Statistics show 90% of families lose their wealth by the third generation. Let that sink in. By the time your grandkids are set to inherit the money you earned in your lifetime, it could be gone or close to gone—unless you can overcome difficult odds. You can take steps to reduce your taxes, put together an estate plan and get ready for retirement. However, these elements are only part of the equation. If future generations are not adequately prepared to handle the responsibility of their inheritance, there is a risk of overspending and conflicts, which could deplete the wealth you’ve worked hard to build.
It’s easy to overlook the importance of educating future generations on financial literacy, money management and stewarding wealth. Like religion and politics, money can be a hard topic to talk about with family. Surveys show 62% of Americans rarely discuss finances,1 and only 15% of parents talk to their kids about it.2 Yet shelving these critical conversations can leave the next generation unprepared when the time comes to receive and properly manage family wealth.
Experience has shown us it’s important for a family to have a common goal and purpose for their wealth. This is where our wealth advisors can step in and provide immense value. We can start conversations about wealth management, making sure your family understands and agrees on a path forward. Together, we can ensure your wealth lasts and supports your family’s goals for the future.
Here we’ll discuss how to teach your family about generational wealth, including how you can begin educating your kids and grandkids early. We’ll talk about defining your family’s vision for your wealth and partnering with your wealth advisor to hold productive meetings that will help you and your family carry your legacy forward.
Personal tax rates are probably going in one direction: Up.
Crystallize your wealth vision
Start by taking the time to contemplate what your wealth means to you and how it connects to your deeper values. Ask yourself how it aligns with your life aspirations and what goals you want to set for your family. Consider how your wealth will affect your children’s and grandchildren’s lives. Think about using it for their education, for travel or to help others through philanthropy. Lean into positive impacts like educational opportunities. Acknowledge the risks of irresponsible behavior and entitlement.
Next, write down a set of wealth principles that are specific to your family. (Use our Wealth Vision Worksheet to guide you.) A principle, in the context of family wealth management, is a fundamental belief or guideline that shapes how you view, use and manage your wealth. It reflects your family’s values, goals and approaches to financial decision-making. Principles serve as a compass, guiding your actions and choices regarding wealth.
Here are some examples of wealth management principles:
Principle of Financial Literacy: “Our family prioritizes financial education, ensuring that every member understands wealth management, investment strategies and the value of money.”
Principle of Philanthropy: “We are committed to sharing our wealth through regular charitable giving, supporting causes that align with our family’s values and make a positive impact in the world.”
Principle of Transparency: “Open and honest communication about financial matters is fundamental in our family, fostering trust and collective decision-making.”
Principle of Legacy and Stewardship: “We view our wealth not merely as a personal asset but as a legacy for future generations, and we are committed to stewarding it responsibly.”
Principle of Diversification: “Diversifying our investments and sources of income is key to maintaining financial stability and reducing risk.”
Principle of Ethical Investing: “Our investments should reflect our ethical values, avoiding sectors or companies that conflict with our beliefs about social responsibility.”
Your principles will help guide you in future talks and decisions about money. It’s also important to talk with your partner and children about these goals. This helps everyone understand and agree on what’s important and what might be a problem. Try to focus on aspirations and learning new skills, not just on financials. That way, your family can work together toward common goals.
Teach your kids and grandkids about money early
Educating your children and grandchildren about money from an early age can set them up for financial responsibility and stewardship later in life. Children as young as 3 start to grasp basic financial concepts, and by 7, they begin to form lasting money habits.3 As a parent or grandparent, you have a unique opportunity to impart financial lessons during interactions like shopping trips or family gatherings. Here are some ideas to help you effectively teach these lessons:
- Use real money in lessons. Let kids handle cash and buy things themselves. This shows them money’s value better than just seeing numbers on a screen.
- Talk about what money means. It’s important to talk openly with kids about money. Explain that money is limited, help them learn the difference between needs and wants, and discuss why more money doesn’t always mean more happiness. Be mindful of how you and your spouse or partner talk about money in front of your children. It has a large influence on how they will think and talk about money as adults.
