Family Wealth ManagementTeaching the Next Generation
Family wealth management is critically important - family-owned businesses are the economic engines that drive America’s prosperity. Many generational family businesses are “rags to riches” stories – the success stories of which dreams are made. It is estimated by family wealth management experts that $41 trillion of private wealth will be transferred from one generation to another over the next 40 years. Yet, a survey of families of significant wealth done by a wealth management company in Pittsburgh found that only 27% of the respondents have discussed family budgets with their teenage children. One reason for this phenomenon is that many parents and grandparents worry having a lot of money or knowing that they are going to inherit lot money will have a negative impact on the lives younger family members. Having money will be a disincentive to getting an education, will encourage wasteful lifestyles, dissuade the kids from entrepreneurial endeavors and create a lack of personal responsibilities. One family wealth management expert posed this question to sum up the dilemma that wealth posed for parents in wealthy families - “How do you build competence in the next generation so they can handle whatever inheritance you leave them”. Herbert Gowan is part of a family whose wealth was founded on a steamship company that was formed in the 1800s – now a fifth generation family business. With more than 90 family members in the extended family, the family wants to continue the family values of “prudent financial conservatism, entrepreneurial creativity and philanthropy,” says Gowen. “Our children have parents who are teachers, pastors, lawyers, not business magnates who talk commerce over dinner as our great-grandparents did. They will inherit a substantial amount of money, but families grow faster than family fortunes, so we want to make sure our children are financially savvy and will do good things with their inheritance.” Some families choose to create a family foundation where the younger generation can get involved in the philanthropic goals of the family. To learn more about family foundations, click on this link. We advocate that the financial advisors for the family create formal training sessions for the younger people - teaching them the complexities of family wealth management. Parents interested in learning more about wealth transference can read an interview with wealth transfer expert Karl Bareither by clicking on this link. Dr Jane Adams, our “parenting adult children” expert, offers these observations – some professional – some personal! “While money is what it does and buys, it’s also a symbol whose meaning is transmitted from one generation to another just like a cowlick, the shape of a chin, or your mother’s hazel eyes. How your grown kids think and feel about money is the result of many subtle and obvious clues to how you think and feel about it, how you've used money with them in the past and present, and what it represents to them now: your or love, approval, power and control, and their freedom, responsibility or dependence. The baby boomers are now benefiting from the second wave of the multi- trillion dollar transfer of wealth between generations that will culminate in about ten years, when the third wave – your grown kids – begin to inherit. Understanding what you want your wealth to provide for your adult children, their children, and their children, requires a thoughtful consideration of your goals for them and an understanding of how it can – and cannot – further those goals. For instance, if what they want or need is your love or approval, money won't make up for that if you haven't already demonstrated those feelings to them in other ways – your time, interest, consideration, tact and honesty. In the workshops I give for high net worth parents of adult children, I stress that knowing the meaning money has to them is the first step in deciding how, when and whether to pass it on to them . The major gift-giving holidays and end of the year tax planning coincide in this season to rethink what our money can do for our kids. Will your gift of money come with strings attached? Can you allow them to use it any way they want to, even if you think it’s better to put it away for a rainy day instead of blowing it on a new car or extravagant vacation? One family business owner I know writes a card with his check that says, “Use this to do something that gives you pleasure; I'm donating an equal amount to the charity of your choice.” The grown child of another couple would rather have a gift her parents picked out personally for her than a check – “That’s all I'll have of them later,” she says, “their money. Right now, I'd rather have something more personal.” One of the special rewards of success is being able to celebrate the holidays with your grown kids and their families on a trip to a special place. I still remember the Christmas I spent with them in Africa a few years ago. “You know,” said my son on the plane home, “I'll remember this trip long after you're dead.” At first I wrinkled my nose – what a morbid thought! But then I realized, isn't making these kind of memories exactly what I wanted my money to buy them?” Family business retreats are a wonderful platform for teaching young people about the business and about the business of wealth management. To learn more about family business retreats, click here. Bottom line? Family wealth management is about a lot more than just money!
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