Multi-Generational Financial Education: Aligning Inheritances to Family Values

As part of an ongoing series, Truepoint is sharing ideas to help educate your children about financial issues and to help you prepare for their financial future.

For wealthy families, the last and most significant part of educating children and grandchildren about financial matters may involve an inheritance. Because inheritances are often not just about money, the goal of financial education is not just to promote responsible financial behaviors. It may involve ensuring future generations understand the values that form the foundation of the family’s wealth. The translation of these values across generations may help extend the family’s legacy, informing career choices or shaping philanthropic activities. In some cases, preserving values may be just as important as sustaining financial capital.

Truepoint’s eBook, Proven Principles for Preserving Legacies Across Generations, outlines various strategies that families can apply to ensure inheritances are aligned with family values. Here’s an overview:

1. Invest in human capital

Investing in skills and rewarding the right behaviors may yield superior long-term returns than complex investment strategies. The goal is to prepare heirs to be good stewards of family resources. Parents can model good financial decision making and look to reward children for initiative, persistence, hard work and other characteristics that can help sustain the family’s financial capital.

2. Consider opportunities outside the family

Legacy preservation may be effective in broader communities that extend beyond the family. Philanthropy and community service can help bond different generations around specific causes or commitments.

3. Determine how much is enough

The key is to empower future generations without giving them a sense of entitlement. Or, to paraphrase Warren Buffett, leave enough so that they can do anything, but not so much that they can do nothing.

4. Be intentional about the “business of family”

Some families wish to keep alive the vision of the original wealth creator, a goal that requires focused effort. Family mission or vision statements can help in this area. For large and very wealthy families, regular meetings, formal governance processes and the support of a family office may make sense.

5. Focus on quality conversations

It can be tricky to talk about money, but the families that successfully preserve their wealth and legacies across generations are notable for their commitment to communicating openly and sharing the values of the original wealth creators.

It’s a Lot of Work, but Very Worthwhile

To be clear, it takes a lot of effort to educate children and grandchildren so they are smart and grounded about money matters. And it may be even harder if those kids will receive an inheritance. If it were easier, then fewer families would fall victim to the “shirtsleeves to shirtsleeves in three generations” phenomenon. Of families with multi-generational wealth, a full 70% see the wealth lost by the second generation and a stunning 90% by the third. We encourage you to download the eBook, Proven Principles for Preserving Legacies Across Generations, to learn more about how you can avoid being caught in this trap.

Again, this is a lot of work, but ensuring that your children and grandchildren understand the role of wealth within the family, as well as the opportunities and responsibilities that come with it, can help ensure the best of your family’s legacy lives on and its wealth is preserved for generations to come.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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