Overcoming Obstacles to Financial Education

Initiating conversations on wealth can be stressful and, for some, uncomfortable. But with 70% of wealth transfers failing by the third generation, education is critical.1

The largest wealth transfer in history is quickly approaching: Over the next 25 years, in an event economists call the Great Wealth Transfer, approximately $68 trillion will change hands from older generations to younger.2 But this will not be a seamless event. Nearly 70% of wealth transfers fail by the third generation – with “failed” defined as the receiving generation losing control of funds. 

The failure is largely due to heirs being inadequately prepared to manage wealth. But for reasons we detail below, it is common for financial education to be either delayed or neglected entirely, often by the generation currently in financial control. Generational communication gaps and social mores can further complicate discussions. 

Below, we discuss three of the most common objections to financial education and how they can be addressed to prepare the next generation to successfully inherit and manage wealth.

I Don’t Want to Burden My Children 

As with all of the objections we discuss, this concern is not without merit. The stresses and challenges of inheriting wealth can be formidable – look no further than news media headlines to see dramatic examples of wealth inheritors who have experienced difficulties. Frequently, this objection manifests in concerns that the next generation is too young or just not ready to begin undertaking the burden of managing finances. 

Yet delaying conversations about wealth can be counterproductive. The less prepared your children are, the greater the challenges they are likely to encounter. The below strategies can help you begin preparing them early: 

  • Separate financial education from disclosure. Financial education is often associated with disclosure of assets. And in light of older generations’ tendency to find discussing financial matters socially uncouth, disclosure is frequently ignored until wealth transfer is imminent. By separating financial education from disclosure, education can begin at a younger age. Eventual disclosure of the family finances remains the goal. By focusing on the fundamentals first, however, the learner can gain confidence, resulting in a greater grasp of financial best practices leading up to disclosure.

  • Hold multigenerational educational sessions. A multigenerational setting prepares all involved for disclosure and wealth transfer. The younger generation will be empowered to move forward with greater confidence when they have been given an opportunity to learn and practice the basics of good personal finance habits. And the senior generation is often inspired to convey meaningful insight in multigenerational discourse. The senior generation is able to observe the next generation developing confidence and abilities, and by the time disclosure occurs, all parties are ready.

We are Worried Our Kids Will Lose Motivation 

Many wealth creators set high standards for the next generation. For instance, many parents are focused on ensuring that their children gain admission to, and thrive at, elite educational institutions. They are often concerned that delving into financial education – with the end-goal of preparing children to manage family wealth – could be a distraction. Worse yet, increased exposure to the wealth they eventually stand to control could demotivate them, or even negatively impact their outlook. 

However, financial acumen is the one educational skillset that the next generation is virtually guaranteed to need. To facilitate engagement and sustain motivation, we recommend that financial education take place in tandem with larger conversations on purpose and values.    

  • Infuse core family values into financial education. By creating a shared purpose for wealth informed by core values, entitlement and demotivation are less likely. Look at your discussions as opportunities to solidify historic family values, view them through a contemporary lens, and gain consensus on how these values can guide the family with a shared vision for the future. Doing so can guard against demotivation by providing a purpose beyond wealth generation, allowing everyone a stake in the family vision. 

  • Reflect and share key stories. In addition to articulating core family values, storytelling and sharing experiences can be powerful tools to underscore that conversations on wealth are more than bottom-line balance sheet discussions. Psychologically, storytelling forges connections between people and to ideas, culture, history and values. And factual content is far more likely to be remembered when conveyed in story form. You likely have many decades of valuable experience. Which stories best represent your values and intentions for your wealth? 

Our Family is too Diverse for a Cohesive Program 

Each successive generation brings a wider range of age, professions, values, financial acumen, geographic locations and interest levels in managing wealth among family members. Indeed, many may find it challenging to imagine a meaningful financial dialogue that includes, for instance, both a 20-year-old artist and a 55-year-old MBA with decades of experience. 

  • Begin with broad, non-financial topics. Many first and second generation family members are understandably focused on financial wealth. But an inclusive financial education program that addresses non-balance sheet topics like cyber security or financial etiquette can act as a leveler across generations. These programs should facilitate the diverse experiences, interests and values of all participants to foster engagement. Families often find that newer family members, life partners or grandchildren have an additive perspective that can help bring the full impact of their wealth into focus.  

  • Start with a small, voluntary program. A voluntary program often resonates better than a hard sell. The program should presuppose no prior financial knowledge of the participants and encourage dialogue across the spectrum. By starting with the basics, the program will nurture the intellectual curiosity of even those with minimal financial knowledge. And starting with a small group is often a catalyst for momentum that attracts more family members as word of its value spreads. 

With the Great Wealth Transfer upon us, time is of the essence. By prioritizing financial education, families can ensure young family members have the opportunity to develop the skills they will need to manage their wealth. Education is a journey, and it is much more important to begin than to wait for the perfect program or the right timing. You will have many opportunities to adjust along the way. 

MULTIGENERATIONAL FAMILY

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Proven Advice for Moments that Matter

  1. Williams, Roy and Preisser, Vic. Preparing Heirs: Five Steps to a Successful Transition Of Family Wealth And Values. Robert D. Reed Publishers, 2010.

  2. American Bankers Association Research Study. The Changing Face of Wealth Management 2019 Report. Oct. 23, 2019.

Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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