Transitioning Wealth to the Next Generation – Inside INdiana Business – Inside INdiana Business

“From shirtsleeves to shirtsleeves in three generations.”  Nearly 90% of affluent families lose their wealth by the end of the third generation. This leads to financial ruin, the tragic loss of family relationships, and emotional stress. 

To successfully transition wealth beyond one generation, you must intentionally build a legacy of stewardship and financial responsibility.  Instead of focusing on the 90%, let’s focus on the 10%.  How do they do it?

Intentional Financial Parenting – Building the Bridge

Generation 3 (G3) will never experience the entrepreneurial risk, work ethic and time commitment sacrificed by G1 to build family wealth. G2’s role is to build a bridge between the two generations. As the conversations evolve throughout G3’s adolescence, the bridge can become more difficult to keep intact due to peer influences. This requires intentional financial parenting, as these conversations are unnatural. Research shows that it is more difficult for parents to discuss money topics with their children than it is to talk about sex. 

It starts with the goal of developing a well-rounded child with a strong work ethic, financial awareness, and social skills across socioeconomic classes. Communication is essential for parents to establish effective discussions around money with their kids. Starting the conversation will open the door to questions along the way, which will lead to important financial lessons. 

At some point, your children will learn about wealth and personal financial decision-making. So the question becomes, who will teach them? You or someone else? Sharing your financial experiences will help prevent them from making their own future financial mistakes.

Shared Family Financial Values

Stewardship is defined as the careful and responsible management of something entrusted to one’s care. Every family member should understand the expectation of being stewards of wealth, preserving it for future generations, and using it for the greater good. The preservation comes from teaching financial disciplines around frugality, saving, and investing, but the “greater good” comes from shared values defined by the family. This may include annual family meetings that define the family’s mission statement, goals, and values around money.

Like investing for your retirement, families should have a long-term view of wealth and transition of generational money. Teaching G3 the concept of “leaving it better than you found it” is an important mindset for building a long-term money view. In addition, young family members should see themselves as givers, not just receivers, of this wealth. Before they have children, they should understand the expectation and responsibility of giving to the next generation.

As children and adults, G3 should learn the family story. Many wealthy families who have found success in generational wealth transition will pass down the legacy of integrity …….