Preserving core values in a family with generational wealth

By Beth Braverman

Start teaching financial literacy now

When it comes to managing intergenerational wealth, many families spend a lot of time focused on the logistics of moving sizeable assets from one generation to the next, using strategies such as trusts, gifting and life insurance. But there is another, softer side of intergenerational wealth transfer that experts say is just as important to consider when it comes to the success of future generations: maintaining family values.

“Transferring wealth without wisdom is a waste, no matter how much you want to transfer,” says Will Rogers, an Ameriprise financial adviser in Evans, Ga.

In some ways, imparting that wisdom is a bigger challenge for families than the logistical aspects. That’s because those values are often harder to define and come along with a host of emotions and histories unique to each generation and individual in the family.

“When it comes to family enterprises, the human side goes far beyond what they’re producing and the P&L or revenue distributions,” says Sarah Salomon, who leads the UBS Family Advisory and Philanthropy Services team. “It’s about ‘How are we, as family members, going to become financially independent and not reliant solely upon the family business and distributions? How can we work together to enhance our understanding of what it means to be financially autonomous and financially successful, both together and separate from the family business?’”

While the road to raising careful stewards of generational wealth is different for every family, there are some best practices that can help improve your chances of success. Here are six important strategies to keep in mind.

Start teaching financial literacy now

The earlier your children understand the basics of how money works, the better, but it’s never too late. Age-appropriate lessons taught in real-world situations—giving an elementary school student a budget for back-to-school shopping, for example, or helping an older teen responsibly use a credit card —can provide your kids with a foundation for making bigger money decisions as they get older.

The ultimate goal, of course, is for them to become adults capable of managing their own household finances, including their inherited wealth. Keep in mind that the most important lessons that kids absorb (financial or not) may come from what they see you do versus what they hear you say. Demonstrating financial discipline will be more impactful than simply extolling its virtues.

“The classic line that we get as advisers is that we don’t want to talk to our kid about money because that will make them lazy and unmotivated, and we want them to have their own careers,” says Alison Berman, president and CEO of Palisades Capital Management. “But unless you start educating and training your kids how to be responsible with money, they’re not going to magically be more responsible as they get older. If you pass away and they inherit money, they’re not going to know what to do with it.”

Encourage questions about money

Less than a third of parents talk to their children about money, according to a study by BECU, the largest U.S. community credit union. More than 40% of the parents admit to avoiding such conversations because they’re afraid of them. But the more open communication you can have about money, the better. You want your kids to feel comfortable asking you questions not only about money management in general, but also about your family’s wealth. The latter is an opportunity to explain how hard your family worked to build the wealth that it now enjoys and to share the decisions made over time in order to achieve it and maintain it.

“Sometimes with the rising generation, there is a feeling of expectations that they are wealthy and should just know everything that there is to know about wealth and money,” says Ross Bruch, a senior wealth planner at Brown Brothers Harriman. “They believe they can’t ask questions or engage in the conversation to acknowledge that they don’t know or understand something. So, they just remain silent.”

Conversations about your family’s wealth may be uncomfortable at first, but the more often you can talk about money, the more comfortable you’ll get talking about money — and the more comfortable your children will be with their own wealth.

Let them fail

As tempting as it can be to swoop in and solve problems for your children, letting them fail and supporting them as they recover may be a better way for them to learn self-sufficiency and independence. The goal is to help your children understand that plans often go awry, and to help them gain the flexibility to handle life’s curveballs on their own.

These events also provide an opportunity to share your own stories of failures or mistakes.

“Enterprise creators often have stories of many failed attempts in the business or difficulties they’ve faced, but those don’t make it into the family lore,” says human capital coach and family dynamics adviser Kristin Keffeler, author of Navigating Family Wealth & Creating an Impactful Life. “Because when all the rising generation sees is your successes, the get the sense that certain people just have the magic touch. And if they try something and aren’t good at it, they must have just missed the success gene.”  

Letting your children make some financial decisions — and financial mistakes — when they’re younger and the stakes are low can help them build the confidence they’ll need to make such decisions when they’re older. A teen who spends their allowance early in the week and can’t join their friends on a weekend outing has learned a valuable lesson about budgeting and delayed gratification. Letting kids fail also teaches them that they cannot and should not rely on their family’s wealth to bail them out of every challenge that arises.

Use philanthropy as a way to connect

Generation Z is the most diverse demographic group in history, and they’re also more likely to identify and work as activists for the causes they believe in. A recent Edelman study found that seven in 10 are involved in a social or political cause, with climate change and social justice among their top focuses. Such interest provides an opportunity for you to connect with children or young adults on issues that are important to them.

“Philanthropy is one of the best ways for families to share core values, not only because the next generation can see its direct impact on others. It can also be a great way for them to learn about a cause, work as part of a team, and make meaningful contributions,” Salomon says.

If your family already has a charitable giving strategy, including a donor advised fund or foundation, getting the younger generation involved can help them see how you use your wealth to promote your values. As they get older, they can become involved in decisions and take control over some or all of the family’s giving strategy.

Support individual identities outside of the family enterprise

One challenge for some young people growing up with a family business is that their identity in their community may become synonymous with the business. This can lead to questioning whether their achievements reflect their own success or their family connections. It can also make it difficult for them to forge their own identity.

“The kids want to have a sense of genuine connection with others, and not have wonder if they’re only liked because of their family’s wealth or their parents’ connections,” Salomon says.

Families should encourage the younger generation to pursue their own interests — even if those interests are unrelated to the family business — and take on opportunities in which their association with the business may be less visible. They might, for example, go to camp or college in a different part of the country or the world, or spend some time working in an entirely different industry.

Bring in third-party help

Even if all parties have the best intentions, conversations between generations, especially about money and values can get emotional. One way to minimize conflict is to bring in a third-party facilitator who can act as a neutral voice to help the family move forward together toward a shared vision.

Such interactions also serve the purpose of introducing younger generations to family advisers, who may be able to assist them in the future as well. A Capital Group study found that 55% of Generation Z and 62% of Millennials would work with their parents’ financial advisers.

Many financial advisers offer these types of services, and you may also find resources through your family office providers, estate planners or family business consultants. Some families conduct meetings every quarter or ever year, with a third-party facilitator, aimed at providing a forum for open communication on such issues and an opportunity for busy families to regularly connect, in person if possible.

“If there is a trusted, outside and respected person from your child’s point of view that can articulate the values or the grounded behaviors you want to see your children live in your life, engage that person in the conversation, so it’s not just the two of you,” Rogers says. “There’s a community saying, ‘Here’s what we are trying to do.’”

Beth Braverman is an award-winning freelance journalist and frequent contributor to Family Business magazine.

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