Are Your Kids Ready to Inherit Your Wealth?

A dad helps his son with financial lessons at the kitchen table. — (Image credit: Getty Images)

Your family’s wealth transfer seems like a far-off concept when your children are young — or even when they’re young adults, but would an intern be expected to become a CEO without years of education and lessons learned along the way? This same concept applies to families teaching the next generation about managing intergenerational wealth.

The Great Wealth Transfer is unfolding, and unfortunately, many parents aren't taking their responsibility to prepare their children seriously enough. In fact, many parents may unknowingly hold biases against their kids that create roadblocks in the wealth education process. But the key to a successful wealth management strategy is starting early, understanding common biases, educating the family’s “interns,” and familiarizing the next generation with key wealth-building concepts through beginner exercises.

The preconceptions parents don't even realize they have

Parents often look back and remember how they thought about (or didn’t think about) wealth, their less-than-optimal spending habits and having a lower level of financial literacy. They often think of the immaturity they may have had when they were younger and unknowingly project that onto their children, causing them to shy away from facilitating important conversations about wealth.

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Just because a parent may not have been financially literate at an early age doesn’t mean the cycle needs to continue and that their kids aren’t deserving of the opportunity to learn. When parents don’t talk about money, it indicates a lack of trust to their children and implies they’re not ready for conversations about wealth. Failing to build financial confidence early on can make it more difficult for children to feel empowered to make decisions around their family's wealth long term.

The importance of educating 'interns'

When thinking again about the intern analogy, you wouldn’t expect an intern to hit the ground running and make an impact on a business on Day 1. But if you don’t invest time and resources into teaching them, they won’t make an impact on Day 100, either. If you intend to empower your interns to be the next generation of leaders, you’ll need to give them the resources they need to learn. Exposing interns to early conversations puts them on a growth track and allows them to take on increasing responsibility over time.

This approach is also a way to reduce the stress children may feel when their family’s wealth is officially passed down. Much like an ill-prepared CEO, children who are suddenly at the helm of a family estate without any guidance or experience talking about their wealth and their goals are set up to fail. However, if they’re properly educated and are involved in the early stages, they’ll not only have an understanding of the family’s greater vision and plan for wealth, but they’ll feel empowered to help shape its future.

Getting your intern ready for the job

Familiarizing younger generations with key wealth-building concepts starts with how you talk about money at home. Informal and educational conversations about how you or your family earned its money and demonstrating your comfort with talking about money make formal sit-downs less intimidating.

Then it’s time to think about intern onboarding. Questions, such as, “If you received $10,000 today, what would you do with it?” introduce your children to the idea of long-term planning. These questions also prompt them to think about what matters to them most, and where they’d be most excited to get involved within the broader family estate plan. Activities such as building discovery boards help lay out short-term vs long-term goals and push children to draw distinctions between wants and needs.

As your intern learns and scales up, the conversations should not only increase in complexity but become more interactive and honest. There are many games and guides that can help unpack and identify not only how a child feels about money, but also how their family has shaped those perceptions. Even sitting around the dinner table and telling stories from your childhood about finances can help soften these difficult conversations.

Especially if you were raised in a household where talking about finances wasn’t the norm, these types of activities may feel uncomfortable, but it’s important to remind yourself that CEOs don’t become leaders overnight. Your child is going to carry on your family's legacy and be responsible for ensuring that the wealth you built makes the most impact. So why would you not invest the time to make sure they’re ready for it?

It all starts at the “intern” level. Giving your kids early guidance will set them up to be prepared, engaged and confident in making decisions around wealth.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.

The information contained in this communication is not meant to be a substitute for thorough estate planning and is not meant to be legal and/or estate advice. It is intended to provide you with a preliminary outline of your goals. Please consult your legal counsel for additional information.

Investing involves risk including possible loss of principal.

SEI Private Wealth Management is an umbrella name for various wealth advisory services provided through SEI Investments Management Corporation, a registered investment adviser.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Kelley provides tax, estate, philanthropy and succession planning advice to ultra-high-net-worth and high-net-worth clients. Throughout her career of over 20 years in wealth management, Kelley has solely worked with high- and ultra-high-net-worth families, individuals and organizations. Immediately prior to joining SEI, she was a relationship strategist at Hawthorn, PNC Family Wealth, where she led client management activities.