- Let them make choices. Allowing kids to make their own money choices, within limits, teaches them to learn from mistakes and be responsible.
- Real experiences matter. Teach your kids about living costs and why saving matters, and explain that not everyone has the same amount of money. Talking about poverty can help them understand and care about financial differences.
- Make money lessons fun. Use games and stories to teach them about saving, spending and being good with money.
- Address entitlement and peer pressure. If your kids are around lots of wealth or feel pressured to buy trendy things, talk to them about why some spending doesn’t fit your family’s values or might not be important for them.
Understand the role of beginner portfolios
Getting your kids or grandkids started with a beginner portfolio can be a great way to teach them about investing.4 You can create a small, diverse investment portfolio for them and explain the basics, like what investing is, what the risks are and how you can get returns on your money.
You and an RWA Wealth Partners financial advisor can work with your child or grandchild to manage their first investment account. For instance, a child could start contributing to a Roth IRA as soon as they have earned income. Including children early helps them learn from advice you receive. Make sure to continue the education beyond the initial account setup. Sit down with your kids regularly and go through the portfolio. Explain any changes you make and talk about why they’re important. This keeps your kids interested and helps them learn more as they grow.
Collaborate with your advisor
Working with a financial advisor is not just about managing your wealth; it’s also a valuable opportunity to teach your children about money. As they grow, involve your kids in meetings with your advisor. That way, they can learn firsthand about creating a strong portfolio core, assessing different types of investments, and establishing foundational principles such as diversification and tax efficiency. Encourage them to ask questions and even share their thoughts.
Your advisor can also contribute to these educational moments by offering clear explanations and helping your children understand complex financial concepts. This is especially important when discussing the impact and management of substantial wealth, and this knowledge can instill stewardship and legacy-building values.
A financial advisor who is committed to acting in your best interests can be a steward for your family’s wealth and legacy across generations. They can connect your family and guide you in creating a shared vision for your wealth. This partnership is invaluable in preparing the next generation to manage and preserve their inheritance.
Develop your family mission statement
When it comes to family wealth, it’s about more than just numbers and finances. It’s also about your family’s mission and values. Understanding why you’re accumulating and managing wealth is as important as how you do it. This is where the role of a family mission statement comes in.5
A family mission statement is a clear declaration of your family’s core values, goals and beliefs. It guides your collective actions and decisions. Think of it as an anchor for your family’s principles and aims. It often includes aspirations for personal development, strong family relationships and community contributions.
This mission statement also acts as a moral compass. It helps every family member make choices that reflect your shared purpose and vision for your legacy.
Steps to crafting your mission statement
Follow these steps to come up with your family mission statement:
- Reflect on fulfilling experiences. Look back at past experiences that have brought joy and satisfaction to your family. These can reveal a lot about your mission.
- Identify core values. Work together to identify and articulate your family’s core values, or refer to the unique set of wealth principles you defined earlier.
- Engage in family dialogue. Open family discussions are crucial to help members align with the mission and understand both individual and collective goals.
- Draw inspiration from examples. Look at examples like our Giving Day suggestion (below) to see how values can inspire mission-driven actions.
- Incorporate actionable elements. Discuss how your family’s mission can lead to tangible actions like volunteer work or advocacy.
Not sure how to get started? Use our Mission Statement Worksheet to begin drafting your family mission statement.
Communicate what’s at stake
While developing the mission statement, make sure everyone knows what’s at stake and why planning is so important. Historical examples can be eye-opening. Talk to your family about the cautionary tales involving famous families such as:
- The Vanderbilts, who lost their $200 billion railroad fortune through extravagant spending6
- The Strohs, whose $9 billion beer empire crumbled due to missed opportunities and reckless spending7
- The Wrigleys, who were forced to sell the Chicago Cubs to cover a $40 million to $50 million estate tax bill8
These real-life examples show your family how quickly fortunes can vanish across generations without careful planning and responsible spending.
