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The Key to Generational Wealth

Financial Planning Insights Lifestyle

For many of us, the reason we work as hard is we do is to benefit our family. We want to ensure that our parents, partners, kids, and grandkids all have the life they want. One way we do this is by building generational wealth. Unfortunately, this isn’t always as easy at it seems.

Did you know that 70% of all wealth is lost after the second generation? The idea that any wealth you generate over the course of your career will dwindle away with the next generation might make you feel like you’ve let the air out of a balloon. Let’s explore why generational wealth doesn’t often work in practice, and how we can solve that problem in our own families and financial planning strategies.

Why Doesn’t Wealth Translate Across Generations?

Blaming one generation or the other is a common knee-jerk reaction, though it may not be the correct one. The generation with new wealth may not safeguard their assets in a way that stretches to future generations. On the other side of the coin,second and third generations may fail to maintain and grow their inheritance or preserve it in a way that continues to leave a legacy.

However, there isn’t really a “bad guy” in this situation. Every generation makes financial planning mistakes that can be costly. Instead of focusing on who’s in the wrong, it’s in everyone’s best interest to focus on a solution that serves every generation instead.

What’s the Solution?

Here in the midwest, we value family. For many of our clients, the drive to continually support their family with the wealth they’ve worked to earn is strong. And we understand valuing family better than most advisors!

As a family-owned practice, we help our clients come up with comprehensive solutions that set their family up for financial success across all generations. Although every family’s financial plan is unique, there are a few tried and true solutions to help avoid the generational wealth gap.

Align Your Values

To truly achieve generational wealth, everyone has to be on board. First-generation wealth needs to be willing to take additional measures to invest wisely, preserve wealth, and create an airtight estate plan. Second and third generation family members need to be open to continuing the tradition of passing on wealth rather than spending their inheritance with only their lifetime in mind.

Generational wealth is bigger than money. At its core, it’s about committing to leaving a family legacy. If you can bring your family together to agree on the kind of legacy you want to leave, placing a value on creating and preserving wealth across generations becomes significantly easier.

View Financial Decisions as Communal

While first generation wealth in a family may feel strongly about building a financial plan that sets up generational wealth - their hard work will be lost if they leave other family members out of the decision making process. Instead of viewing your financial plan for generational wealth as singular, start viewing financial planning as a team endeavor.

Building a financial plan as a team, where everyone gets a vote in how wealth is deliberately allocated, can help to extend your strategy and cement success.

Talk It Out

The number one step to take in the quest to grow generational wealth is to communicate.  Parents and grandparents who have grown their wealth over the course of their lives are often tight-lipped about the value of money and the financial planning strategies that have served them well. The cultural taboo that exists around honest money conversations makes it difficult for money-knowledge to be shared across generations, which decreases the probability of multi-generational wealth.

In the same vein, many second or third generation families who are inheriting wealth may not know how to allocate it wisely, and they may not have the emotional toolkit to continue making wise financial decisions rather than spending their inheritance on things that will improve their lives in the short term.

It may feel uncomfortable to talk about money with your kids and grandkids, but honest communication is key to cross-generational wealth. One way to start the conversation is by reaching out to a fee-only financial planner with experience facilitating financial dialogue.

A third party can help to set clear goals, and offer unexpected solutions that work for every generation’s individual financial needs while creating a cohesive management of a family’s wealth. At Michael Brady & Co, we focus on helping multiple generations in a family each achieve their individual financial goals while working together to communicate and build a legacy together.

Ready to get started? Contact us today! We’d love to talk to your family about how to build a wealth legacy that supports the goals and values of generations to come.