The Disciplined Investor
Educating the Next Generation About Family Wealth Management
Over the next few decades, an enormous amount of wealth is expected to pass from older to younger generations. This has been dubbed the “Great Wealth Transfer,” and one estimate suggests that $124 trillion will change hands by 2048. It’s an eye-popping figure, to be sure, but it also highlights the reality that many families are, or soon will be, navigating how to pass on their wealth. A top-of-mind question: Is the next generation ready to take on the responsibility?.
Wealth is not just cash in the bank; it can include investments, real estate, businesses and more that require stewardship and foresight. Successful management means preserving and growing assets and using them wisely. Striking the right balance here is key: For the next generation to succeed, it takes intentional preparation and education.
Plant the Seeds of Financial Literacy
Where to begin? In an ideal world, financial education starts in early childhood and is treated as an open and ongoing conversation as kids age. The goal is to build financial literacy gradually, so wealth management feels natural rather than overwhelming.
When kids are young, this might mean introducing simple topics like the difference between saving and spending. Managing an allowance can help put those ideas into practice. As kids get older you can begin introducing more complex topics, such as investing, compound interest, debt and taxes.
It’s equally important to engage adult children, many of whom may have received no other formal financial education. While 29 states now have K–12 financial education requirements in public schools, this focus has largely come to the forefront only in the last few years. If your kids are adults now, they may have missed out. So it’s worth finding out what they know, what they don’t know and what they’d like to know more about. You may be aware that Allodium has a service to help adult children of our clients gain confidence in financial matters as they move toward financial independence.
Put Structure Around Learning
In addition to ongoing conversations about money, your family might benefit from more intentional ways of building financial literacy. Some families hold periodic financial meetings where they share goals, key issues and address questions or concerns. Others put together more formal meetings with wealth advisors or other experts.
There also is a wealth of credible educational content online that is built to both educate and engage audiences around financial literacy topics.
Turn Conversations into Action
Eventually, theory should give way to practice. As younger family members learn the basics, you might consider providing a "practice portfolio," giving them the chance to make investment decisions with small amounts of money and learn from their successes and mistakes.
When family members have honed their knowledge, consider assigning them real responsibilities that match their skills and interest. This might mean relatively simple tasks like helping guide gifts made through a donor-advised fund. Or these responsibilities could be more involved, such as helping to decide how to allocate funds on a family vacation. With your guidance and oversight, these experiences can help develop confidence and capability.
Ground Wealth in Purpose and Values
One of the most important things that helps guide families on how to grow and spend wealth is imparting a strong value system. Values can help you frame wealth as a tool rather than a goal. Your values will be unique to you, but some worth considering may be: .
-
Stewardship: Recognizing the responsibility that comes with wealth. Stewardship encourages careful management and intentional choices so resources can benefit both current and future generations.
Giving back: Using wealth to help create positive change in your community and the greater world.
Self-worth beyond wealth: Remembering that wealth is a tool to achieve goals—whether gaining an education, pursuing passion or giving back, for instance—not a measure of personal value.
By grounding financial decisions in values, families can help prevent counterproductive or reckless financial decisions, foster responsibility and ensure wealth is not seen as something to be simply consumed..
Keep the Conversation Going
Discussing money isn’t always easy, and for many families, it’s downright taboo. While 66% of Americans say conversations about wealth are important, 62% say they never have them.
Of course, talking about money with family members is often easier said than done. Many families recognize the importance of having these conversations but may not know how or where to begin. For practical ideas on approaching these discussions, read our blog, “How to Have Family Conversations About Money,” which covers topics to discuss, ways to make conversations more productive and how a financial advisor can help facilitate family meetings
Getting over this hurdle is incredibly valuable. The most successful families treat wealth education not as a one-time event, but as an ongoing process that evolves as your family grows and your financial picture changes. Allodium can work with you to create an environment where family members can openly discuss the unique challenges and opportunities that come with wealth.
Hello! I’m Saul, a senior wealth advisor and financial planning specialist at Allodium Investment Consultants, located in Minneapolis, MN. I am dedicated to helping our clients reach their financial goals by specializing in investment strategies and comprehensive financial planning. When I am not advising clients, you will find me spending time with my wife, Khara, and daughter, Brielle. We live on a hobby farm, which supports my love of gardening and cooking. I have also been a downhill ski racing coach and enjoy outdoor activities, including canoeing, camping and photography.
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.