I’ve mentioned before that I have worry-wart tendencies; and in line with that is a serious love for communication. Seriously, I LOVE communicating…to the point where I’m more often than not over-communicating and realizing later that it isn’t always necessary to do so. On the flip side, communication fails irritate me to no end.
So you could say this topic is somewhat important to me. And that made me curious about the link between communication and personal finance. Could it be possible that not communicating might actually be detrimental to your finances? Or, conversely, that communicating effectively can be beneficial to your finances? Let’s find out!
The Benefits of Communicating About Your Finances
First of all, it’s worth mentioning that talking about our finances is far from easy. For years public money talk was taboo and that’s just now starting to change. So if the idea of communicating about your finances makes you queasy, you’re not alone.
However, there are great benefits to communicating about your finances – both with your family and with your loved ones and peers. Here are just a few:
As much as we try to keep up with the Joneses, the Joneses likely have money worries too. Your peers can empathize with you.
It takes a village…to reach financial prosperity. Talking about your individual experiences broadens everyone’s knowledge.
When talking to finance professionals, it’s important to help them see your goals so you can make the right planning choices.
Families need to be aligned on money goals. Solid communication helps everyone understand the why behind financial decisions.
You have the power to help others. Sharing accountability keeps you and your peers stay motivated – and you can celebrate together!
Not convinced? I searched for data supporting the power of communication and encountered some interesting results…
A Business Performance Study’s Link to the Power of Communication
An initial search for data supporting the link between communication and financial prosperity didn’t result in much. But one study I found showed some interesting parallels to communication and financial performance: how communication can impact employee performance within a company.
In 2009, global professional services company Towers Watson published a report called, “Capitalizing on Effective Communication”. Based on the way companies communicate and how that impacts their employees, this study discovered that communication does in fact drive performance:
“Companies that communicate with courage, innovation and discipline, especially during times of economic challenge and change, are more effective at engaging employees and achieving desired business results. Our research has consistently found the firms that communicate effectively with employees are also the best financial performers.”
This opener to the report immediately caught my eye. If a company can prosper by simply communicating more with its employees and facing difficulties head on, could the same thing happen with a personal finance? It sure seemed to produce some powerful results for companies:
“Effective employee communication is a leading indicator of financial performance and a driver of employee engagement. Companies that are highly effective communicators had 47 percent higher total returns to shareholders over the last five years compared with firms that are the least effective communicators.”
So what is it about communication that leads to such high returns in performance? The one common denominator in the study seemed to be consistent engagement, even in the midst of challenging circumstances:
“In challenging times, companies are forced to make tough decisions and deliver difficult messages. But our study found that high-performing companies don’t shy away from tough messages. They make communication a priority and use every tool available to reach out to a workforce in desperate need of information and direction.”
Think about your family finances. When you were growing up, did your parents tell you when they were having financial problems? Or did they hush the conversation when you walked into the room? Keeping financial problems under cover never helps because even a child can feel the financial tension when it arises. The same goes for a struggling company. Facing the issue head on empowers those involved – while sweeping it under the rug fills everyone with doubt.
So how did the companies in the study use communication to engage and drive these positive results? It all came down to implementing courage, innovation, and discipline into their plan.
It’s never easy to admit when things are getting tough – whether you’re a company having a tough quarter or a couple struggling to come together on your finances. But having the courage to admit the difficulties allows you to deal with them together.
Imagine a couple that includes a spender and a saver. The spender could come home with a new purchase, driving the saver to frustration. Or the saver could stop the spender from making the purchase, leaving the saver to feel deprived and maybe even judged. What happens if they sulk on their own?
Nothing. No problems can be solved from slinking away. Rather, having the courage to express your point of view and work on the problem together will allow the couple to become engaged with each other rather than focusing on their bad feelings. And this can lead to finding an actual balanced solution to the problem.
