For most families, the natural evolution of wealth concerns eventually shifts from creating, preserving and transferring wealth to the realities of next generation education and preparation. With a growing body of research underscoring the importance of applying early and sustained attention to the preparation of heirs, many families have reprioritized to focus more intentionally on wealth education for next generation family members.

Starting Early

With younger family members, education about the role of money and wealth starts with the introduction to basic financial concepts like saving, spending, giving, how to assess value, and how to get paid what you are worth. In line with a young person’s developing capacities and interests, financial literacy lessons shift to increasing levels of sophistication over time (think fundamentals of investing, financial risk management and understanding how to read financial statements). 

Here, engagement hinges on first-hand experiential learning activities focused on growing personal responsibility and accountability for money. Some go as far as to create opportunities for next generation family members to gain early experience (if not direct participation) with the family foundation or other defined philanthropic efforts in support of growing financial literacy.

At this stage, establishing the right mix of formal and informal activities, and emphasizing interactive over didactic learning is critical to keeping next generation family members engaged.

There are many excellent teachable moments in everyday life that can be effectively leveraged in support of overall education efforts. It is perhaps not surprising that parents turn out to play a critical role in helping young, next generation family members establish financially fluency. In fact, while 80% of parents believe that their children learn everything they need to know about money in school, 90% of students attribute their financial education predominantly to their parents.²

The Challenges of Fostering Engagement and Becoming a Family Stakeholder

As family members pass through adolescence and into young adulthood, basic education should give way to more advanced wealth management concepts like family wealth preservation and stewardship, family talent and leadership development, enterprise succession planning, family governance, and contributing meaningfully within and outside the family. Through this process, which involves more experience with shared decisions vis-à-vis family wealth, individuals are gradually initiated into the sometimes secretive realm of the family’s financial architecture and move closer to meaningful participation as family stakeholders.  For next generation family members it the ongoing invitation to participate that fuels their levels of engagement. 

However, many families struggle with a generational disconnect at this important juncture. Without explicitly stating that such criteria exist, senior generations often look to, and wait for, younger generations to demonstrate that they possess certain talents, aptitudes and/or interests that make for a responsible family stakeholder. It is only when these are observed (or inferred) that a family member is considered ready for greater access and participation in the family wealth enterprise. Yet next generation family members are often at a distinct disadvantage, having to navigate this challenge – and the challenge of establishing an identity in the context of a powerful family legacy – without clearly understanding the pathways that are open to them for meaningfully participating in the enterprise and establishing themselves as responsible family stakeholders. This disconnect is akin to tasking someone with winning the game without knowing the rules, and can represent a lost opportunity to engage the next generation for years to come if not anticipated and proactively addressed.

It should come as no surprise then that communicating early, often and clearly about wealth matters is a documented best practice in next generation engagement and preparation, and an important predictor, along with trust, of wealth sustainability in multigenerational families. Technical considerations notwithstanding, successful wealth transfer hinges on a family’s commitment to managing wealth together as a family enterprise, engaging next generation family members in a shared family mission and decision-making discussions, and creating opportunities for family members to learn about, practice and gain experience with the roles and responsibilities they may be expected to inhabit. These factors, considered alone or in combination, are critical to any discussion about preparing next generation family members to be responsible family stakeholders.

About Arne Boudewyn

Arne Boudewyn is Head of Family Dynamics and Education, Abbot Downing’s national practice of PhD-level consultants who collaborate closely with clients on strategies for addressing the complex personal, familial and financial dilemmas that can accompany significant wealth and that often determine its impact on current and future generations.