Did you know that on average it takes a recipient of inheritance 19 days until they buy a new car? What are your thoughts on whether this a financially-savvy way to spend an inheritance?
In our busy lives talking about money with our family members may prove to be a daunting and sometimes an emotional subject to bring up, especially around the dinner table.
We may think that if we do not disclose our wealth we will encourage hard work, and by putting our chips on the table our family may start to become lazy and entitled.
Avoiding a conversation about money may have us running the risk of us not passing on the knowledge and wisdom gained in our life time, and the financial literacy skills that we have learnt through our own experience, self-education and the help of our professional advisers (financial adviser, accountant and solicitor).
Before we go any further, what is financial literacy? Broadly speaking, financial literacy ‘is a combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on your personal circumstances, to improve your financial wellbeing’.
There are five key indicative behaviours that relate to your financial literacy:
So, why might it be important to pass on your financial literacy skills? According to Roy Williams, Founder and President of Williams Group*, the statistics are less than rosy when it comes to looking at what happens to the wealth that one day will pass from you to your family via your estate plan; roughly 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third*^. While you may not consider yourself ‘wealthy’, it is still important to reflect on the two key reasons that were found to be behind these high percentages; a lack of or low levels of financial literacy by the second and third generations, as well as trust and communication breakdown among family members. With this in mind, there are several things that you can do to make sure your family are financially-savvy and work together now and when the time comes to receive their inheritance.
Financial literacy is important for both you and your family members. Think about the impact financial literacy’s absence and presence has had on you as you have navigated your way through the world of personal finance in your lifetime.
It’s interesting to note that when asked why he was leaving the majority of his wealth to charity, Billionaire Warren Buffet explained that he wanted to leave his children enough money so that they could do anything, but not so much money that they did nothing.
*Over a 20-year period, Roy Williams and his associates interviewed 2,500 wealthy families who had gone through estate planning and wealth transition.
*^Williams, R., & Preisser, V. (2010). Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Robert Reed Publishers.