Our legacy is the lasting impression that we leave on our children. Gradually, those children are likely to have kids and start to think about leaving legacies of their own.
When we talk about leaving legacies, we usually only think about the next generation. But what if you planned enough to create a legacy that not only lasts for your children but continues for subsequent generations? By having a legacy that endures multiple generations, you’re not only setting up your children, grandchildren, and great-grandchildren with financial stability, but you are also making it more likely that your vision and values will live on.
The Importance Of Education In Generational Wealth Management
Upon the death of their parents, children from high net worth families can suddenly find themselves in possession of a large amount of wealth with no idea on how to manage it. Too often, the wealth parents have accumulated is wasted or mismanaged, leaving nothing for future generations to enjoy. Generational wealth management focuses on education so that high net worth families can accumulate large amounts of wealth that should benefit multiple generations.
By teaching your children about the value of wealth and how to manage it efficiently, you can make it more likely that wealth will continue to grow. With knowledge, you can instill a healthy attitude towards managing finances and this is a critical part of a lasting legacy.
Communication is crucial for generational wealth management. Having an open and honest relationship with your children about the family’s finances will help them develop good financial ethics. Your children need to understand that bank accounts are not bottomless pits. In an all-too-common worst-case scenario, unmanaged spending and mismanagement can lead to financial hardship or even ruin.
Topics for discussion include:
- Budgeting – knowing what money is available, where it comes from, and how it should be spent as part of a conscious plan.
- Credit – how is credit given, how it should be paid off, and the consequences of missing payments.
- Work ethic – your children must decide what they will do for a career and work towards it rather than living off your legacy. Managed wisely, an inheritance can provide a great opportunity for your children to pursue meaningful work that might not be possible without investment.
- Taxes – understanding how taxes work, what people must pay, and how to be tax efficient.
- Debt avoidance – living within one’s means is one of the most useful traits of high net worth individuals.
- Estate planning – just as you are thinking about tomorrow, planning for retirement is an essential part of financial education. Your children will benefit from learning how to invest and how to create their own legacy planning solutions.
For the most part, it’s never too early nor too late to start educating your children regarding financial matters. While you might delay detailing the complexities of taxes and estate planning until the children are adult age, start teaching your children the value of money early. Simple lessons such as rewarding housework with for money or being open about how much things cost will help build your children’s awareness from an early age. These lessons can help them manage their money (and the money that was once yours!) in later life, promoting healthy generational wealth management.
You may encourage older children to take summer jobs or internships. You might even consider offering them work within your business. Any of these lessons will help build confidence, a good work ethic, and an understanding of work and reward.
Giving As Well As Receiving
It may sound counter-productive, but giving is also a part of financial education. Philanthropic efforts and charitable giving share accumulated wealth responsibly. Generational wealth management isn’t about keeping money hidden. It includes doing good with it where possible.
By knowing that your children are capable of making shrewd charitable decisions, you can be confident that they’ll pass this on to their children, either through their words or their activities. Children that implicate themselves in doing good for important causes are the flag bearers of your legacy.
Future-Proof Your Wealth And Vision
No one knows what the future may hold or how short life will be, so it makes sense to start educating younger generations as soon as possible. Knowledge is more powerful than the wealth itself, so you owe it to your kids to share as much knowledge as you can.
If you’re not sure where to start, enlist the help of your wealth manager. He or she can advise you on what areas of finance you should be focusing on depending on your long-term plans and the age of your children. Remember that open and honest discussion is key – even if you’re facing a financial difficulty. Discussing a financial challenge is a great way to help your children learn about money so they can manage their own money more effectively. Show them the problem and discuss options and potential consequences. Outline how you intend to deal with the issue and talk about why you have chosen that path.
If you’re not already involved in generational wealth management and long-term legacy planning, get started today. By giving your children the tools to handle wealth effectively, you set them up for a prosperous, prudent future and a legacy of education that can last for generations.