How to Make Generational Wealth Last
May 1, 2023
Family wealth, by definition, is meant to be enjoyed by multiple generations of a family. Therefore, each generation must make important financial decisions that will help keep generational wealth moving and ensure the financial future of their families.
When considering how long generational wealth typically lasts, there’s an unfortunate answer: Not too long. Some studies have found 70% of generational wealth disappears by the second generation, and 90% is gone by the third. These statistics are genuinely frightening and create doubts about whether it is even possible to pass on generational wealth.
Fortunately, despite the statistics, building and maintaining generational wealth is still possible. The most significant factor in doing so is often providing appropriate financial education, keeping families involved in financial planning, and having access to the right financial resources.
Financial Education is Necessary
Perhaps nothing is more frustrating to the maintenance of family wealth than a family member — like a child — who doesn’t understand how difficult it can be to maintain wealth. After all, wealth is not grown by accident: It requires discipline, education about available financial tools, and developing the right relationship with money.
Families that want to keep generational wealth moving must ensure that all family members understand the difficulties in managing wealth. This requires an active educational effort. Families must ensure that money and personal finances are not mystified for any child. Instead, families must teach the next generation how to generate wealth over the long term. Families must also teach children how to protect their money from unwise investments and people who want to use them only for their money.
It is far too easy to watch generational wealth evaporate. Of course, your family can be different, but achieving multi-generational financial success requires conscious effort.
Keeping the Whole Family Engaged
If you want to keep generational wealth, you have to make sure everyone in the family understands how your wealth was generated and maintained in the first place. That’s not to say your five-year-old needs an in-depth understanding of the balance of asset classes in your stock portfolio. However, in an age-appropriate way, you should develop specific strategies that will keep your family members informed about your money.
As children grow older, you can begin to let them know more and more information. This information can include:
- How your wealth can be generated and expanded
- Broader economic circumstances that can impact your wealth and how you can manage these circumstances
- Bad financial decisions you have made, what you learned from them, and how you recovered
- How to create and manage a personal budget
Keeping your family engaged in wealth decisions ensures that, from a young age, they understand how your wealth is generated and how they can protect it in the future.
Use An Impartial Trustee
As the legal custodian of a trust, trustees are hugely important to ensuring that you keep generational wealth and ultimately position your estate for long-term wealth preservation. Unfortunately, far too many wealthy individuals select a biased or unqualified trustee. These trustees may be more vulnerable to making shorter-term decisions that will keep a beneficiary happy but fail to provide for the long-term interests of the estate.
Using an impartial trustee — such as an attorney, banker, or CPA — can ensure that the individual you hire has the necessary skills and expertise to make decisions that are in the best financial interests of your estate.
The Right Kinds Of Financial Resources
Maintaining generational wealth requires help. Therefore, your family must ensure the next generation has the tools and assistance to manage a financial portfolio. Financial services that can help sustain generational wealth include:
- Partnering with fiduciary financial advisors who understand your portfolio and financial goals.
- Working with insurance brokers who can ensure you have the right insurance products to protect your wealth and health in an unforeseen circumstance or accident.
- Speaking with business advisors who can ensure that any business continues to grow and expand.
- Private bankers who have experience with high net worth individuals. As such, these bankers can offer you the broad range of services needed to keep generational wealth in the family.
Different types of family wealth may need different levels of expertise. By working with services that have experience with high net-worth individuals — like private bankers — you can identify the types of resources your family needs.
Answering, “How long does generational wealth last?” is a question that ultimately depends on the planning you undertake. With the right tools and resources, you keep generational wealth in your family and ensure that you pass on resources from one generation to the next. However, as you can see, generational wealth is not a given. Keeping family wealth requires the proper education, resources, and services.
A primary example of accessing the right tools involves using private banking. Private banking offers many advantages for high-net wealth individuals, as it can enable you to access financial services familiar with building and maintaining family wealth. At First Western Trust, we understand your specific challenges and can work with you to ensure you pass on generational wealth to the future. Contact us today for more information on how we can serve your needs.