By Darren Brown
Studies have revealed that an estimated 90% of affluent families lose their wealth by the third generation. This is startling when one considers the challenges that families encounter with succession and inter-generational wealth transition. Whichever category you consider yourself, rich or poor, there is an inherent desire to make the next generation better off—full stop!
Most people strive to leave a legacy of some sort for their children. As the Word of God states in Proverbs 13:22, “A good man leaves an inheritance to his children’s children.”
There are several reasons for generational wealth erosion. Some key ones include:
COMMUNICATION AND TRANSPARENCY
Alack of trust, transparency, and communication between current leaders and their heirs – this is so apt for families that, for years, ran successful businesses. The fundamental concern is often that the next generation is not fit for leading the business into the future or managing the family’s wealth. But the converse is true; if the future heirs or leaders are not given the necessary exposure in family financial matters, working in the family-run business, or, at minimum, allowed to demonstrate how they can make a positive contribution, then it is inevitable that the changing of the guard will become problematic.
FINANCIAL LITERACY
Let’s be clear: you don’t have to be an expert, financial guru, or accountant of sorts, but at the very least, having working knowledge of income and expense statements and a balance sheet will go a long way. You need to know what you own, what you owe, what you earn, and where it’s going. Additionally, there should be a focus on experiential development to improve the knowledge as well as the hard and soft skills of younger family members. Examples could include volunteering, internships, operating the business, or managing an independent venture.
PROVIDING MENTORSHIP
This is becoming an increasingly important engagement tool in both understanding the principles, priorities, and motivations of the next generation and providing them with the necessary opportunities and exposure to grow, develop, and craft their own space within the environs.
With these considerations in mind, whatever your intended legacy for your future generation, ensure you embrace the next generation and actively involve them from a young age, giving them the best opportunity to shift beyond wealth preservation into growth and transformation.
