regular meetings make a wonderful difference in many families,” Ken
and Elizabeth Mellor in their book The Happy Family (Busy
Parents Series: Finch Publishing, Sydney, 2001), say.
“Get everyone to have a say, no matter how simple that say may be.
Have a list of items prepared for each meeting. Children who are old
enough can take responsibility for preparing the list.”
South African psychologist Michele Carelse, who runs a website called
says that compulsive overspending can often be a symptom of some
other serious problem: depression, a marital problem or a low sense
“In such cases, a psychologist can help to uncover the underlying
causes and introduce more productive ways of coping,” she says.
She heartily agrees that everyone in the family should be involved in
short-, medium- and long-term planning, whatever their relationship
“In this way children are taught the value of money and the value of
foresight, as well as other useful skills like co-operation. If there
is any cutting back or belt-tightening to be done, the children will
understand why, and might even come up with some novel ideas to save
money!” Carelse says.
When I started asking questions about family finances, it became
apparent that South African financial advisers generally have little
expertise or insight into the psychology of money management within
This applies equally to banks, despite their experience of the trauma
and tragedy that results from financial setbacks in families, and to
investment advisers as a group.
Banks might render a professional service, but the focus tends to be
on individual choices, which by definition are private and may not
fit in with the demands of the whole family unit.
Neels Scholtz, the general manager of Absa’s personal financial
services in Gauteng, says bankers have not developed the sympathetic
bedside manner of doctors because they deal only in cold facts.
Banks are concerned about their own exposure to risk, and this
underpins the advice they give. They don’t aim to solve psychological
and relationship problems, but they certainly draw attention to the
risk factors that can provoke suffering and breakdowns in the family.
“Most families have not planned for their financial futures,” Chris
Busschau, the Standard Bank spokes-man, says.
“Even families who have an initial plan usually do not conduct
regular financial check-ups to ensure the plan is still in line with
He adds that people who change their jobs frequently often do not
settle down to proper planning.
Also, most breadwinners have not considered the possibility that they
may become disabled or fall into a debt trap from which only other
family members can rescue them.
People also fail to take into account the inevitable “passages” of
life from birth to death, which dictate how much money a family will
need, and roughly when it will be needed. Hospitalisation, education,
marriage, purchasing a home, retirement and funerals are often
predictable occurrences, and the family should save for them.
A failure to provide for these times of high cash outflow puts the
family, as a unit, at risk of bankruptcy, with all the shock and
long-term disturbance that brings with it.
“Money poses problems at both ends of the generation gap,” says Dr
Kathleen Gurney, an American psychologist who runs a website called
“The seeds of our individual money attitudes are planted in childhood
by our parents, by their example as well as their instruction.
“Lessons learned in childhood can help us grow up financially secure,
or dependent on someone else; sensible or irresponsible.
“For example, a child whose material whims are always indulged may
become accustomed to instant gratification and be unable to tolerate
money frustration when they have to wait and save up for something.
At the other end of the generation gap, we are often called upon to
help support aged parents.
“Many people respond in a manner motivated by long-standing
grievances, either real or imagined, conscious or unconscious. And
when it comes to questions of inheritance, the most intense family
and sibling conflicts may surface.”
Preparing for the passages of life is clearly an important part of
one’s financial education.
Johannesburg financial strategist Colin Grieve believes that
financial discipline and creativity are opposite sides of the same
coin. Children, he says, should learn the rules of finance, because
their first lessons in economics become lessons in life.
“I am always surprised by how logical and creative young children are
with any kind of problem. With older children, instil the discipline
of paying for current expenditure out of current income – and lead by
example! Discuss with them what to do in a financial crisis and
impart the message that if you’ve got a problem, only you can fix it.”
GET THE BASICS RIGHT
by Bruce Cameron
Most families find they go financially awry because they do not
follow the most basic principles of financial planning. The common
• They do not know where they are financially;
• They do not know how to budget;
• They do not have short-term and long-term financial goals;
• They do not have consistent savings plans;
• They do not know about investments;
• They lack the confidence or self-discipline to make decisions;
• They are afraid of making mistakes, and depend on others to take
care of things;
• They are never sure who to trust because they have done no
homework for themselves;
• They do not know how to get help;
• They are not realistic – they dream about what life could be
like, but do little to make the dream come true; and
• They procrastinate.
If, as a family, you want to get it right, you need a plan that is
“owned” by the entire family. The more inclusive it is, the more
likely it is to succeed. Here are four simple steps to get it right:
Step One: Understand where you are now
There are six key elements to your finances:
• How much you earn;
• How much you pay out;
• How much you are owed;
• How much you owe;
• How much you own; and
• Your financial goals.
The first five issues form the basics of sound financial control,
whether you’re an individual, a company or part of a family. They
make up what is called an income statement and a balance sheet.
An income statement tells you how much money you have coming in, and
how much money you have going out. A balance sheet tells you how much
you own and are owed – your assets – against how much you owe – your
You must strive to have a minimum of liabilities and a maximum of
assets. Having a balance sheet will help you avoid another
fundamental mistake – confusing high income with wealth. People
earning high salaries can be poor because they have high debt; while
some people earning a low income can be wealthy because they have
built up their assets.
