AFTER YOU’VE become successful and accumulated wealth, what comes next? Americans are facing this question more often than ever before. CNBC notes that the number of millionaire U.S. households grew by more than 700,000 in 2017. This affluence can create a disconnect between parent and child: One generation created the wealth, while the other grows up surrounded by it.
As a financial planner, I’ve learned the younger generation has two options: They can either destroy the wealth or they can add to the family’s legacy. It’s challenging enough to raise your children to become a contributing member of society. Wealthy families have additional complexities to address: There’s a balancing act between teaching children the responsibilities of maintaining wealth and allowing them the freedom to grow on their own.
Instead of simply teaching lessons to the younger generation, the family must work together as a team. It’s this collective effort that will help the family maintain its wealth for generations to come. What’s involved? Families should focus their efforts on four key areas. Don’t consider yourself wealthy? I think these strategies can also be valuable for less affluent families hoping to raise their children to become money-smart adults.
1. Teach stewardship. The older generation has a responsibility to teach the benefits of wealth to their children. At what age do you start? I believe these conversations can begin as young as age four or five. Family dinners present the opportunity to communicate the family’s values. Work ethic can also be discussed. But more important, you show work ethic by example.
As your children grow older, they can be invited to your workplace, and be involved in both family meetings and meetings with your professional advisors. These experiences help them understand the family legacy and become stewards of its wealth.
2. Share financial information. For the next generation to succeed, they need to appreciate what’s at stake. Do they need to know all the financial details? No. But they need to know the nature of the family’s wealth. From this, they can develop the skills and desire needed to properly manage and add to the legacy.
A family retreat is an effective way to share the family’s finances. They can be presented in a formal manner, with opportunity for interactive discussion. Meetings should include family members of all ages, to avoid anyone feeling left out.
3. Encourage community service. If you own a small business, you’re already providing a service to your community. In a small town, the family business that employs 50 people may be more valuable than any community service project that family members could ever undertake.
That said, more formal community service should also be encouraged. This will allow the younger generation to have an impact in areas they feel passionate about. Consider projects that allow you to participate as a family. But also let your children get involved in service projects on their own.
4. Continue the legacy. As a family extends into the third or fourth generation, cousins will spend limited time with each other. A commitment to philanthropy can keep a family together for yet another generation. Starting a family foundation or donor-advised fund is a great place to begin. To be involved, each family member must contribute through monetary gifts and serving on the board. This helps everyone come together for a greater purpose.
Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. His previous blogs include Flying Solo, Money Date Night and That Extra Step. Follow Ross on Twitter @RossVMenke.