Another aspect of courage discussed in this report is the need to create the change you want to make now – not to wait and focus on planning for later. Leaders (such as parents) need to reinforce the change every day and all participants need to create the lifestyles they want now. It’s so easy to say we’re going to change tomorrow – but often tomorrow we’ll make the same choices as today and yesterday. Courage includes the ability to live the philosophy you want starting now.
Innovation: “the act or process of introducing new ideas, devices, or methods” — Merriam Webster Dictionary
All companies who want to prosper need to innovate – but that innovation needs to involve both the big picture and present day desires. A company can make this happen by communicating these long and short term goals so everyone knows to keep in mind present needs while working towards the big picture.
The same goes with families. If your child wants to buy a new video game with their allowance, it’s probably going to be pretty difficult to convince them to save their money instead. But if you show them that they can get what they want now (to play video games) but in an even better form (say, a new gaming system) by saving longer, suddenly the big picture might be more attractive. They still have their present needs in mind and may even find other ways to get them (play that game with a friend who already has it), but their focus may shift to the bigger and better long term goal.
We could all use this shift in our financial philosophy. Deciding between more money today or putting that money in a retirement fund, or paying off debt faster even though the current budget will be tight to do so isn’t easy. The present day needs will seem unmet. But thinking about the big picture (knowing you’re covered financially when you retire, reaching financial freedom sooner) will help you meet your present day desires with your future goals. Innovation (changing our financial philosophies) isn’t easy – but it is often necessary for a brighter future.
Growing up, the word “discipline” made the hairs on my arms bristle. My parents were all about discipline – in other words, they were pretty strict. I’m grateful for it now, but it wasn’t always easy to maintain that discipline as a child.
For companies though, discipline means a lot more than being on your best behavior. It means creating a strategy to reach your goals and making sure you measure progress every step of the way. As mentioned in the report, “what gets measured gets done, acknowledged, and rewarded”.
That’s the discipline necessary in your finances. Your spender spouse may not be able to change their ways by simply knowing that they should. Rather, communication – sitting down and forming a strategy to reach balance in your financial goals – is the discipline that will make a difference. The measurement comes in when you check the budget together to make sure you’re both on track and keeping up monthly meetings to discuss the strategy moving forward. This allows both parties to create an empowering plan of action, be engaged in the plan, and be accountable to the plan.
Coming together financially isn’t easy. In fact, even admitting our financial needs to ourselves can be hard. But this study of companies who communicate well highlights how important this communication is – whether it be with you and your partner, you and your children, or you with yourself!
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How to Communicate Effectively
We can’t talk this much about communication without addressing how to communicate effectively. For some, this is the hardest part! I scoured the web to find the best communication tools out there – and combined great tips from Mind Tools, Psychology Today, and Psych Central:
- Be clear and concise.
- When the other party is speaking, listen carefully and give him/her encouraging nonverbal signals.
- Be direct and honest, but also be courteous.
- Try to minimize emotion when speaking and communicate in concrete terms.
- But also don’t be afraid to cede an argument – focusing on being “right” will help no one.
- Ask for clarification if you’re not sure you understood something correctly. In fact, you can even verbalize back a summary of what you heard to be sure.
- Pay attention to the other party’s nonverbal signals.
- Don’t focus on what you want to say next – it will make you stop listening.
- Stay focused on the moment. And don’t be afraid to bring some lightness to a heated topic (while still respecting the other party’s words and emotional state).
- Encourage feedback so you too can know that your message was correctly received.
Most importantly, remember that communication is more of an art than a science. Your communication style should adapt to who you’re speaking with. The type of financial discussion you can have with your partner will vary quite a bit from the financial discussion you can have with your child. The same goes with a parent or a peer.
Be respectful of boundaries, be understanding of the other party’s level of knowledge, and always be open and honest. You might just find that opening up the lines of communication not only helps you find ways to optimize your financial situation – but it could make your family feel happier that you broached the topic and give you and your peers more things to connect on and help each other with!