It’s no surprise that Americans have a complicated relationship with money. We work tirelessly to earn it, obsess over what we can (or can’t) buy, and toss and turn over how much we have leftover. And then, we don’t want to talk about it. Money is personal, money is intimate, and money is often the leading force behind everything we do.
Money becomes even more challenging once we start talking about how we share it with others. Most parents want their children to benefit from the virtues of generational wealth. Unfortunately, research shows that 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third generation.
How do you avoid becoming part of that bleak statistic? How do you ensure that your heirs have the best chance for success?
Examining The Struggles of Generational Wealth
It seems so simple. A young adult inherits a large sum of money. The struggle suddenly becomes less real. He’s now leaps and bounds ahead of his peers, and the future looks bright.
This individual is intelligent. He knows that his parents worked hard for this money. So, why does he run out of it a year later? How did that wealth disappear so quickly?
Research shows that one of the leading factors for this phenomenon is that many wealthy parents fail to equip the next generation with the knowledge and tools needed to manage their inherited money. Maybe they assume “financial common sense” is obvious. Perhaps the child is far less interested in preserving wealth(as opposed to spending it). Likewise, when money trickles down among several heirs, conflict often arises about how to manage it.
Young adults often struggle with conceptualizing a long-term horizon. Once acquiring money, it’s easy and tantalizing to justify taking a vacation or buying a new car. It’s much harder to imagine saving for a child's college fund or investing for a retirement that might be forty years away.
Finally, people often avoid discussing money altogether. Many parents find it difficult or awkward to discuss the nature of their wealth. However, the failure to discuss details related to money can lead to immense stress pertaining to taxes, estate fees, property and asset management, and family conflict.
Avoiding Issues With Generational Wealth
Preserving generational wealth becomes more challenging as it descends to your children. However, there are simple measures you can consider taking now to mitigate risk and problems down the road.
Maintain Financial Planning
A financial planner can help you make wise financial decisions. They can also support you as your family dynamics evolve (i.e., the birth of a new child, retirement, death in the family). You should feel comfortable and safe with your planner, and you should have confidence in the roadmap they build for you. If it feels appropriate, consider inviting your child to planning sessions.
Create A Will And Trust
All families can benefit from having a will and trust. These documents simplify the inheritance process, and they can help your heirs avoid probate in the event of your death. Consult with an estate attorney to get started.
Appoint A Trustee
Money problems can rupture even the healthiest family systems. That’s why many people benefit from having an impartial and unbiased third-party influence. A trustee can guarantee to manage your wealth appropriately- they can also support in mediating the inevitable emotions that may arise among family members.
Keep Communication Open
Healthy and assertive communication tend to be the best solution for solving most family problems. As a parent, it’s your job to help prepare your child for success. That may include discussing, teaching, and strategizing money management from a young age.
Don’t wait until you’re in declining health. Don’t wait until your child is desperate for cash. In other words, don’t wait until things get bad. That’s when emotions tend to be in overdrive, and you’re more likely to make rash or impulsive decisions. Aim to keep conversations neutral and straightforward.
Maintain Money Boundaries
Once your children become adults, money boundaries can become complicated. You may not know how, when, or how much money to give. Each family’s boundaries will look different, but you may want to consider how you plan to approach common money discussions related to:
Higher education costs
Wedding expenses
House down payments
Supporting health issues
Money for grandchildren
Setting up and using trusts or other investments
Remember that you are entitled to set whatever boundaries feel appropriate to you. Boundaries help maintain healthy relationships free from codependency and resentment. That said, consistency is key. Consistency creates a secure foundation for your children to ideally trust you and respect your wishes.
Final Thoughts
You work hard for your money, and the last thing you want is to have it squandered away due to poor planning and mismanagement.
With the right strategizing, generational wealth doesn’t need to be a family curse. Furthermore, when you set your family for success, you create an invaluable foundation for your heirs.
At The Resurface Group, we understand the nuances of family dynamics. We’re not afraid to have sensitive conversations about money, health, and happiness. We believe that all families have the capacity for growth and change, and we pride ourselves on providing the essential tools needed for long-term success. Contact us today to learn more!