Those of us who have achieved a certain age remember a Crosby, Stills, and Nash hit song that began “You who are on the road, must have a code, that you can live by…”
The song went on to say “Teach your children well, their father’s health, will slowly go by…” (Now, technically, the word “health” is “hell” in the song but for the past thirty years I have believed it’s “health” so I’m sticking with that.) Anyway, what we have found after multiple years of research is that parents don’t always teach their children well, especially concerning matters regarding their own wealth and finances. This may be changing, however, with GenX and Millennial investors. Ultimately, financial advisory firms need to be aware of these differing attitudes regarding the sharing of information between generations and be willing to step in as appropriate to ensure that the next generation understands if they will inherit wealth and how to ensure that it lasts.
For multiple years we have conducted focus groups and individual interviews with wealthy individuals. It has not been unusual to find individuals, especially within the WWII generation, who have been unwilling to share financial information with their children. “They don’t need to know until it is time.” “I want them to feel they need to work for a living.” This attitude softened somewhat with Baby Boomers, especially women, who were more willing to include their children in financial discussions. Interestingly, we find that wealthy GenX and Millennial investors believe their children should be brought into the discussions at an early age.
In Spectrem’s quantitative research with households with more than $25 million of net worth, some of the reluctance of older generations to discuss financial issues is demonstrated. When asked at what age children or grandchildren should be introduced to one’s financial advisor, 36% of investors over the age of 66 indicated that children should not be introduced to their advisor until they were over the age of 25. In contrast, 42% of investors under the age of 50 indicated that children should be introduced to the parent’s advisor between the ages of 13-17.
The investors with $25 million were asked to rate on a scale of 0 to 100 whether their financial advisor had any responsibility to educate their children or grandchildren regarding their wealth and how to handle it. (0 indicates no influence/responsibility and 100 represents significant influence/responsibility). Those over age 66 rated the advisor’s responsibility at 46 while those between the ages of 51-65 rated it even lower at 44. In contrast, those under age 50 rated the advisor’s responsibility level at 73. Perhaps some of these younger ultra-wealthy investors represent beneficiaries who wish they had been educated earlier? Or perhaps younger households are just more comfortable and confident about discussing these issues with their children.
When asked about the best method for educating children or grandchildren regarding their financial situation, the recommendations also varied by age. Younger investors, who are more comfortable with learning via multiple tools, recommended everything from webinars and seminars to giving them materials to study on their own. Older investors preferred the face-to-face meeting approach.
Regardless of your level of wealth, having these important discussions with your children is important, regardless of your age. While I would tend to agree that children should be college age or above (unless you are uber-wealthy…but I don’t need to have those types of discussions), it seems that children should be informed about important issues once they reach college age. Here are some basic tips on the types of information they should have:
1. Give them the location of important contact information and banking information. Make sure they know the name of your financial advisor and your primary bank account information.
2. Teach them about the importance of insurance and tell them what you may have. Again, make sure your policy information and the required contact information are in a place they can easily find.
3. Let them know about any wills or trusts. While the details are not necessary, they should know what to ask about and to whom.
4. Create a list of investment holdings and tell them where to find it. You may have assets of which your financial advisor is unaware. Make sure they know what exists so it can be properly transferred.
5. Ensure they know where to find all of the appropriate information regarding real estate assets. Even if this information is kept in a centralized place (i.e. at your office, with your attorney, etc.), it’s important for them to have access to the proper legal information.
6. Keep them involved in the process as you set up an estate plan. This is an ideal opportunity to introduce them to your financial and legal advisors.
7. Educate them regarding taxes. Make sure they have spoken to either your accountant or their own regarding the tax impact of any future distributions.
8. If you do have uber-wealth, get your children involved in the charitable or foundation work you may have in place. Help them to create their own definition of giving back.
Talking about money and all of the implications surrounding it is one of the most difficult issues most families face. Regardless of whether you have multiple millions or much less, it’s important that we learn to “teach our children well”. Open up about financial information so they may learn from your success as well as your failures. Younger generations may already be following the mantra of “teach your parents well”.