Raleigh NC Financial Advisor: Instilling Financial Values in Your Family
Over the next two decades, more than 84 trillion dollars will change hands in what has become known as the “great wealth transfer.” More than $72 trillion of that will pass from older generations to their heirs, while nearly $12 trillion will be donated to charities.
This shift in multigenerational wealth represents a huge opportunity for future generations. To ensure a smooth transition of wealth, it is important to consider the values you wish to impart that can help prepare heirs to manage their wealth and inheritance responsibly while carrying on your family’s financial legacy.
Consider these steps to instill your financial principles in your family.
Get Clear About What Your Values Are
Financial values serve as a guide for financial decision-making. Writing a personal financial mission statement can help you and your family establish exactly what your values are and communicate them to future generations.
These values, in turn, help you identify the purpose of family wealth, how to grow and maintain assets, and what types of financial education and tools are necessary to achieve these goals.
Begin by brainstorming a list of values with your family, narrowing it down to a handful of the most important. From there, address how you will approach them. For example, if one of your values is to cultivate an understanding of the responsibilities that come with wealth, your mission statement might say, “Our family will pursue financial literacy through education and regular meetings to discuss financial decisions.”
Open Lines Of Communication
Set aside regular time to meet as a family and discuss values surrounding money in person. For example, if giving back is an important value, you may consider using this time to decide which causes you’ll donate to over the coming year.
If it’s difficult to regularly get the family together, have these meetings virtually or around the holidays.
Teach Financial Literacy
A solid financial education is key to ensuring future generations are good stewards of wealth. Start building healthy financial habits in school-age kids by teaching them financial basics such as saving and how to tell the difference between needs and wants. Teens may learn how to create a budget, how to establish good credit, and the importance of compounding returns.
Teach them how to save.
Helping children think beyond current wants and desires is no easy feat, which is why demonstrating the value of saving up for something is best accomplished through concrete examples and exercises. Many families also expose their children to long-term savings by bringing them to appointments with their financial advisor.
Most children simply sit in the waiting room. However, this trip gives parents an opportunity to explain that they are saving for retirement, planning for tax season or putting away money in a college fund. They can demonstrate that proper financial planning is important, complex and the reason they can provide a great lifestyle for their family.
Tech them how to spend.
Parents often debate the value of giving their children an allowance. When done in a disciplined way, an allowance can instill simple money management skills that children will carry with them for years. As children grow up and their financial tendencies and spending behaviors become more apparent, parents may believe their kids would benefit from a more structured gifting plan, such as a trust.
This can protect the estate in the event of a divorce or bankruptcy but may be met with resistance from children. It’s best to have an honest family discussion about how and when the family’s wealth will be transferred.
Teach them how to give.
Many philanthropic families believe it’s important to instill a sense of generosity in their children. While sending a charitable contribution in the mail each month can have profound impacts on an organization parents are giving to, it may not have the same effect on their kids. Children often benefit most from seeing, understanding and becoming actively involved from a young age.
Parents who donate their time to volunteer efforts can bring their children along, when appropriate. If a parent serves on a nonprofit board or committee, they can invite their children to attend a fundraiser or meeting. Families that have a foundation can make their children aware of it and encourage involvement as they grow and mature. The key is to ensure their kids understand the impact of their work or donation.
Model Your Values
Future generations are more likely to adopt the values you establish when they see you modeling them. If you want to leave a legacy of charitable giving that your heirs will continue to uphold, make regular donations to causes you care about and invite them to participate. If you want your children and grandchildren to understand the importance of a strong work ethic, talk with them about how you gained the business skills that helped you succeed.
Bottom Line
Oftentimes, children don’t see the years of hard work and financial planning that led to their family’s wealth. But by teaching their children that wealth needs to be earned, saved and shared responsibly, parents stand a better chance of preserving their legacy for years to come.
It is never too late to talk with your family about the responsibilities of inheriting your estate, but doing so can be uncomfortable. Americans report they would rather talk about politics, religion, and even marital problems before broaching the topic of money. A financial advisor or financial planner can help facilitate conversations about finances and inheritance between you and younger generations, helping to identify values, set goals, and put a plan into action.
Sources:
https://www.capitalgroup.com/content/dam/cgc/shared-content/documents/reports/MFGEWP-062-1218O.pdf
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This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
