Nuclear Family Financial Models

Nuclear Family Financial Models,
Extended Family Realities

Look at this picture of the silver-haired couple. It is a stock photo, one that could be used as the advertising background for any number of products or services. But since this is a newsletter about personal financial issues, what topic is most likely associated with this image?

Can you say “Retirement Planning”?

You should, because that’s the tagline that appears with this photo on the homepage for a prominent financial services company. And since a picture is worth a thousand words, there’s a lot more being said in this image than just those two words. For instance, it would be easy to imagine:

The couple is married. While they are obviously older, they are healthy, attractive, well-dressed and self-confident. They are moderately wealthy, have led successful, happy lives and are optimistic about their future together.

With a bit more imagination, it would also be logical to assume:

The couple’s two or three children are independent, successful adults who have careers and families of their own, and wonderful grandchildren that love to come and visit. With family, career and financial objectives completed, this wise, contented couple is now ready to plan a rewarding and relaxing retirement.

In summation, the unspoken message this photo presents is the picture-perfect financial conclusion for the ideal nuclear family. It’s the last snapshot in a social motif that advertisers have been selling since the 1940s. The image sequence begins with boy meets girl. Soon after, the photos show they are working, getting married, having kids, and buying a house (the order may vary). Then, for the next two decades, there’s a montage of raising children, establishing a career, and accumulating a nest egg. Finally, the sequence comes full circle, as the silver-haired boy and girl live happily ever after. It’s the American Dream.

There’s a lot to like about this idealized version of nuclear family life in the United States. Who wouldn’t want to look and feel good after 60, have well-adjusted independent  adult children, adorable grandchildren, and finish with both the money and companionship to enjoy a relaxed and rewarding retirement? That’s not a bad life at all.

In the financial services field, it’s no surprise that a lot of the marketing is designed to resonate with these nuclear family themes. Life insurance is often associated with protecting your nuclear family. College funding plans tap into the parental desire to help your children become successful nuclear family units of their own. Long-term care insurance is there so your nuclear family unit will not be a burden to other family units, particularly your children. And most retirement planning occurs within a nuclear family paradigm; the computer models and portfolio analyses are focused on guaranteeing you and your spouse have enough to live on for the rest of your lives.

But ironically, when advertisers in the financial services field focus their marketing efforts on nuclear family success, they may be making it harder to achieve it – and overlooking some great opportunities.

The Nuclear Family is an Anomaly in History

The concept of the nuclear family unit – broadly defined as “a household consisting of a father, a mother and their children” – didn’t exist before the 20th century. (The Merriam-Webster dictionary first listed the term in 1947.) Nuclear families have certainly existed, but in the past, they were typically identified as components of extended families. One’s true family unit included parents, siblings, grandparents, grandchildren, and other close relations.

To a great extent, the well-being and obligations of any nuclear family units were intimately connected to the well-being and obligations of the extended family. The extended family owned property, provided a structure for transferring wealth to successive generations, and offered protection and support. In fact, prior to the Industrial Revolution, it was almost impossible for nuclear family units to be financially viable – a single family couldn’t own enough property or provide enough labor or protection to function independently.

In Western societies, the Industrial Revolution freed nuclear family units from the need to remain connected to an extended family. Factory workers didn’t need land to make a living, didn’t need to become apprentices to find work, and didn’t need to stay in their hometowns. Instead, nuclear families found they could derive extended family benefits from what Stanford professor Avner Greif calls “corporate” institutions, such as fraternal organizations, unions, large employers and governments.

Since the end of the 19th century, these corporate entities have provided many of the institutional benefits that once could only be found in the context of an extended family. These developments allowed nuclear family units some freedom to determine how they will construct an extended family – who would assist in childcare, protect their employment rights, provide a retirement, care for them in their old age, etc. One hundred and fifty years later, most of us see this corporate model of social support simply as the way things are. But Greif points out that “providing institutions through corporations is a novelty.”

The Persistence of Extended Family Connections

Even as industrialized modern society has mitigated much of the financial necessity for extended family connections, it has also brought forth other issues that create new financial and social concerns between nuclear families and extended families.

