Client Portals

Steps To Prepare The Next Generation For Wealth3 min read

Jul 30, 2019 - Max Osbon ( 5 mins to read)

Max Osbon

Wealthy families often find themselves debating how to best approach the subject of family wealth with their children. The hesitation tends to center around how to share information about wealth while maintaining motivation and instilling the values of hard work and responsibility. What’s the right age? What’s the right level of detail? Where should you start? Here are steps you can take right away.

Start when they are young

As wealth grows, so does the complexity of the balance sheet, asset structure and cash flow. For the next generation to be able to understand the full depth of decision making within family wealth, it’s best to start as early as possible to build a solid understanding of the fundamentals. As heirs to an array of portfolio investments, it’s essential that the next generation has solid role models instructing them on their role, responsibility and opportunity. There’s not a magic age when the conversations should begin, but think teens, not twenties. When certain children show an interest and aptitude, start earlier.

Have the next generation explore an open dialogue on financial skills with the family wealth advisor and other trusted family friends. Here are areas to explore:

  • Financial planning exercises: Organize expenses – weekly and monthly; find balance between income and expenses. Have them save in retirement accounts as soon as they start earning; you may want to help them out with their contributions. The earlier you start, the sooner you can turn these into lifelong habits. Those skills can eventually be used more broadly to identify and reach long-term wealth objectives.
  • Investment exercises: Discuss different ways to participate in the capital markets — as a speculator and as a long-term holder. Who are the other investors out there and where do you fit in? Which companies provide access to investments (sponsors) and which providers have credibility? What are the common investment traps, especially among new investors?
  • Wisdom discussions: Wealth, investing, and finances are inseparable from life’s big decisions. A thoughtful discussion at the right time paired with direct advice can make a big difference in the short term and a world of difference in the long term. Wisdom includes reinforcing what you already know but haven’t yet put into words.

Financial friend and confidant: Airing frustrations, excitements, hopes and dreams with someone with credibility can make it easier to make decisions. This discussion doesn’t have to be with a family member.

Invest in mental and emotional health

Nothing destroys wealth faster than excessive stress paired with destructive coping habits. A long-term family commitment to mental and emotional health can have big payoffs, like helping the next generation be thoughtful about choosing their future spouse. It can play a critical role in recognizing manipulation if they ever become a target, as people of wealth often do. It also prepares them to effectively cope with life’s inevitable surprises. Preventative measures in early days are relatively cheap and easy. Consider any money spent in this area as an investment rather than a cost.

Age and transparency

Until the next generation is invited to actively participate in the family wealth discussions, there really isn’t a need to be fully transparent. Partial transparency is sufficient to let the children know that there is room to take risks, relax when they need to, invest in education strategically, and avoid the fear of future financial suffering, which can be crippling to some.

The right age for full transparency depends less on the number and more on the current state of family dynamics and the progress of the family discussions listed above. A mature and diligent 14-year-old could be ready well before an absent-minded 25-year-old. Some family members may never be invited to the table. In any case, trusts and prenuptial agreements are important tools for protecting family assets regardless of the capabilities of the next generation.

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