The true measure of wealth is the extent to which the value of your
assets is greater than the value of your debts.
Your balance sheet will provide you with warning signals about your
• If you have more liabilities than assets you can be considered
bankrupt, and are at risk of being sequestrated – not a good thing;
• If your liabilities are equal to more than three quarters of
your assets, you are in trouble. The amount you pay in interest every
month will make it impossible to get ahead. This situation is known
as a debt trap. You will have to reduce your standard of living
substantially and cannot put off taking hard and difficult decisions
for another moment; and
• If you are building up debt to pay for your current living
expenses, you are getting yourself into trouble.
Step Two: Your needs and wants
Every family has needs and wants. A need is something you must have,
such as a vehicle to get you to work. A want is a desire that is not
necessary, such as a Ferrari instead of a VW Golf to get you to work.
The entire family needs to sit down to list both their needs and
their wants, and spend time debating what is a need and what is a
Step Three: Setting the family’s priorities
Very few families have the resources to meet all their needs, let
alone their wants. As a family you will need to sit down together and
Remember that what one person may see as a need may be considered by
another as a want, so some negotiation is necessary. In setting the
priorities you may also need professional financial advice.
Step Four: The family budget
A budget is not only a plan for how you will spend your money, it is
also a record of how you have spent your money. It is a list of your
income – what you earn or receive from any source, and what you spend.
The advantages of budgeting correctly include:
• It keeps you aware of where your money is going;
• It shows you where you went wrong in the past;
• It forces you to make considered choices. For example, the
decision to buy something should not be made in a shop, but within a
• It helps you to plan for the future; and
• It helps tell you whether your plans are realistic.
There are three fundamental rules to correct budgeting. These are:
• Keep your budget realistic. If there are to be any
exaggerations, then rather under-estimate your income and
over-estimate your spending. If you do the opposite you will get
yourself in trouble.
You should have two columns of figures. The first column is what you
have budgeted. The second column is what you actually spent. This
will help you to make adjustments to your budget and to establish
where you are going wrong. It then becomes far easier to identify
where you may be over-spending; and
• Income must always exceed spending. If you are budgeting
correctly your income will always exceed your spending. If not, you
are digging yourself into a debt trap which will strangle any chance
you might have of becoming wealthy.
Always work on having a surplus of income over spending. Do not
budget to spend every cent you have. Leave a margin, if you possibly
can, of about five percent. A good idea is to only budget for
luxuries, such as a night on the town, out of any surplus of the
previous month. It gives you a reward for getting it right;
• Get the priorities right. Start by understanding the difference
between a need and a want. The repayment of debt should be the first
item on any family’s budget.
The second priority is saving. You must see savings as part of
spending, but the good thing about savings is that it is spending on
yourself and your future security. However, you should not be putting
an inordinate amount of money into one area at the cost of another –
this will only make realistic budgeting more difficult.
You must accept that you will not always get it right, and that the
unexpected will happen. However, there are ways to deal with the
unexpected so that you do not blow your budget to smithereens. The
best way is to build up an emergency fund.
Make sure that all family members agree on a definition of
“emergency”. This fund is for when your car breaks down, or to use if
you suddenly lose your job – not for the impulsive purchase of
FAMILY FINANCE QUIZ
Do this quiz at your next – or first – family finances meeting. Treat
your family as a single entity and come to a consensus about each
question. You’ll be negotiating and debating – perhaps on money
matters for the first time – and as you go along you’ll expose
weaknesses and learn what needs to change. Mark each question using
the following scoring system:
5 = Agree strongly
4 = Agree partly
3 = Not sure
2 = Disagree partly
1 = Disagree strongly
Add up your total and multiply it by two to arrive at a percentage.
This represents your family’s score out of a possible 100.
1. Each family member feels happy with the way the family’s finances
are being managed.
2. I trust my family to be sensible about money matters and could
safely leave things to them.
3. Meetings to discuss family finances occur regularly and are an
accepted part of our household routine.
4. Discussions about money occur in a calm and reasoned atmosphere
where issues can be resolved.
5. Family members with an income feel comfortable sharing details of
their earnings and expenditure.
6. Someone in the family is tasked to keep financial records, analyse
them and report back to everyone.
7. We recognise different priorities in family spending, from
necessities to luxuries, and budget for them.
8. We have a disasters and contingencies fund, separate from our
insurance, for unforeseen expenses.
9. I know what my financial flaws are and try hard to avoid making mistakes.
10. When considering financial matters I think of the whole family
and not just of myself.
The results … and what they mean
Your score Rating The prognosis
0-19 Dismal Oops! There’s serious trouble on the
financial horizon, if not trouble already. You need counselling,
20-39 Failing This family is very unwell on the
household money meter, but could get better with honesty, arithmetic
40-49 Just passing There’s a lot wrong, but some
things are right in the way your family handles money. Analyse what’s
wrong and put it right.
50-59 Fair A dodgy business, but trying hard.
60-79 Good… but Correct money management is a
feature of your daily life but you are slipping here and there.
Identify weak points.
80-100 Excellent Marvellous. If every family were
like yours, banks and jails would be out of business. Now educate
extended family and friends.
This article was first published in the Fourth Quarter 2001 edition of Personal Finance magazine