Passing Knowledge and Values
There is upwards of 30 trillion dollars In generational wealth ready to be passed down. The biggest mistake families make is not transferring knowledge and values.
Money isn't everything.
The intellectual capital and the instinct to be smart with wealth is just as important. But are elders transferring enough knowledge and values to their children?
Wealthy parents in particular don't often educate their children on how to build and maintain wealth. Along with wealth, elders need to pass down fiscal knowledge and even more importantly, The values that helped create that wealth in the first place.
Education is critical!
How do we get the next generation to have a curiosity? How do we generate in our children the desire to know where the wealth came from and to take it upon themselves to take the reins and start handling more of the family business and wealth?
History tells us that of the wealth that is transferred down to the next generation, 70% is lost by the second generation, and 90% will be lost by the third generation. So there are three things that can be handed down,
1. Wealth
2. The knowledge of how to build and manage wealth
3. The family values.
It is important to have a professional team, from the tax side, to the investment side, to the legal side. And it is important to introduce the younger generation to these professionals as soon as possible. It's important that the younger generation start to build relationships with the family advisers and professionals.
Research has shown that one of the prime indicators of success in the future is the ability to delay gratification. The famous marshmallow experiment from Stanford showed that the children who delayed gratification were more successful in college and in life.
With multiple children, simply splitting up the finances is often not the ideal solution, As you lose the eficiencies of scale and the investment opportunities of a large pool of money.
When you look at some of the most successful wealthy families in history, they run their family wealth as a business, and keep the money together as much as possible. They run their family business with governance, and with a board of advisors.
Excerpted from this Wall Street Journal Interview