July 22, 2020
It seems logical that people born into high net worth families would be taught about money from an early age. However, the way that families actually handle the subject varies tremendously. Some families share everything with their adult children – the good, the bad, and the ugly – but have difficulty conceptualizing their adult children as humans independent of the family tree. Others pretend the wealth just exists, and share very little information with the next generation about how it was created or how to appropriately and responsibly manage it. Ultimately, a successful approach within a high net worth, multigenerational family involves educating the next generation about their wealth, explaining what it means, and imparting financial knowledge and responsibility while also encouraging them to develop their own identities apart from the larger family unit. This helps enable future generations to form their own personal relationships and have their own families, while nonetheless remaining closely connected to the broader family unit, and working together to manage the family’s multigenerational wealth. Communication is key to ensuring that the next generation understands the magnitude of what they have been born into and the kind of responsibility that this may bring, whether to a family business, a philanthropic endeavor, society as a whole, or simply to their own siblings and cousins.
Individuals Within a Family
Ensuring that members of the next generation develop individual identities while also feeling part of the family network is critical. They need to be able to form their own identities in order to lead focused and productive lives. If they develop little sense of self, it may be difficult for them to succeed in forming close personal relationships outside of their nuclear family. Thus, there is a balance to be struck. In the ideal scenario, the first generation is able to establish strong and supportive emotional connections with their adult children, while being available for support but also encouraging them to be independent. There is a delicate balance to be maintained – parents should help their adult children to independently achieve goals, but should not go so far as to do the work for them. This can become a slippery slope, as the first generation often feels that they are “just trying to make it easier.” While this may make the task at hand easier, it makes the next generation’s overall personal development more difficult, as it deprives the next generation of the sense of agency and independence that accompanies genuine personal achievement. Setting the tone at the top is important. Future generations are more likely to be able to develop their own identities, while simultaneously maintaining strong family ties established by their parents and by older generations, if this is the family pattern.
A Family Constitution
Some high net worth families, particularly those whose wealth is connected to a family business or enterprise, choose to create a family mission statement or constitution that outlines their values as well as goals for preserving cohesiveness through the generations. The first generation may find it helpful to formally document the core values of the family, and to outline the rights and responsibilities of family members who may inherit wealth as a result of the family enterprise, even if they do not want to create a permanent document. Merely sitting down to sketch it out can help the older generation determine what values, principles, and goals are most important to pass down, and what might not matter to them so much in the long run.
Discussions and Decisions
Including the next generations in family discussions and decisions, on an age appropriate basis, may also be valuable. Feeling like you have a voice and that your opinion matters is critical to being part of a family. Everyone has a role to play. Even if the roles are not equal due to generation, age, or desire to be involved in certain matters, each role is still important. And an individual’s role can and should change over time. Including younger children in a discussion as benign as where to take a family trip starts to involve them in the process of decision-making, even though the consequences of their choices are limited.
Adult family members of the next generation should begin to have more of a role in family decisions regarding investments, financial goals, the family business, and other fiscal matters. It is important to keep in mind that each individual family member is different – some may have no interest in participating in the financial and investment decision-making. This is certainly acceptable and understandable, however the family should nonetheless encourage this family member to participate in the discussions on some level, so that this family member can remain informed, and so they can gain the knowledge that is needed to prepare for eventually inheriting significant wealth.
Perhaps the best way to involve the next generation in family discussions and decision-making is through philanthropy. Many high net worth families have some type of family foundation, donor-advised fund, or other independent philanthropic endeavor. This type of family project ties together several goals: it strengthens bonds between family members who are not direct siblings or parent-child pairs, it involves multiple generations working together simultaneously, and it communicates from one generation to the next the key family values and priorities. In the case of private foundations, it helps to educate the next generation on matters of investing, record-keeping, and accounting, as well as the process of holding and leading meetings, documenting meeting minutes, creating a business plan for the foundation, and other financial matters. Depending on the size and scale of the foundation, it can also provide an opportunity to teach the next generation about organizational governance, managing budgets, and employing staff. Regardless of the size, scale, or structure of a family’s philanthropic initiatives, the act of collective family giving can be a priceless tool for fostering family togetherness, communicating values, and educating the next generation.
No matter the size of your family, keeping the lines of communication open across generations is key to ensuring family unity and successful relationships between older and younger members. Communication is key to developing an understanding and appreciation of family wealth among members of the next generation, preparing them for their future roles while also encouraging their own independence. Starting the right conversations early, and continuing to have those conversations as children grow into adults, can put you on the right track. But even if the youngest family members are already well into adulthood, keep in mind that it is never too late to bring them into the conversation.
One of the best ways to start the family dialogue is to host an annual all-family meeting. Stay tuned for our next commentary, where we will explore ideas about the best way to organize an annual family meeting, and will provide a sample annual meeting agenda that any family can use to get the conversation started.
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