May 08, 2017 / Published 10:00 AM EST / Tahnya Parachuk
Are you transferring wealth to your kids?
To say that building and maintaining wealth is difficult might just be the understatement of the century. It takes dedication, talent, and a dash of luck to make it happen, and for many of us, the ultimate goal is providing a better financial future for our children. But knowing that, why is it that despite our grand efforts to build a more secure future for them, that wealth is so rarely maintained beyond a single generation?
In the U.S., 70% of wealth from high-net-worth families is lost when passed down a generation, and that number jumps to an astonishing 90% when passed down to the third generation.
So what’s causing it? Do people not appreciate money that they didn’t directly earn? Is it the Instagram culture, where lavish lifestyles are justified by likes and followers? Or is it a plain old lack of education on managing money and investments?
If you want to give your children a head start in achieving financial independence, and in maintaining your financial legacy for generations to come, here are three things you can start doing.
1. Talk to your kids about money management
One of, if not the best way to teach your kids about money, is to simply talk to them about it. Shocking, right?
It’s often said that kids with wealthy parents lack the same ambition that helped their parents obtain their success, and don’t appreciate the value of a hard-earned dollar. Conversely, it could also be said that wealthy parents don’t educate their kids about money, because once they’ve ‘made it’, they want their kids to have an easier path. In fact, 64% of wealthy parents admit they have shared little to no information about their wealth with their kids. The younger generation can’t be expected to handle a windfall of wealth if it’s all coming from left field, can they?
Teaching your kids the value of earning and saving can go a long way, even if it’s by having them complete regular chores in exchange for their weekly allowance. And if you want to double down on that lesson, help them make a basic budget for their allowance.
2. Teach the next generation about investing
Learning about earning money, and perhaps more importantly, not spending it, is a valuable lesson on accumulating wealth. Once your kids have got that down, it’s time to move onto more advanced growth techniques. Yes, we’re talking about investing.
Stock trading may not be the coolest way to spend a Saturday afternoon, but when 78% of wealthy people admit that their kids aren’t prepared to manage the family wealth, it’s definitely a worthwhile lesson.
If you want your assets to be passed down for generations to come, it’s important to teach your children and grandchildren about how to preserve and grow their net worth through smart investing.
Create a mock portfolio and ask your children to manage it. They will create an investment strategy based on their goals and choose investment options based on research. Once they learn how quickly the value of investments can fluctuate, they will hopefully become more aware of how to make smart investment choices and preserve wealth.
Like I said; it may not be the most fun way to spend a Saturday afternoon, but they’ll thank you later.
3. Introduce your financial advisor
There is of course, a more hands-off approach out there for people who aren’t comfortable teaching their kids about managing money, or who frankly, don’t think their kids will succeed at managing inherited wealth. That option is a financial advisor.
A financial advisor can create a clear plan for your estate, and help make sure that your money lasts for years to come. Introduce your children to a financial advisor, so that when the time comes, your kids are equipped to inherit and maintain your wealth for generations to come. That is the ultimate goal, after all.