It’s a problem most people would love to have, but it’s a problem nonetheless: You and your spouse have amassed a degree of wealth that you hope to pass on to your children, but you’re hesitant even to broach the subject of money with them out of fear they could become spoiled by the very thought of an inheritance.
The key, according to experts, is opening an ongoing family dialogue on finance and investment that’s calibrated by how much you think your kids can absorb. It could start at a very young age, long before you introduce them to the idea that the family has money they may someday be entrusted to manage. And if done properly, you can help set up your offspring for future success without killing their motivation to work hard in the meantime.
The alternative can be financially devastating. According to the Heritage Institute, an Oregon-based organization that promotes multi-generational estate planning, 9 out of 10 inheritance arrangements ultimately collapse. And the problem isn’t new. “Riches,” wrote Adam Smith in The Wealth of Nations more than 200 years ago, “very seldom remain long in the same family.”
In prior eras, family finances were often thought to be of no concern to anyone but the primary breadwinner. Thankfully, more couples now share this information between themselves. But many are still not comfortable including their children in any conversation about money — either out of an antiquated sense that it’s still “none of their business,” or a much more modern concern the kids will lose motivation once they find out there’s real money there.
It isn’t just parents who are reluctant to hold these conversations, though. And the taboo doesn’t end when the children are no longer kids. Merrill Lynch Private Banking and Investment Group’s recent Young High Net Worth Insights Survey found that adult children in wealthy families often avoid talking about money in family settings, because they worry they will disappoint their parents or fear that by asking questions they will seem overstepping or over eager. Consequently, of the 18- to 35-year-olds who participated — all with investable assets of $1 million or more — less than half said they ever discussed financial matters with their parents.
“But when they don’t ask and parents don’t discuss money, the absence of effective communication can jeopardize family wealth, harmony and even the transfer of certain values from one generation to the next,” said Merrill Lynch’s Phil Sieg upon release of the survey in early April.
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