In most cases, there’s a motivator beyond ourselves that keeps us on track to achieve financial success: our family. We want to make sure our spouse or partner, parents, kids, and grandkids are well taken care of. More than that, we want them to experience the financial freedom to chase their goals, and to achieve big, exciting things with their lives.
You might even have an estate plan in place that provides generously for your kids, grandkids, or great grandkids. But you know what they say about best laid plans of mice and men.
Statistics show that 70% of wealthy families will lose their wealth by the second generation. An even more staggering statistic is that 90% of family fortunes are lost in three generations. This might be disheartening, and you may feel as though all of your hard work is wasted. However, there are a few key steps to take when building generational wealth that can help you protect your family and continue the tradition of financially caring for generations to come.
If you’re planning a family fortune in a vacuum, it’s likely the generations following you will lose it. That’s because you haven’t brought them into the planning conversation. Sharing family values and understanding each other’s definition of success and wealth is an important first step.
When you’re planning for generational wealth, you need to account for everyone’s opinions - not just your own. You can start by opening the conversation and approaching it with honesty. Talk to your kids and grandkids, if they’re old enough, about the importance of caring for family. Explain to them why you want your money to start a family legacy, and ask them what their opinion is on the subject. Clear through the “entitlement” hurdles to avoid family deterioration.
You might be surprised - many of them may not have considered generational wealth as something that’s important to them yet. By starting this conversation now, you’re helping to get everyone on the same page when it comes time to build an estate plan that supports generational wealth.
When you read that 90% of wealthy families lose the family fortune in three generations, it’s easy to point the finger of blame at the second and third generation. We might even view them as irresponsible. However, part of the blame lies with the first generation of wealth earners. To grow generational wealth, everyone needs to be on the same team, which means everyone’s voice needs to be heard.
This means that first generation wealth earners needs to be open to the ideas of the second and third generation in the family, and everyone’s values need to align. When each generation views the family fortune as a team effort, and not an inheritance to spend freely, people start to think beyond their own immediate financial needs. Decisions are made in the name of continuing the family legacy. Involving younger generations in a family foundation, for example, will help them become invested in this goal. This “team” mentality can also help you navigate around personality differences and potential arguments on where the money should go.
There’s quite the taboo around money conversations with your kids and grandkids. This can be compounded by the fact that each generation has their own unique money values - which can bring up some unpleasant tension when discussing a long-term financial strategy.
Bringing in a third-party to discuss your family’s unified financial goals can help. Although a financial advisor is typically viewed as someone who works one-on-one with an individual or a married couple, that isn’t always the case. Our job is to understand your unique financial goals and help you achieve them. If your goal is to create wealth that extends for generations to come, your advisor should be able to sit down with all parties immediately involved and help to create a plan that’s in everyone’s best interest.
More than that, they’ll be able to objectively come up with financial strategies to continue growing your family’s wealth beyond the first generation. They can also act as a single point of contact for everyone, which can help to eliminate miscommunication problems.
At Wood Smith Advisors, we believe in building a relationship with all of our clients to better create custom solutions that meet their financial needs. We love helping families connect with one another while creating a strategy to build their wealth in a way that serves everybody and still is set up to continually grow for future generations.
Interested in learning more? Contact us today to set up a consultation. We’re excited to join you and your family on this journey!
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.