Jalene Hahn: Honest communication makes transferring wealth successful

Leaving a legacy for the next generation is an often-stated goal. Even families with modest means want to leave something for their children. It is estimated that 70% of wealthy families will lose their wealth by the second generation, and 90% will lose it by the third.

Traditionally assets have been prepared for the transition, while little focus is given to the inheritors. Becoming wealthy requires a lot more than knowledge. It requires hard work, discipline, sacrifice and many other traits that are very hard to teach and pass on.

In most families, the generation that earns the wealth is the generation that worked and experienced hardships to make sure it achieved something better. The members of that generation worked hard and diligently saved to achieve their goals. Their efforts paid off, and by the time they were ready to retire, they could live comfortably and still have assets to pass on.

Members of the next generation, while growing up, saw their parents’ struggles and had a good understanding of the value of sacrifice and hard work. While they may be more materially comfortable as adults, they can still remember the frugal aspects of their lives growing up. This awareness leads to better decision-making regarding education and financial choices. They are more likely to build on the foundation given to them by their parents.

The third generation never experiences the struggles and sacrifices the previous generations endured. The only thing the members of the third generation know is a life of plenty, and they often lack an understanding of what skills and attitudes are needed to create and maintain their current lifestyle.

The families that do maintain multi-generational wealth are successful in having open and honest family discussions, educating the next generation about finances and promoting financial independence through work and saving habits. They also connect each generation to the family wealth origin story, making sure each generation understands the sacrifices made to accumulate wealth. It’s important to understand that having family wealth and preserving family wealth are two very different things, and the latter often requires careful and considerate planning.

Open, honest family discussions around money and wealth are difficult. We still live in a society where money is often a taboo subject. Most parents find it difficult to discuss their wealth and what happens when they’re gone with their children. They may also want to help their children feel normal and may shield them from understanding the size of family wealth. They may do a disservice to their children if they don’t include them in conversations and decision-making activities.

Other communication barriers can be related to generational communication gaps and approaches to decision making. Older generations may look at the younger generations and not understand their interests, choices and perspectives. Younger generations may feel stifled by the older generations not being open to new ideas or input and may eventually disconnect. All generations may want the same outcome but approach it in different ways.

An early start teaching the lessons of hard work, discipline, sacrifice and other hard-to-teach traits allows for reinforcement of appropriate behavior and course correction before difficult attitudes and behavior patterns become engrained. Family dysfunction is often a result of a lack of communication and trust. Open, honest, and transparent communication can be the basis for developing a strong, cohesive family where everyone feels heard, appreciated and valued as an individual.

Putting money in the context of family history, values and actions can help your family beat the odds. Of course, you could be like one of my clients who are always busy taking S.K.I.—Spending Kids Inheritance—vacations. They sometimes even take the kids with them.•

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Hahn is a certified financial planner and owner of WWA Planning and Investments in Columbus. She can be reached at 812-379-1120 or jalene@wwafp.com.