What’s Keeping the Affluent Up at Night? Their Kids

It’s never too early help kids improve the financial literacy of the young people in your life.

Key Takeaways

  • Research shows that high-net-worth individuals care more about the impact of wealth on their heirs than how much (or how little) wealth will be passed on.

  • The average American college student graduates with $37,000 in student loan debt.

  • Two thirds of affluent Americans think the young people in their lives place too much emphasis on material possessions. Over half think they are naïve about the value of money.

  

Does great wealth really bring fulfillment? An ambitious study of the highly affluent by Boston College suggests not. The study found a surprising litany of anxieties: their sense of isolation, their worries about work and love, and most of all, their fears for their children.

Further reinforcing that finding, the biannual U.S. Trust Survey of Affluent Americans asked parents what they worried about most. Their primary worries had nothing to do with tax or wealth-transfer issues. No, their top six concerns were centered on the impact of wealth on their heirs!

  • 65 percent said: “Too much emphasis on material things”

  • 55 percent said: “Naive about the value of money”

  • 52 percent said: “Spend beyond their means”

  • 50 percent said: “Initiative could be ruined by affluence”

  • 49 percent said: “Won’t do as well financially”

  • 42 percent said: “Hard time taking financial responsibility”

Research found that the greatest  fear of affluent successful people is not about making more money, or protecting what they have—it’s about how their wealth will affect their heirs and their heirs’ families. Dr. Bob Kenny, the principal researcher of the Boston Study and also a visiting faculty member at the Institute for Preparing Heirs, stated that philanthropy is an excellent vehicle for discovering meaning and value in the wealth that heirs receive. Philanthropy he once said, “helps teach the giver that money sometimes carries its burden with it and can harm or unsettle a recipient if given without caution.”

Perhaps participating in the act of philanthropy gives an heir a clearer view of some of his or her own personal feelings about inheriting wealth.

You might say the big secret is that the rich consider their greatest treasure to be their children, not their financial assets. To hear that about the rich may alter conventional wisdom at a time when we are facing the largest transfer of wealth in history—almost $1 trillion dollars a year will be passed down to future generations for the next 50 years in the United States alone! Couple that with a historic post-transition loss rate of 70 percent and you have both a tragedy and an opportunity in the making.

Learn how to initiate conversations about the topic of money and its impact on the future generations in your family. It’s the primary concern of the parents (not just the latest tax regulations).

In the future, well-prepared parents and grandparents will help complete the second half of the estate-planning equation—preparing their heirs for the assets. That is the future of estate planning—and good parenting.  

Thanks to The Financial Awareness Foundation, (TFAF) April is officially Financial Literacy Month in the U.S. but there’s never a bad time to focus on financial education of the next generations. A lack of financial preparedness has huge societal costs, and in the coming years as Americans age, these costs will likely increase.

We need to educate all young Americans about the importance of starting early. For example, young workers will need to save close to $1,000 per month to remain in the middle class; $925 per month for 30 years at 8 percent grows to $1.26 million, but that amount saved for 20 years only grows to about $508,000. Young people are often surprised to learn that the few hundred dollars they’re saving each month may not be enough to retire into a middle-class lifestyle.

According to TFAF, too many young people and their families are burdened with excessive education debt and other forms of debt. Student loan debt exceeds $1.3 trillion and is the second largest class of consumer debt after mortgages. For instance, the college class of 2016 graduated with an average of $37,000 in student loan debt.

We need early financial education in the home, mainstream financial literacy programs starting at a young age, and government funding for a public awareness campaign much like those on public health and safety issues. It should be incorporated into school curricula, media campaigns, corporate wellness programs, and, most importantly, ongoing parental discussions.

The next step is for you to take action. Encourage the young people in your life to educate themselves about financial freedom. They can start by reading some articles, using a mobile budgeting app, or signing up for a personal finance class at a community college. Encourage them to try to live on less than they earn each month and automatically save the difference. While they may be able to save only a little, it is OK to start small and grow into a larger savings plan over time. The key is to start now!

Conclusion

By doing so, you and your heirs will have more financial freedom and personal choice—two worthwhile things that money can help buy.  Don’t hesitate to reach out to us for assistance with short-term or long-term financial goals you may have for yourself or your young adult children. We’re here to help.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

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