Want Successful Wealth Transfer to The Next Generation? Communicate and Educate

Want Successful Wealth Transfer to The Next Generation? Communicate and Educate

Want Successful Wealth Transfer to The Next Generation? Communicate and Educate | John L. Smallwood

Creating a financial plan not only identifies the needs, obligations, and desires for your personal future, it forces you to consider, “what do I want to do with any wealth above and beyond that?” Financial planning provokes discussion around legacies and what you want to leave behind – and to whom.

I’ve seen numerous approaches to wealth, legacies, and financial goals for the next generation. Some people don’t want to leave anything to their kids; they plan to spend it all themselves or give it to a charity of choice. They may be self-made, and because they came into the world with nothing and had to work for everything, then their offspring should just do the same and fend for themselves.

Others want to leave all their wealth to the kids. They think that leaving the maximum amount of wealth to the kids in the future means giving up everything for themselves now. Often, I see parents in their seventies and eighties who never really made a lot of money, but who were very good at saving and built up a nice nest egg of maybe $2 million to $3 million over fifty years. Then they spend their retirement continuing to scrimp and save without enjoying all that they worked for. They end up leaving the bulk of their wealth to the next generation, and then that generation spends the money down in a couple of years. Building wealth for most people takes a lifetime – which is why it’s just as important to consider your desire regarding the next generation as it is to plan for your retirement.

Financial Planning for the Next Generation

Enduring wealth – the kind that transcends generations – boils down to teaching family members at an early age the principles of saving and hard work. When these principles are emphasized and there are examples of prudent financial stewards in the family, preparing the next generation for responsible financial management is bound to be successful.

Strategically optimizing wealth comes down to communication between the generations. When working with families, I often see a lack of communication around the core principles of wealth creation – understanding about growing wealth, enjoying it, and then passing it on. There seems to be a real disconnect between the generations when it comes to talking about wealth.

In an article written for Financial Advisor a few years ago, this very point was touched on, “Wealth transfer can be difficult for families to navigate. While the majority of wealth is lost due to conflict and interpersonal family dynamics, only 7 percent of HNW [high net worth] people with between $5 million and $25 million in investable assets believe these factors have a role in the deterioration of family funds, according to the report. The majority of HNW families (nearly 80 percent) believe the economy, investment strategy, or financial constraints are responsible for permanent losses.”

Fostering open communication and wealth-sustaining financial strategies are critical in creating a strong multi-generational financial plan; each generation will have different financial philosophies and priorities. For example, most people starting out in their twenties or thirties don’t make a lot of money, so they don’t have a lot at their disposal and don’t really understand what to do with what they have. Then there are the Great Depression-era individuals who remember what it was like to be dirt poor, resulting in hoarding money. This generation knows how to save, but they don’t know how to enjoy their wealth. Then there’s the baby boomer generation who really didn’t have a fear of loss—they had steady jobs and an abundance of food, sports, and recreation. Since then, there’s a generation that has seen tremendous growth in incomes and lifestyles. Kids born into that lifestyle have become very accustomed to it. They’ve seen their parents’ lives grow and improve—better cars, better vacations, goals achieved, and dreams coming true. People today have indulged their children to pursue great things, and they’ve been the benefactors of wealth. But when those kids try to leave the nest, they are shocked to find out just how much money it really takes to run a household. Therefore, it’s crucial for wealth-generations to teach the next generation how to sustain that financial growth.

Getting on the Same Page

Planning for the financial success of the “next generation” these days often involves the presence of four generations: grandparents, parents, children, and grandchildren. Saving and protecting multigenerational wealth requires alignment amongst all of these family members.

Unfortunately, money is often a subject that families avoid, and as a result, people don’t understand how to protect the wealth that has been worked for. The more open the conversation, the better future generations will be able to avoid pitfalls and traps that are placing that wealth under attack. Preserving wealth from generation to generation is about education and the protection pieces that are put in place. The fact is, you’re smart, but we all make some significant mistakes—that goes for even the wealthiest people.

You want your family to grow wealth. You want to enjoy it, and you want them to enjoy it. You want them to pass it on to another generation. To do this is much more difficult than many realize. It requires open communication with family members, addressing topics that are personal and intimate in nature. The successful families I’ve worked with over the years have had a willingness to be incredibly open with each other about the wealth that they’ve created. Parents have engaged their children in the importance of hard work, spending within their means, and developing diversified strategies, while recognizing profit-making opportunities.

Passing wealth onto the next generation is the epitome of a successful wealth plan. Those who want to create a legacy that survives must lay a foundation of communication and education. You will not achieve your goals if these principles are not priorities within your family dynamic. Learn more about how you can prepare yourself and the next generation by listening to my latest podcasts.


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