How To Promote Financial Values Across Generations

Every family we work with is unique. However, over the years, I have found one common denominator: all have built wealth through sacrifice, hard work, and a strong set of financial values that includes monitoring spending and prioritizing saving.

These values, coupled with a thoughtful investment strategy, have allowed many families to accumulate more wealth than they could ever spend in their lifetimes. As a result, a significant portion of this family wealth will be passed down to the next generation at some point in time, and many family leaders feel anxious about this wealth transfer: How will this wealth transfer impact family dynamics? Are the kids ready to assume the financial responsibility? Will they manage financial opportunities appropriately? Will the values that built this wealth live on?

These are all important questions to consider, and research suggests that preserving wealth across multiple generations can, indeed, be a challenging feat. In one famous study, it was found that 70% of family wealth was gone by the second generation, and 90% of wealth had been depleted by the third.[1]

However, there are things we can do today to prepare the next generation to inherit wealth. Most notably, taking strategic steps to promote financial values across generations, all with the goal of passing on the values that built family wealth in the first place.  

The Generational Landscape

To encourage a values-based approach to wealth management in the next generation, it’s important to understand how the next generation views wealth and life in general. By understanding generational differences, we can be more mindful of the challenges and opportunities that exist when transferring financial values to children and grandchildren.  

Challenges: Family leaders and next-generation wealth stewards likely have differing viewpoints on the purpose of money and the priorities of life.

  • 44% of Gen Z and Millennial children say they have a different money focus than their parents.
  • 67% of GenZ and Millennial children say that enjoying life to the fullest is among their most important values, but only 37% say their parents emphasized this value.[2]

Opportunities: While generational differences exist, there are many opportunities to engage the next generation in the wealth management process and to pass along values.

  • 68% of GenZ and Millennials put “hard work” as one of their most important values, and 81% of them have heard their parents talk a lot about the value of hard work.
  • More than half of GenZ and Millenials say that making the world a better place is one of their most important values, which is an opportunity for philanthropic conversations.
  • Additionally, 81% want to learn more about budgeting and planning, 73% want to learn more about asset protection, and 71% want to learn more about family and financial dynamics (topics like financial values, legacy planning, and stewardship).[3]

Key Strategies To Consider

There isn’t one solution when it comes to passing down family values to the next generation. That is why we typically recommend a multi-faceted approach that includes a blend of the following strategies.

1.  Start wealth conversations early (when possible)

When it comes to communicating about the family’s finances, “early and often” should be the operative phrase. When children are kept informed and have a deep understanding of their parents’ intentions and expectations, they are in a better position to achieve financial success as individuals and as a family. Over the long-run, open communication can help facilitate trust and understanding.

2. Organize a family meeting

It can be hard to initiate conversations around money, finances, and wealth. To help with the process, consider organizing a family meeting that will bring people together and get the dialogue started. The “output” from this meeting can be a family mission statement — a short document that puts into writing what the purpose of the family’s wealth is. We’ve found that a document like this can provide meaning and direction, which, in turn, helps define the road ahead for all parties involved.  

3. Write a family letter

You can also consider writing a family letter emphasizing the values that helped the family achieve success and clearly outlining what is expected of following generations. As part of this, ask your children what values they feel are most important, and include their ideas in the letter, so everyone feels like they have a stake in the process.  

4. Bring next-generation stewards into the wealth management process

The more experience your children can gain before wealth is passed down, the better equipped they will be to properly manage it when the time comes. If your children are the appropriate age and have a solid understanding of financial concepts, the experience of managing their own funds or participating in investment strategy meetings can be an invaluable experience.

Giving back to the community is another great way to involve the family, no matter what their age. It’s never too early to teach your children the importance of charity and philanthropy, and, as detailed earlier in this article, data shows that Gen Z and Millennials are interested in giving back.

You may also want to consider including children in your annual reviews with your estate planning team. This will help give them a clearer understanding of how assets will flow and the reason you’ve set up your estate to function as it will upon your passing. As part of this, you could also consider working with your attorney to implement a Legacy Trust for your children and grandchildren.

Closing Thoughts

In all of this, it’s important to remember that even if you successfully pass along your values to your children, the next generation may express those values differently. In my household growing up, there was an expectation that not only would all of the children go on to college, but that we would also pursue graduate degrees. Two of my three children have advanced degrees, but their idea of education also included a significant amount of world travel — something that we did not even consider when I was their age.

It’s also important to remember that having these conversations is not always easy. Many families worry that knowledge of family wealth will disincentive education and work, or that family wealth will interfere with children becoming independent adults. However, experience shows us that a little communication can go a long way when it comes to empowering the next generation, and you don’t have it do it alone.

If you’d like help creating a strategic plan for preserving generational wealth, we can guide you through the process. As a first step, we recommend establishing goals and then organizing a family meeting. Our team has led hundreds of these meetings over the years, and we would value the opportunity to learn about your family, your objectives, and the values that you’d like to see in the next generation.  

 

[1] Reuters, A little honesty might preserve the family fortune (Link)

[2] Wells Fargo Private Bank, Children of Millionaires Want to Inherit Parents’ Values More Than Their Wealth, Wells Fargo Study Finds (Link)

[3] Wells Fargo Private Bank, Children of Millionaires Want to Inherit Parents’ Values More Than Their Wealth, Wells Fargo Study Finds (Link)

 


Disclosure:

This article contains general information that is not suitable for everyone. The information contained herein should not be constructed as personalized investment advice. Reading or utilizing this information does not create an advisory relationship. An advisory relationship can be established only after the following two events have been completed (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Strategic Wealth Partners (‘SWP’) is an SEC registered investment advisor with its principal place of business in the State of Illinois. The brochure is limited to the dissemination of general information pertaining to its investment advisory services, views on the market, and investment philosophy. Any subsequent, direct communication by SWP with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of SWP, please contact SWP or refer to the Investment Advisor Public Disclosure website (http://www.adviserinfo.sec.gov).

For additional information about SWP, including fees and services, send for our disclosure brochure as set forth on Form ADV from SWP using the contact information herein. Please read the disclosure brochure carefully before you invest or send money (http://www.stratwealth.com/legal).

Financial Planning
Cloudy Crystal Ball
As we start the new year, especially after a challenging 2022, the most frequent question we are asked is: What is your prediction for 2023? Admittedly, our crystal ball is cloudy. It always has been and always will be when it comes to short-term predictions. Still, there is no shortage of “experts” – supported by research, sophisticated models, and persuasive reasoning – that routinely broadcast what’s in store for the next twelve months. The harsh reality: it’s fool’s gold – entertaining but rarely actionable.
Read More
Investments
A Closer Look at Private Markets
As you are likely aware, ongoing volatility and rising interest rates made 2022 a very challenging year in the capital markets. We believe that this past year has highlighted the need for advisors to explore investment opportunities that exist beyond the traditional stock and bond markets. The private markets are one such opportunity set. In this article, we discuss what the private markets are, how these investments may fit into a diversified portfolio, and how we use them.
Read More
Current Events
What We Have Been Reading – Market Commentary & Beyond
Our team regularly reads articles from industry peers and trusted resources to stay up to date on financial markets. We enjoy reading about topics related to economics, investments, current events, and financial planning. In addition to circulating some of the best pieces internally, we thought our clients, partners, and friends might enjoy reading some of the same articles as us. We received great feedback on the articles we circulated in the first two quarters of 2022, so we wanted to follow up with some more! Here are eight recent pieces that our team members have read, along with some commentary on why we found the respective articles interesting.
Read More