How to Have Meaningful Conversations About Money

Passing wealth of both large and small sums to future generations is an important part of financial planning and yet so few families do that well, even when they have all of the proper documents crafted and in place. Everything may end up in the right hands but how long it will last is an important question to ask.
A recent study reported by Reuters found:
  • 70 percent of the participants want their money to last beyond their lifetime, but that the same group has an unreasonable expectation of making the money last.
  • 40 percent of individuals surveyed say its never too early to start discussions about finances with family, but far fewer ever do it.
  • 20 percent have no idea what level of distribution would keep them comfortable forever.
A similar story found that 70 percent of wealthy families lose their wealth by the second generation and a shocking 90 percent by the third.
The biggest underlying theme from the information seems to point to a lack of trust and communication.  Almost 75 percent felt the next generation isn’t financially responsible enough to handle inheritance and 64 percent reported they have “disclosed little to nothing” about their wealth to their children and beneficiaries.
How could this be?
  • People were taught not to talk about money.
  • They worry their children will become lazy and entitled.
  • They fear the information will leak out.
How to get things on track.
One way to reverse this trend, or at least mitigate it, is to recognize the behaviors that created it in the first place.  The takeaways from an interview Reuters conducted with financial advisors revealed this feedback:
  • People tend to be overly generous and give their family members too much without any accountability.
  • As families grow from generation to generation, there’s less money to go around so you have to be explicit over how you want the money used.
  • Don’t confuse a discussion about wealth (broad topic) with one about dollar amounts (specific topic).  Rather, use a broader big-picture view.
  • Have an understanding of your heirs’ spending behaviors when deciding “who gets what”.  While you might want to split an estate equally among heirs, you could put parameters and restrictions on how the money is distributed so it can last longer.
Ignoring or avoiding the topic is the wrong approach, as is not discussing the Will or offering a “financial roadmap in the form of a family mission statement”.  Get everyone involved in the discussion, including grandchildren, so a sense of financial literacy and responsibility is properly instilled.
Here are a few additional tips for talking about inheritance:
  • Be clear about your own motives for raising the issue.  What are your concerns, what do you want to happen, and why?
  • Respect the fact that others may not be ready or able to face their own or another's death.  For example, making decisions about personal property immediately after a funeral may be too difficult given feelings of grief and loss.
  • Remember that listening is the part of communication we too often forget.
  • Ask "what if" questions.  For example, "Dad, what would you want to have happen with the things in the house if you and Mom were no longer able to live here?"
  • Look for natural opportunities to talk.  For example, when a friend or relative is dealing with transferring personal possessions when someone moves or dies, use the situation to introduce a discussion.  Ask, "What would you have done if you were in that situation?"
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“The journey of a thousand miles begins with one step.” - Lao Tzu
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