The word “sustainability” is often used in connection with impact or socially responsible investing, but sustainability is more than an environmental buzz word. In our recent webinar titled “Three Essential Ingredients for Making Your Family Wealth Sustainable,” we explored what the term means when applied to family financial planning.
When families set out to collaborate across generations on financial decisions, each family member may have a unique set of needs, goals and perspectives they bring to the table. For families that have accumulated significant wealth, the complexity is often amplified as they seek to tackle myriad issues around charitable, tax and estate planning.
That is why wealthy families need a solid framework for communication and decision-making. They need to build a sense of partnership and trust that supports using their wealth to benefit the family and reflects shared economic values.
In collaboration with our partners at Relative Solutions, Hollow Brook Wealth Management hosted a webinar in which we identified the following steps families can take to effectively make their wealth — and family harmony — sustainable for the long term.
- Embrace family complexity. A critical first step in developing a framework for collaboration is to anticipate and prepare for complexity. Particularly when you start to involve multiple generations – where marriages may introduce different cultures, religions and geographies into the family mix – simplicity is not the norm. Families should recognize and prepare for a diversity of needs, values and priorities. Consider establishing and communicating clear guidelines about who has a say in family financial decisions – for instance, determining whether it is limited to lineal descendants or includes spouses, and at what age children join the discussion.
- Recognize generational differences. Those who worked hard to build family wealth may have difficulty empathizing with those born into it, and vice versa. Parents and children need to be intentional about trying to understand each other’s distinct perspectives and challenges. For example, it's common for the generation inheriting wealth to struggle with defining themselves and finding a sense of purpose. Meanwhile, the older generation may worry about balancing a desire to provide their kids with opportunities with concern around creating a sense of entitlement or demotivation. Maintaining an appreciation for the perspective each generation brings will help make family conversations more productive.
- Model your money values. Regardless of age, kids learn by what they see and hear. If parents don't talk openly about money, children learn that they shouldn't either. That makes it more challenging to have the necessary conversations for making decisions as a family. But you don't need to set aside time for a formal discussion. Instead, consider the messages you want to pass on and then be deliberate about modeling them day to day. By regularly narrating small everyday financial decisions, parents can give children a window into their values and decision-making process.
- Create and maintain an open communication channel. Talking about money should be an ongoing process, and as children grow, age-appropriate opportunities arise to further the conversations. For example, you could talk with younger children about how they plan to use an allowance — what to spend, save and give. Later on, kids can be involved in the family's philanthropic decisions, either by researching organizations or helping choose where and how much to give. For older kids, consider openly discussing a budget for college. If children have learned they can express their thoughts and ask questions, it becomes easier to identify when it's appropriate to share more about the family's financial circumstances.
- Engage children in financial decisions. When adults make complex financial decisions, they often overlook the value of consulting the next generation. But every child, even those with little apparent interest in the family's finances, brings something of value to the conversation. Younger folks may have greater familiarity with new technology and teach their elders about a helpful tool or online resource. While you don't need to share your account balances or your net worth, involving children in your investing process is one of the best financial literacy programs you could design. It not only gives them a window into financial markets and the concept of investment risk and reward, it also reinforces your values and creates a sense of mutual trust and ownership around family assets. As they get older, you could set up small accounts for one or multiple children to manage some of their own money, either individually or together.
- Have other difficult conversations. Parenting often calls for initiating conversations with children that can be uncomfortable. But ignoring issues — whether about money, sex, drugs, or something else — can make them worse and may set a precedent that quickly impedes a family's ability to communicate and make financial decisions together. While some people seem to have a knack for diplomacy, the truth is that approaching hard conversations is a skill we can all learn — it just takes time and conscious effort.
- Start a conversation. Rather than trying to pinpoint the exact right time to initiate a conversation about money, jump in with your next financial decision. But don't just talk. Any good conversation requires a lot of listening. Be curious about your family members' needs and what skills they have that can be valuable to your collective efforts.
- Use your resources. Remember that you are not in this alone. If you need help, ask for guidance from professionals who have experience in family wealth dynamics. They can partner with you to initiate and facilitate discussions, lend a neutral perspective and get everyone more comfortable with complex but essential conversations.
You can access a full reply of the webinar here.
Disclaimer: Information provided is for educational purposes only. Your advisor does not provide tax, legal, compliance or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, your advisor makes no warranties with regard to such information or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.