With Mother’s Day around the corner, we spoke to IG Private Wealth Management Consultant moms about building financial confidence in the next generation.
Many high-net-worth parents will leave the majority of their money to their children. But with that wealth also comes responsibility.
Nathaly Gagnon, a Senior Consultant with IG Private Wealth Management in Montreal, says it’s about more than the comfort that your children will receive an inheritance. It’s about being prepared to manage that wealth, along with unexpected life changes. There’s a responsibility for young people to develop sound financial strategies and self-sufficiency. And there’s also an opportunity for parents to nurture that responsibility early on, to help set the next generation up for success.
Here are five ways to help you sustain family wealth and build financial confidence in your children.
Demystify Money
Money has become increasingly intangible over the past few decades with the advent of digital banking and ATMs. “Believe it or not, many in the younger generation believe that all you have to do is put in a debit card and the money comes out,” says Trudy Butt, Sr. Exec. Financial Consultant with IG Private Wealth Management in Whitby, Ontario. “That’s all they know.” This abstract “money grows on trees” concept is why it’s more important than ever to teach children the value of a dollar, where it comes from, how it’s earned, how it’s taxed and how they can earn money back through investments and savings accounts like RRSPs and RESPs.
High-net-worth parents, in particular, express a desire for their children to be well-off, but not entitled; they don’t want their children feeling their parents owed them anything. It’s important from a multi-generational perspective that children of affluent families grasp both the tangible value of money and the meaning and gravitas behind that money.
Start Young
“The minute your child knows what a dollar is, start talking about it,” says Nathaly, who credits her own mother for instilling her with values of financial confidence and independence. The earlier children learn about money and start saving — even if it’s just birthday money to begin with — the more runway they have for it to compound over time. This is true for all income levels and can get young people invested in the process as they watch their wealth expand.
Many affluent families aren’t comfortable discussing family money and engaging their children in wealth management discussions. They may not want their children to know too much or they’re simply not sure how to approach the conversation. However, communication is key and delaying discussions can make things more challenging for children who inherit wealth later.
Like any life advice, it’s about providing the right financial advice at the right time. And that’s something a professional can help with.
“Time works in our favour,” says Nathaly. “Time is what makes money grow.”
Help Make it Meaningful
Retirement may not be top of mind for young people, but that doesn’t mean they don’t have financial goals.
Children should be encouraged to “create meaning” and “attach purpose” around their money from the moment they start earning or receiving it, says Nathaly, who underscores that money should be viewed as a tool not an aspiration in and of itself.
Goal setting is especially important in cases of more affluent families where children may be accustomed to their parents paying the bills. Once they realize how long it takes to earn or save for a particular goal, they develop a better appreciation for what they really want and develop lasting habits around saving and preserving wealth that will serve them well into the future.
Also, a good wealth transfer strategy should consider shared values, and what inspires and motivates the younger generation, not just parents.
Review Inheritance Plans
Perhaps the most important financial conversation you need to have with your children is the one you’re trying hardest to avoid.
Discussions around wills and wealth transfer tend to make people uncomfortable, but they’re vital to ensuring beneficiaries are equipped to handle an influx of “sudden money” in ways that will serve them wisely and respect the values of the benefactor, says Nathaly. Failing to disclose wealth or outline estate plans can create unnecessary confusion or animosity down the line.
These “high risk communications” can also provide a needed reality check, especially given today’s longer life expectancies or as needs change, she says. The level of inheritance can’t always be assumed or guaranteed.
Engage a Financial Advisor
As mentioned above, money and emotion go hand-in-hand, and both are dynamic. For this reason, Trudy suggests engaging a financial advisor who can work with affluent families as an impartial advisor to create a detailed plan for preserving and maximizing wealth — particularly for young adults in the early stages of understanding their finances.
“Sometimes parents and children don’t bond that well and money makes it more difficult,” she says. “But if it comes from a stranger and that stranger says, ‘if you save, for example, fifty-dollars a month and you keep that in there for 20 years, this what that fifty is worth’ — it’s mind boggling how their outlook on money totally changes.”
With an unprecedented intergenerational wealth transfer on the horizon, it is vital for the next generation to become financially engaged and adopt strategies that will serve them well into the future. An experienced IG Private Wealth Management Consultant can help you approach these sensitive discussions with your children and create a customized and tax-efficient approach to transfer your wealth.