Rags to Rags in Three Generations

De Nitto, Liz
by Liz De Nitto

This old Chinese proverb sums up a common pattern in generational wealth pretty well and simultaneously incites panic in anyone trying to preserve their wealth for future generations of their family. So why is it that the first generation makes it, the second spends it and the third blows it?

In a study by the Williams Group, they report the top reasons are trust and communications breakdown, failure to properly prepare heirs, no family mission, or other reasons like a global pandemic. These reasons push us to ask the next question – how do you make sure your family doesn’t become part of the statistic? We believe one of the key components of wealth transfer isn’t necessarily the vehicle you choose, but the way you communicate that vehicle to the beneficiaries. Sure, your 8-year-old probably isn’t quite ready to hear about the Trust you established for them, but they may be ready to learn something like the importance of delayed gratification or even about how simple interest works. Learning these less complex concepts will help your child start their financial literacy journey and prepare them for the more complex topics later.

Historically, Sequoia Financial Advisors have found that as clients climb the wealth complexity ladder the communication is more likely to break down. It’s as if the topics become too daunting so the family doesn’t talk about money at all and it almost becomes taboo. If you’re reading this and thinking about this topic, you’re ahead of the game. Talk to your advisor about the abundant resources Sequoia has available to assist you on this journey. If you’re not there yet, the internet is also a great starting point. In recent years the interest and focus on financial literacy has grown exponentially so there is no shortage of information. Our suggestion: find an app or a way to make the lessons fun for you and your kids. If you start the conversations early and engage them often, they become a part of the family routine. Another tip for success: think about the importance of wealth messaging. First, document and communicate your own family values.

Learning about money doesn’t have to just be about balancing your checkbook (does anyone do that anymore?), but it can also be about the importance of giving back and helping those less fortunate than you. Think about the wealth messaging you received growing up. Consider what worked and what could have been improved. Define and document the wealth messaging you want for your child and create a plan. That plan should involve being intentional and consistent in your communication. Family meetings are another great way to consistently dialogue with your kids about money. That may start off as weekly meetings to discuss who earned their full allowance for the week and eventually morph into a discussion about a particular stock on your child’s investment watch list. Decide how often your family should meet. Perhaps weekly to check in about the simple things and then an annual family meeting on New Years Day to talk about the bigger items for the year ahead. We know life is busy so don’t set yourself up to fail. Set a calendar that will work for you and your family and remember to make it fun! Financial literacy is the knowledge and application of various financial skills. Just like any other skill this is something that needs to be developed over time and worked at. Learning these skills (at age-appropriate levels) is critical, it will set them up for a path to financial success. That might mean more than just personal success, it will also help them successfully manage the legacy you have worked hard to establish and preserve for your family. Many recent studies show that more and more kids actually want to have these conversations, so go ahead and give your kids what they want and get them started on the road to financial literacy!

Your Sequoia Service Team is happy to provide additional resources that can help you begin the journey of family financial education. Please reach out to your advisor for personalized support.

 

The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.