What do you want to pass on?
I have been doing a lot of work recently on families and the transfer of wealth through generations. Bringing our children up with a healthy relationship with money is important for us all, but for wealthy families, the stakes are (literally) higher. And that's because, although money can be a great blessing, sadly it can also be a curse. How can the wealthy ensure that their children grow up independent, with a strong work ethic, without a sense of entitlement, and with a healthy sense of what their wealth means? Some undoubtedly manage it, but many don't.
Understanding that your identity, as a human being, is not tied to money, is an important concept in bringing up children who have confidence in themselves, have a desire to give back to society and are able to be good stewards of the family wealth for future generations.
There is a saying in my world, 'the first generation makes it, the second generation spends it, and the third generation blows it'. While some of my clients have already made, or in some cases inherited their wealth, many are in the process of generating, what will be over the next decade or so, substantial wealth.
What I find is that most people spend very little time thinking about how they want to address, not only the practical issues of managing their wealth with their children, but also the psychological and social challenges that can come from wealth. It's not just about passing on your money, it's about passing on your values and your expectations around that money. There are so many questions that need to be considered, such as:
- When do you discuss with your children what, when and how they will inherit?
- Should you tell your children how to spend, save, invest and donate the money they will inherit?
- How can you ensure that your children spend in a way that incorporates your values?
- Do you want your children to make their own living to sustain their lifestyle or would you support their accustomed lifestyle if they wanted to take a meaningful but low-paying job?
- What are the ramifications of your spending on your children and their future financial management?
- Does your estate plan confer control or freedom? How do you balance the two?
Money brings the ability to educate, travel, experience great comfort and actively make a difference in the world (of course, that can be done without money too). But money can also paralyse people, strip them of ambition and leave them dependent, entitled and wholly dysfunctional.
It's a hugely emotive and complicated subject and I don't have all the answers but I do know that in general, it is something that tends to go unconsidered and often with unintended consequences. And I do know that there are conversations you can have, early on (probably much earlier on than you would think) with your kids that will instill financial values. There are creative ways for wealthy families to help ensure that the next generation are able to make decisions in the future that not only keep the fortune intact, but also the family intact.
As always, if you want to chat about how you are managing your family's wealth, drop me a line.