Your long-term plan for your finances should include honest discussions with family about money. Here’s how to do it.
Wells Fargo Wealth & Investment Management
Wells Fargo Bank, N.A.
When multigenerational wealth is involved, older generations often put serious conversations off as long as possible. After all, understanding the potential responsibilities can be overwhelming for their children and grandchildren, who may be hesitant to bring up the topic themselves. So how do families break down the barriers around talking about family wealth?
Our suggestion is to start educating the younger generations early and progressively. That means you don’t have to share every detail of your wealth with your teenagers, but you can start to educate them about your view of wealth and the strategies you’ve adopted. By being proactive and intentional, you can establish a foundation of knowledge they can build on as they gain awareness, understanding, and then experience.
Three ideas to create fruitful conversations about wealth
As you get started with your own family, you may benefit from some practical examples from families my team and I have worked with.
Build conversation with questions, not statements. To be most effective, conversations are best founded in openness and curiosity. Older generations may need to resist the temptation to craft a lecture or give top-down advice. That can be intimidating and ineffective. And younger generations may need to resist listing the differences between themselves and their parents’ and grandparents’ generations. That sets up conflict from the very beginning.
Instead, use open-ended questions, including questions about money values. This can be a great way to start a conversation about the values that are important in your family.
- A great opening question for young people to ask: “How was money discussed when you were growing up?” This question often leads the family member to think about their own parents or grandparents, and the values that were passed down from one generation to the next.
- An opening question for parents to ask their children: “Are there things about our family’s wealth we haven’t discussed that you are curious about?”
Break the assignment into pieces. Trying to accomplish everything at one time is overwhelming. Consider tackling financial learning by dividing it into three categories:
The first covers financial fundamentals — earning and spending, saving and managing money, and giving.
- For earning and spending: One family’s daughter, an avid softball player, had her eye on a premium bat. Her parents challenged her to save half the price, so she had to determine trade-offs of how she spent her allowance and how to bring in income to reach her goal.
- For saving and managing money: Another family I worked with had each of their three college-aged kids manage a $15,000 investment account. They could ask questions of the family’s financial advisor, but their main charge was not to lose any principal. The parents added, “In case you haven’t noticed, we’re pretty successful financially. We aren’t going to look over your shoulder, but if you have any questions, feel free to come to us.” I loved that.
- For giving: Many families set aside a portion of their charitable giving budget for younger generations to disperse, whether through a foundation grant or a direct cash gift. (Younger kids usually choose a cause related to animals, by the way.) You can have them present their proposal to the family or have them engage in activities like researching a nonprofit’s financial health or mission.
The second category is financial resilience and grit. This takes the form of real-world practice, of creating a plan and sticking to it to reach a goal as well as looking at lessons learned if a goal were not achieved.
The third category entails financial firsts — first phone, first job, first apartment. You can use each milestone as a time to prepare for new responsibility, foster good judgment, fill in any knowledge gaps, and have a good two-way discussion. These financial firsts arise across decades, and in families of means, they warrant clear communication.
Look again, and again if needed, to build a plan for stewarding your family’s wealth. I recently got an update on a client family with an over 100-year-old business. Six or seven years ago, I talked to the current leader of the business, and the assessment was that none of the next generation had the leadership skills needed to take over. Today, one of the children is the CEO and has grown the business to be an international company, with average growth of 15% to 20% each year.
In the end, what led to the change was the willingness to have open conversations around their concerns, as well as to reevaluate the talent in their family. I also remind families not to discount the talent that marries into their family. They may not be blood relatives, but you could be losing opportunity with all the talent that’s sitting at your family gatherings.
Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
