How should you talk about money with your friends?

Taking a collaborative approach

Our finances are like most challenges we face in life. It can make a real difference when we listen to alternative points of view so we’re not going it alone. If we think about money in the same way we do about our health and fitness, our careers and even our holiday destinations, conversations offering guidance and insight have the potential to influence our decisions and financial situations in some way.

So how should we start talking about money, particularly if sharing personal information doesn’t feel all that comfortable? Getting started is nearly always the hardest part. Here’s a few things to think about that might help.

1.       Be patient

It might sound obvious, but approaching financial conversations with patience is key. Most of us will have different levels of comfort when it comes to discussing money – it’s important to respect the fact that our friends might be willing to share less information, if any at all. But it’s worth sticking with it: They could be relieved that it’s something you want to talk about. They might have questions or even worries you can help them with and vice versa. Like anything, getting good at personal finances and even the conversations around it, takes practice.

2.       Stay open-minded

January to February is often considered to be ‘ISA season’ in the industry, because this is when the majority of investors think about doing something with their tax-efficient ISA allowance before it’s gone for good. If you’re someone who’s normally moving money about at 10 minutes to midnight before the ISA deadline, you’ll probably know someone who does the opposite, or someone who drip-feeds smaller amounts into their savings regularly throughout the year. Talking about how and why they invest might help.

Speaking with friends might help you become more disciplined with your own savings in the future and get you into better and even less stressful habits. For example, they might be able to tell you about the power of compounding on your investments, which can make a difference when you invest earlier rather than later in the tax year. Or how investing little and often rather than a one-off amount helps to even out the ups and downs of their investment, averaging out the price paid over the tax year.

If you have a Child Trust Fund (CTF) languishing somewhere, hearing about the potential merits of transferring into a stocks and shares Junior ISA, from someone who has already done the same, could be worth considering to help give your child’s savings a new lease of life.

Asking them why they invest the way they do could also help. Your friends may already have a plan in place to help finance a child’s time at university, or enable them and their other half to retire early. It might be something you’ve not really considered or had written off as not being ‘for you’. Being open to hearing about different ways of doing things is key.

The takeaway here is about being open to thinking differently about how you save for the future, what you invest in, and why. Could you take a different approach that might offer greater potential for long-term growth or better value for money?

But please remember the value of your investment can go down as well as up so you might not get back the amount you put in.

3.       There’s no harm in asking

While your friends may not be the font of all knowledge when it comes to pensions or investments, if you don’t understand something, why not ask? The friend who’s confident they’ll retire at 50 – why not ask them how they’re planning on doing it? If you’ve no idea what a SIPP (Self-Invested Personal Pension) is or why you might want one, why not ask them that too?

If you are not 100% sure about the potential merits of cash or stocks and shares ISAs, the chances are one of your friends might have strong opinions about it. Hearing the real-life context of someone’s financial decisions in an informal and engaging way can help to bring it to life, which could ultimately help you with your own financial planning.

4.       Where are your friends investing?

With so many different financial providers out there, it can be hard to keep up with the new products, investment approaches, cashback offers and digital functionality on offer. Whether you’re thinking of trying out a new-to-market online provider, or thinking about choosing a company with a proven track record, speaking to friends could help. After all, first-hand experience can sometimes offer a new perspective.

It’s always worth a conversation to see if they’re aware of any introductory offers from providers too. It’s not uncommon to be rewarded in some way for being a referred customer or doing the referring yourself. As long as the savings options you choose are a good fit, of course. The point is, if you don’t have the conversation, you might miss out.

5.       Consideration before commitment

Conversations with friends can often bring new ideas and approaches to your personal finances. They can help you understand your own situation better, help get you and your family into good habits and feel more secure about your financial futures. Or they might simply help to validate what you’re already doing.

But it’s important to remember that what’s good for one person and their situation might not be right for another. For example, some friends might be overstretching themselves when it comes to putting money away, leaving them struggling to access cash to meet their day-to-day financial demands.

Others might be comfortable taking more risk with their savings than you might be. And of course, others might just be happy keeping their money in a bank or building society for a rainy day.

If you’re in any doubt whether an investment, savings plan, ISA or a pension is right for you, a financial adviser can help. If you don’t already have one you can find one on our website.

Please bear in mind that M&G Investments are unable to give financial advice. The views expressed here should not be taken as a recommendation, advice or forecast.