Increased longevity makes for circumstances where adult children must become caretakers for their parents, perhaps even as these children are nearing retirement. Divorce, while no longer having a social stigma, often results in the realignment of nuclear families through remarriage and can result in major shifts in financial obligations and inheritance. “Boomerang” children – those who leave only to return because of a divorce, job loss or other disruption – can dramatically alter the nuclear family storyline. And because the health of corporate extended family units is closely connected to the economy and demographics, many of the financial supports once provided by corporate entities may no longer be available. There are no lifetime employment guarantees; government assistance programs may be slashed, and pensions may diminish or disappear.

In short, even in “modern” society, it is difficult for a nuclear family to remain unaffected by its extended family connections. To make financial plans without considering one’s extended family is short-sighted and unrealistic.

The Reality of Extended Family Connections

In some ways, the idealized nuclear family financial scenario is unrealistic. In order for a nuclear family to succeed “on its own,” every nuclear family with a connection to it has to succeed as well – the parents need to be self-sufficient and so do the kids. It really helps if there’s no divorce, no unemployment, no disease or disability, and no untimely deaths among the three generations – and it helps if the nuclear family plan consists of an only child, so there aren’t any siblings who might have issues. That’s a lot of variables that have to go right, and many are beyond individual control.

Consider just three statistics:

    In 2008, data compiled by the National Alliance for Caregiving from the U.S. Health and Retirement Study found that 28% of women in the United States were providing care for an aging parent.

  • A 2005 report from the Census Bureau on disability determined that 2 in every 7 families reported at least one member with a disability.
  • The same report stated that one in 26 American families is raising children with a disability.

Bottom line: The numbers say it is likely that your financial world will be impacted by your extended family.

The Value of Extended Family Connections

In this era where the cultural focus is on the nuclear family, it’s easy to downplay extended family connections. It’s the stereotypical mother-in-law who always interferes, the ne’er-do-well brother who hits you up for a loan that will never be repaid, or the crazy uncle who says the most embarrassing things at family gatherings. But even today, extended family connections can be valuable assets in making a better financial life – for everyone involved.

There may not be the same binding sociological factors of 200 years ago, but kinship allegiances still matter. Most people have a keen interest in the well-being of family members, and given the right circumstances, have great incentive to help, even to sacrifice. Successful grandparents may be sources of financial wisdom and capital, perhaps assisting children and grandchildren with the costs of education, or subsidizing the purchase of a home. Siblings can often become great business partners. Specialized living arrangements for elderly family members may offer them a level of care and dignity that could never be obtained elsewhere.

Including extended family considerations in financial programs is not the prevailing mindset today, but historically, extended families have been powerhouses for wealth accumulation because there are strong incentives for long-term, multi-generational planning. Unlike a nuclear family perspective, an accumulation plan isn’t intended simply for consumption in retirement. Rather, the extended family perspective is often about building, accumulating and passing wealth, as well as enjoying some of it today. If that mindset is maintained over several generations, the cumulative financial benefits can be tremendous.

Of course, there can be challenges to extended family financial arrangements; one of the attractions of keeping your financial program “nuclear” is that you don’t have to worry about anyone else’s behavior. But considering how much might be accomplished when the finances of extended families are coordinated instead of separated, the possibilities are worth exploring. For example…

  • Could you borrow from extended family at terms more favorable than a bank?
  • Could you lend to extended family and receive a higher return than a financial institution is paying?
  • Could pooling assets make it possible to acquire and enjoy a long-term asset (like a vacation property) that you can’t afford on your own?
  • Could a small amount invested today on behalf of your children and grandchildren be a legacy that reaps huge dividends long after you are gone?

The modern perspective may have changed a lot of our social and financial arrangements, but it hasn’t eliminated the impact of extended family. Given today’s nuclear family focus, we may see most extended family incidents as impediments to our financial well-being. However, it would be misguided to overlook the opportunities that might come from planning and operating with one’s extended family in mind – particularly one’s children.


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