Improve Your Family’s Financial Literacy

Did you know that on average it takes a recipient of inheritance 19 days until they buy a new car? I don’t know about you, but my thoughts are that perhaps this may not be the most 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 emotional subject to bring up. 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 lifetime, and the financial literacy skills we have gained through experience, self-education and with the help of professional advisers.

Financial literacy may be defined as ‘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:

You may be asking why it is 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. 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, having low or no financial literacy by the second and third generations, and trust and communication breakdown among family members. With this in mind, here are a couple of things that you can do to improve your family’s financial literacy.

• Sit down as a family and have an open discussion about the money that is expected, how you came to accumulate this wealth, the strategies that you have employed to build and retain your wealth, and any expectations that you might have regarding the use of your assets in the future.
• Suggest that adult family members seek professional advice about their existing circumstances. A professional adviser can put them on the path to understanding their current financial situation compared to where they would like to be in the future, and how best to handle receiving a future inheritance.

Financial literacy is important for both you and your family. Think about how important financial literacy has been to you in your lifetime.

* 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.

Based on an article from iress Financial Knowledge Centre

Disclaimer:

The articles are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specific circumstances.

The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.

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Your InterPrac FP adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.