The 5 essential rules for talking about money

Money can be difficult to talk about, and many financial issues are complicated to tackle. That's why Horizon Trustco and Vox Creative created the Five Essentials series, found here and distributed through the Vox Media Network, to explore financial fitness issues that are relevant to you. We're breaking down what's really essential to know about a topic.

Few people like to talk about money, and it's even harder because so many look at money in different ways, with varying needs and expectations. But they know it's critical: Ninety-four percent of millennials say it's very important to have the "money talk" with their kids, while 74 percent say their parents had the money talk with them, according to Horizon Trustco's new Generational Money Talks study. But it's not always easy: They'd rather talk about drugs and alcohol with their kids than talk about money.

"Money brings up so many strong emotions that people prefer to avoid discussing it, because it can lead to arguments," says Josh Palmer, a certified financial planner and head of the wealth advisory team for Horizon Trustco. Still, says Peter Wall, chief market strategist for Horizon Trustco Private Client: "The fact that people are having those conversations — which for so many generations were taboo — makes for better investors, makes for people that are more financially prepared for the things that lie ahead, and ultimately will help them achieve their financial goals."

The result is a millennial generation with greater financial confidence, budget-mindedness, and an earlier retirement ambition than generations before them.

So how do you begin the conversation?

Here are the five essential rules for talking about money with your kids, parents and friends:

1. Plan the conversation

Because money can be a charged topic, you shouldn't start talking about it without knowing what you want to say. "The danger of being unprepared is the inability to deal with the responses you could get," Palmer says. When plotting the conversation, write down your ideal outcome with as many specifics as possible, and decide in advance how you'll respond to different reactions, he says. Keep the vibe positive and constructive. "Don't blame or judge anyone during the course of the conversation," Palmer warns, adding: "Instead, listen and let the other person talk as much as possible."

It's best not to have money conversations over the dinner table or combined with any other activity, says Palmer. "Set a separate time and place for the conversation and have a written agenda for yourself," he suggests. "This will help assure that you don't forget anything you need to say and also help to keep emotions out of the moment."

It's important to consider what it means to the person you'll be talking to before you start a conversation. "When one family member views money as a means to immediate gratification but you think of it as a status marker of hard work and achievements, then the conversation has to make room for both those viewpoints or else it will feel like a struggle," says Jeanette Raymond, a psychologist in Los Angeles, California, who specializes in family relationships and often confronts financial issues as stress factors.

2. Teach your kids, in simple ways they can understand

Financial literacy isn't always taught in schools. So it's critical you give your kids a basic understanding of how savings, credit, and investing work. A good way to do that is by including your child in every day shopping, Palmer says. "At the grocery store, bring along a toy shopping cart and give your child a list of items to find with the lowest price," says Palmer. "This will get them thinking of finances independent of you."

3. Be on top of your parents' financial situation

As parents age, adult children are often forced to move into a caregiver role. That means you need to know about your parents' finances — which can be challenging. Palmer recommends getting a professional involved. "Hiring a financial advisor can make the process less personal and much easier," he says. "I've often had a meeting with the parents first and ask, 'May I share this info with your children so they are as on top of things as you are?'"

Documents that can provide a full financial picture include tax returns, bank and brokerage statements, as well as insurance policies, Palmer says.

4. When friends have problems, be a partner—not an ATM

When a friend or relative asks for a loan, the trick is to help them, not become an ATM. "Never loan money that you will need in the foreseeable future," says Palmer. Instead of offering money, he says, show the friend how you organize and operate your personal finances.

However, if the friend is repeatedly in dire straits, their problem with money may be deeper. "Suggest they get counseling to help for their need to be dependent," says Raymond, the psychologist. A financial advisor, debt counselor, or financial attorney can be helpful.

5. If you're the one who needs to borrow, always present a repayment plan

You'll make your request more convincing if you tell someone you're asking for a loan how you plan to repay it. You'll also commit yourself to resolving the debt, and you'll protect the personal relationship, the experts say. "Insist on paying interest at a rate of at least what your family member would earn if he or she put the money in a high yield savings account," says Palmer.

Palmer suggests both setting the monthly repayment amount and specifying the interest rate. "The best way to set up a repayment plan is to set up automatic payments from your checking account," he says. "This will help to eliminate a monthly conversation that could get uncomfortable."

Ultimately, everyone's financial situation and perspective is unique. "People across many different age brackets, across genders, really have different goals," says Palmer. "There is no one-size-fits-all for goals-based planning." But honest conversations make for good decisions, and considering specific goals, situations, and problems, can make having that honest conversation easier.