Preserve your mission statement
A family mission statement is not a set-it-and-forget-it activity. To effectively manage your family’s legacy, have ongoing conversations about your wealth and values, linking these discussions directly to your family mission statement. Include younger family members in these talks to develop their understanding and engagement with the family’s mission. Family wealth advisors at RWA Wealth Partners can play a key role in this process, offering expert guidance to help you develop a comprehensive and meaningful family wealth mission statement and put it into practice.
Hold effective family meetings
It can be hard to talk about money. A study from Merrill Lynch indicates that nearly 4 in 5 wealthy families have unplanned discussions about wealth, with 26% later regretting it.9 Being proactive with scheduled family meetings can help you avoid these situations. Planned gatherings also provide an opportunity for educating the younger generation about family traditions, values and financial responsibility. In addition, they create an environment for collective decision-making and conflict resolution, as well as opportunities to celebrate personal milestones and create family unity.
A financial advisor can help you facilitate productive family meetings about wealth by:
- Moderating sensitive and emotionally charged topics like estate planning and division of inheritances
- Using expertise in wealth management and planning to educate family members on best practices, tax strategies and responsible investing principles
- Helping align family members with shared financial values and goals
- Highlighting common ground while respectfully addressing differences on wealth matters
- Acting as an accountability partner for wealth transfer plans or collective family legacy initiatives
- Creating a judgment-free space for family members to openly discuss personal money perspectives, build financial literacy and gain confidence managing wealth
The right advisor becomes an indispensable family resource. Their guidance can make all the difference in transforming strained, difficult discussions into constructive dialogues across generations.
Establish meeting goals
When you set up your family wealth meetings, it’s important to communicate clear goals. Begin by evaluating your family’s current financial situation and identifying the most pressing issues to tackle. For instance, in an initial meeting, you might focus on outlining how wealth will be distributed and articulating the legacy you wish to leave. This is an ideal opportunity to educate everyone, especially younger members, on your family’s perspectives regarding wealth management and philanthropy. For example, you could discuss the importance of responsible spending and the value of charitable giving.
Address any misunderstandings or conflicts during these meetings. You might start with resolving a recent disagreement over investment strategies or differing views on philanthropy. This is a chance to realign and update your family’s shared vision for wealth.
As time progresses, your meeting goals should evolve. For instance, in later meetings, you might shift focus to how well younger family members are integrating the lessons on financial responsibility. You could discuss the progress of a family foundation you’ve set up or evaluate the impact of a recent charitable project. These discussions will help in continuously shaping and nurturing your family’s legacy, adapting your collective goals and values over time. Remember, these check-ins are an opportunity to grow your family’s financial understanding and stewardship together.
Make a plan
Work with your wealth advisor to plan your family meeting with these considerations in mind:
- Think about what you’ll be discussing and who needs to be there. Make sure members know the details and the importance of attending.
- Next, make a clear agenda. List the topics you’ll cover and how you’ll make decisions.
- Think about where you’ll have the meeting. Choose a location that’s neutral, comfortable for everyone and conducive to open discussion. Your wealth management firm’s office might be a better choice than someone’s home, for example. The right location can significantly improve the productivity and enjoyment of these meetings.
- Don’t forget to sort out details like child care and fun break activities.
Your advisor can handle managing these details so that you can focus on the meeting material and discussion.
Commit to a meeting cadence
It’s a good idea to start with semi-frequent family wealth meetings, either quarterly or every six months, to cover essential ground. Once you’re accustomed to these discussions, yearly meetings might be sufficient, with occasional updates or calls in between to keep everyone informed. Keep the meetings concise and focused to prevent overwhelming the family with too much information.
Instill philanthropic values in the next generation
Instilling philanthropic values is about much more than simply donating money. With guidance, philanthropy can become a powerful tool for teaching children the core values of responsibility and empathy. This begins with aligning your family’s interests with philanthropic activities that resonate with your family mission statement. This ensures that the causes you support are not only meaningful to you but also reflect your family’s values and beliefs.
