Hi, thank you for tuning into today’s Emerald GEM, which stands for Get Educated in Minutes. I’m Allison Pierce, Wealth Strategist for Wilmington Trust Emerald Family Office & Advisory® and your host for today’s podcast. In today’s GEM I’m going to answer the question: How do I empower my family through wealth education?
First, what is an empowered family? An empowered family is one that feels engaged in the family’s wealth and has healthy communication and alignment in shared values. When a family is empowered, its members feel an ownership for preservation of the family’s wealth rather than an entitlement. Financial and wealth education is vital to empowering all family members, no matter whether they are the wealth creator, spouse, or member of the next generation.
In today’s podcast, I will walk you through what I mean by financial and wealth education and why it’s important. Then, talk about how you start.
What is financial and wealth education and why is it important?
Research shows that one of the reasons estate plans fail after the first wealth transition is not because of the technical aspects of the plan, such as the tax planning or investment strategy, but because the family is not prepared to receive the wealth.*
What do I mean by prepared to receive the wealth? A prepared family is equipped with the skills and knowledge to manage wealth and understands the family’s values to maintain the legacy. One way to prepare your family to receive the wealth is by intentionally creating a plan to educate the family.
Today, we are focusing our conversation around how to empower your family through financial and wealth education.
Wealth education is having the foundational knowledge of a variety of wealth management-related topics. These topics include areas such as banking, investments, financial planning, taxation, and estate planning. Just to name a few. Wealth education is also having the understanding of the roles and responsibilities the family members will play in the transition of wealth. And an understanding of your family’s core values.
Each of these areas can be a specialty in itself and may require years of schooling before being fully understood. The expectation is not for family members to become experts in any area overnight, but simply to gain the foundational knowledge to understand the basics in the subject matter. This process takes time and commitment; however, putting forth this commitment can lead to all family members feeling confident to engage in conversations and feel ownership over the responsibility of passing on the family’s legacy.
So, I’ve talked about what wealth and financial education are, and why they are important. Now, I want to turn and talk about where you start.
Of course, when families begin to instill financial responsibility at a young age, the children may benefit from the early education. But it is never too late to start education no matter what the age of the family members. You can begin by setting a path for the wealth education:
- First, start with the basics
- Then, begin to layer in the technical aspects over time
First, starting with the basics.
A common misconception might be that educating your family means you have to share your net worth or the details of your wealth plan. Families may feel that if heirs know all details of the wealth, the next generation might be less motivated to pursue their own endeavors.
Education is more than learning the details of the wealth plan—it is having the foundational understanding of the fundamentals and an appreciation of your family’s values.
What does this look like? The family should begin to understand the high level of each subject matter. Begin to learn the common the terminology used, foundational concepts, and strategies that might be implemented. This will help provide the family with the knowledge needed to feel empowered, begin asking the right questions, and have engaging conversations among multiple generations.
You can accomplish this through creating financial education experiences by setting small goals to spend 15 minutes a day or one hour a week to reading an article or book, or listening to a podcast, and creating intentional discussion.
A key takeaway is that financial concepts are more difficult to understand in the abstract. Anytime that you are able to take a concept and apply it to your specific situation, the better chance the knowledge will stick. For example, rather than talking generally about building a budget and sustainability, go through the exercise of creating a budget and model what that looks like over time.
This is where a family’s advisors can play a key role. When advisors share their firsthand involvement working with the family’s wealth, it provides the family with a more personalized experience. Plus, it helps to build direct relationships, which can be key if something happens to the primary family contact. This advisor-led education can be structured as a family workshop or series of workshops to bring multiple generations together with their advisors.
Now that the foundation is set, we can begin to layer in the technical aspects of the wealth plan.
These technical aspects may include details around the family’s net worth, how the assets are held, and when the assets may be accessed by the beneficiaries. The pace of sharing these details can be determined by the family members’ age, comfort level, and preparation to receive the information. Each family can decide what pace is most effective for their unique situation.
What does this look like:
- Consider providing small, low-risk opportunities to allow your family to be involved in financial decisions to see how they handle it.
- Start by having conversations around the specific assets and how an asset may be invested.
- You can begin to discuss the vehicles that are in place that help promote the transfer of wealth.
- And it is also a great time to share the different roles each person will play during the transition of wealth, so all family members understand the responsibilities they hold.
When families understand the technical side of the plan, it is easier to feel engaged and committed to the wealth.
During the process, it is important to engage as a family about the family’s values and goals for the legacy. Families should find opportunities for shared decision-making between generations. In fact, when families discuss the estate planning process together, it helps show the heirs that they are seen as more than just recipients of a financial transfer, but that they are valued for who they are as people.
Financial and wealth education allows families to be empowered. Empowered family members feel engaged in the family’s wealth, and when the next generation is engaged, the family can experience enhanced communication and aligned values between generations—this may help to promote a smooth transfer of wealth.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about how to empower your family through wealth education. We would be glad to help you.
*Source: Most Estate Plans Fail, Don’t Let Yours Be One Of Them
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