Wealth & the Next Generation(A)
Over the next 50 years, our country will experience an enormous intergenerational transfer of wealth, with the assets passing from one generation to another estimated at more than $40 trillion. This massive money transfer will take place against a backdrop of the most affluent society in history, one where the size of the average home and the number of family cars have both doubled over the past 50 years – but also one with an increasing concentration of wealth and growing gap between rich and poor. According to the Federal Reserve Board, the richest 5% of U.S. households now own – and will likely pass along – nearly 60% of the nation’s wealth.
This presents families facing inheritances with challenging questions that have both personal and societal implications. We often hear from our clients: How much wealth is enough for our family? How much should we pass on to our children, and when? How and at what age do we talk to our children about money? How do we teach our children about money, values, and meaningful work in a society that is so often blatantly materialistic? And perhaps the key underlying question is: How do we ensure that our child’s inherited wealth is a blessing and not a curse?
The answers to these questions – and the process of discovering them – will be unique to each family. There are excellent resources for professional advice available from estate planners, family wealth counselors, and your Trillium Asset Management portfolio manager, among others. While there are no simple answers, here are actions for families to consider as they embark on transferring wealth to the next generation:
Talk with children about money. It’s never too early for parents to begin teaching children financial literacy. The traditional allowance can provide a good focal point for age-appropriate conversations about money, and can help educated kids about spending, saving, giving, and making choices around money, all within limits. Dan Kindlon, author of “Too Much of a Good Thing: Raising Children of Character in an Indulgent Age,” observes that an inheritance is very similar to an allowance – “except there are a lot more zeros involved.” Children who have early practice with making choices around allowances are likely to be well prepared as stewards of inherited wealth later on.
Start young. Many planners and CPAs recommend beginning to transfer assets to children early on, primarily for tax purposes, but there are benefits involving learning and communication as well. Passing money to children as young or middle-age adults offers parents the opportunity to see how children handle wealth, to identify specific challenges, and help shape future giving.
Incorporate philanthropy. Children can participate in philanthropy, even at a young age. Some families establish a “triple piggy bank” for their children, with each contribution allocated among compartments for saving, spending, and giving. Others create a special family giving fund, with the children collectively making decisions about the allocation of grants. The charitable giving process offers children invaluable opportunities for learning about responsibility, sharing, and leadership, as well as the specific societal challenges in their own communities.
Connect money and values. Jon and Eileen Gallo, authors of “Silver Spoon Kids: How Successful Parents Raise Responsible Children,” observe that money itself is neutral, but that in the absence of values can cause “incalculable problems,” while the connection between money and values has the power to solve problems. The most powerful messages parents can send to children about the money-values connection come from parents’ own attitudes and behaviors. Parents who enjoy their work for the sense of accomplishment rather than for a paycheck, choose quality family time over material acquisitiveness, and are conscious about the societal impact of their spending and investing decisions, are teaching their children about the responsibilities, power, and joys connected with money.