Encourage volunteering at a young age
Volunteering can have a significant impact on young family members and help them develop essential life skills. Children can learn professionalism, teamwork and responsibility while taking a hands-on approach to understanding how individual contributions impact common societal goals. For instance, volunteering with charities that show measurable benefits from small contributions can demonstrate to children how even modest efforts can make a difference.
Create philanthropic family traditions
To help ingrain the core value of charitable giving, try creative approaches to family philanthropy. For instance, during the holiday season, you could organize a simple yet effective Giving Day tradition. On this day, each family member chooses a charity or cause they’re passionate about. Together, the family learns about each cause and decides on a collective contribution to each. This not only highlights the spirit of giving during the holidays, but it also encourages thoughtful family discussion and decision-making.
Another idea is to set up a simple system where children divide any monetary gifts or allowance funds into saving, spending and giving categories. This gives them hands-on experience with budgeting and contributing. However you decide to go about it, making philanthropy a fun, engaging family experience can set the tone for a generous and responsible approach to managing wealth.
Involve a wealth advisor in your charitable giving
You can currently deduct charitable contributions up to 60% of your AGI from your taxable income.10 But maximizing the tax benefits of your family’s philanthropy can be complicated, so it calls for the expertise of a wealth advisor. We can walk your family through the tax-efficient charitable giving techniques available to you and develop a tailored donation strategy. For instance, we can help you set up a donor-advised fund so you can recommend grants to a variety of IRS-qualified public charities while claiming a sizable deduction for the current year. We can also help you establish private foundations, reduce your taxable income in retirement with qualified charitable distributions from your IRA, or set up charitable trusts to create an income stream or reduce taxes.
Involving a wealth advisor early on in your family’s discussions about philanthropy will ensure that you’re donating in the most tax-efficient way possible. We’re also a great resource to discover the best options for charitable giving that align with your family’s values, mission statement and goals.
Generational wealth preservation starts with education
You’ve worked hard to build your wealth, but this alone doesn’t guarantee that it will last through the generations. Without family financial education and open, productive conversations about wealth management, your heirs might lose what they inherit through overspending or poor investments. Talking about money can be difficult given the taboo nature of the topic. But by starting conversations early, you can teach your children and grandchildren about responsible financial management, equipping them with the necessary knowledge to handle the family legacy. This knowledge includes the basics of budgeting, principles of smart investing, and how to align their values with the family wealth.
At RWA Wealth Partners, we understand the complexities of this process, and we’re ready to support you. We can set up starter investment portfolios, facilitate productive family meetings and help family members shadow financial discussions. Our team can explain complex financial concepts and advise on tax-efficient charitable giving. Engaging with an advisor can make your journey smoother, providing the guidance and support your family needs. Contact us today to discuss how we can help you create a plan that instills confidence and ensures the legacy you leave remains intact for your grandchildren and beyond.
Think of the current estate tax breaks as a limited-time offer.
Sources:
- The Currency. (n.d.). Exploring the questions and answers transforming life, work, and play in America. Empower.
- Fox, M. (2022, April 11). Who should teach kids about money? Americans say parents, but many don’t talk to their own children about it: CNBC + Acorns survey. CNBC.
- Kobliner, B. (2018, April 5). Money habits are set by age 7. Teach your kids the value of a dollar now. PBS NewsHour.
- Gupta, A. (2022, November 16). How to start an investment portfolio for a child? Wint Wealth.
- Charles Schwab. (2023, July 17). How to create a family wealth mission statement.
- Robehmed, N. (2014, July 14). The Vanderbilts: How American royalty lost their crown jewels. Forbes.
- Dolan, K. A. (2014, July 8). How to blow $9 billion: The fallen Stroh family. Forbes.
- Fritz, M. (1999, August 7). Wrigley estate mired in a sticky dispute. Crain’s Chicago Business.
- Bank of America. (2023, November 2). Spontaneous family wealth discussions and decisions can lead to regrets, finds Merrill study. PR Newswire.
- Internal Revenue Service. (n.d.). Publication 526 (2022), charitable contributions.
Disclosures:
For informational purposes only. Our statements and opinions are subject to change without notice. Data and statistics that may be contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
