Discussing Finances with the Next Generation

Chad Maggard, Principal, Portfolio Manager, Johnson Investment Counsel

“Much unhappiness has come into the world because of bewilderment and things left unsaid.”
-Fyodor Dostoyevsky

Discussing money is not usually an easy or comfortable thing to do; particularly when that discussion is between parents and children. When significant wealth from a family business or parents’ estate is involved, the angst can be even more severe. Family finances can cause anxiety for fear of straining relationships, creating disincentives to work, or trivializing a potential lifetime of effort down to a few numbers on a balance sheet. However, beginning this conversation early, and approaching it honestly, is necessary to pass wealth to the next generation as smoothly as possible while preserving family harmony.

No rule book exists to pinpoint exactly when and how to reveal information about family wealth to children - family dynamics and circumstances are just too vastly different from one family to another. But there are helpful points to consider when talking about family money to make the conversations easier and more productive:

Start Early and Reveal Information Over Time

Depending upon the age of your children, you may be able to educate them over time about financial concepts and family wealth. Opening a savings account with your kids, and encouraging them to save for a goal (that new Nintendo game) can go a long way in instilling an appreciation for the work and delayed gratification required to build wealth. These type of steps can allow for a greater level of trust, giving you the opportunity to share more information as your children mature and demonstrate responsibility and interest (or disinterest) around finances. Building a foundation of core financial concepts early on can sow the seeds for your children's financial responsibility.

Transparency

As you're sharing information and educating your family, encourage questions and feedback from the outset. Providing straightforward information, open conversation, and explanations behind decisions regarding the family's wealth can go a long way in building trust and a collaborative approach.

Introduce a Third Party

You don’t have to do all the financial education and financial talk at the dinner table. It can be helpful and productive to include your family in meetings with your professional advisors to discuss these topics. Attorneys, CPAs, and financial advisors have these conversations on a regular basis and can be very effective in helping you convey your message and lending an outside perspective.

Generational Differences

It can be a little nerve-racking to pass down your hard earned wealth to children that don’t appear to have the same values as you. You don’t want your gift to loved ones to be quickly squandered away. It’s easy to throw around words like “entitled,” “self-centered,” and "unmotivated" to describe in broad strokes the possible target audience of the message you're trying to deliver. Remember, though, that similar descriptions have been used to describe younger generations including Generation X and Baby Boomers. Remove the date from this Time Magazine cover and you may have trouble identifying the group in focus. What is sometimes attributed to inherent generational flaws may be better described as a phase of life that encompasses values and priorities that change as time passes. Be confident with the values you instilled in your children when they were younger, and approach these conversations differently as you notice their values change and mature over time.

Purpose Driven Conversation

Rather than just delivering the general facts and dollar figures involved in the family's wealth, provide historical context and the story of how and why certain financial decisions were made. Share a vision for the years ahead. Describe your hopes for how the inherited wealth will be used and the important purposes it will fulfill. Doing this can help give your family a greater appreciation for the work involved in building that wealth, and encourage buy-in from those involved. Forcing yourself to put this in writing will help articulate a clear message that may otherwise come across as vague to your family.

Estate Plan Structure

A great deal of customization is available to you as you craft or update your estate plan to provide a framework for wealth transfer. If you have specific concerns or goals for when and how your wealth is passed on, discuss these with your professional advisors to determine the best ways to address them. A well-structured estate plan can alleviate current concerns, provide flexibility in wealth distribution, and allow beneficiaries to prove that they are financially responsible over time.

Discussing your family's wealth and plans for the future doesn't have to be an awkward or uncomfortable conversation. Considering the points above can provide more confidence, clarity, and trust as you share this information with your loved ones, hopefully bringing your family closer together.

 

Chad Maggard is a Portfolio Manager with Johnson Investment Counsel.  The views and opinions presented in this article are intended for educational purposes only and should not be construed as a solicitation to effect transactions in securities or the rendering of personalized investment advice.  The views and opinions expressed in this article are not intended to be tailored financial advice and may not be suitable for your situation. No person should assume that any advice or strategies presented in this article serves as the receipt of, or a substitute for, personalized individual advice from an investment professional.

While the author has used best efforts in preparing this article, he makes no representations or warranties with respect to the accuracy or completeness of the contents of this article and specifically disclaims any implied warranties of merchantability or fitness for a particular purpose.  The author shall not be liable for any loss of profit or any other commercial damages, including, but not limited to, special, incidental, consequential, or other damages.