Chris Taylor, a reporter for the Associated Press released an article on June 17, 2015 in Time Magazine pointing out that 70% of family wealth is squandered by the 2nd generation.
It’s an important observation because most of us work hard to provide for our families and hope to leave something behind for future generations to build upon. But the reality is future generations are more likely to lose their inheritance through lavish spending and poor investment decisions than they are in making wise decisions with the nest egg you provided.
Lack of Education to Blame
Thomas Paine wrote, “What we obtain too cheap, we esteem too lightly.” This principle holds true for many who find themselves recipients of a financial windfall. The story seems to radiate across most societal groups whether it’s a celebrity who suddenly goes from rags to riches with a valuable contract, or kids inheriting their parents’ estates.
The sad truth is many of these individuals are simply not educated enough to know how to handle large sums of money. And no wonder – financial education is not a priority in our public schools. Only 17 states require any financial education before graduating high school, and 81% of college students who have student loans miscalculate how long it will take to pay off their loans.1
One question many of my clients ask is, “where can my kids go to get financial education?”
You are their first resource. Don’t be afraid to speak to your kids about your financial successes – and your failures. You likely learned a few lessons along the way that helped you build your estate. Those lessons can be just as valuable as the inheritance you will eventually bequest.
You can also seek out community-based classes like Dave Ramsey’s Financial Peace University. While Ramsey provides Financial Peace University as an online course, consider looking into one of the live small-groups that may be offered in your community. Small groups can provide accountability and allow students to learn from the experiences of others.
Many families find it helpful to introduce their kids to their financial adviser. This will begin the relationship between your kids and a professional early on and can help clarify the role that your adviser has in helping you manage your wealth.
To Read the Time Magazine Article ► Click Here