Wealth literacy: Empowering the next generation

At the Center for Family Legacy, we offer education to overcome these odds. We work to equip the next generation with Wealth Literacy. Wealth Literacy involves gaining proficiency in financial literacy, but it also includes much more than that.

Wealth Literacy encompasses understanding and putting into practice individual values and your shared family values. It’s also about learning to have healthy communication about money to cultivate and participate in healthy and productive relationships.

Additionally, it involves being thoughtful about your impact on your community and the world, gaining the ability to parent and mentor the next generation around wealth, and becoming empowered to serve as a wealth creator, not just a wealth sustainer.

We believe that Wealth Literacy requires competencies in six core areas. These include:

• Personal money management
• Wealth preservation
• Investing
• Personal & professional development
• Philanthropy & community impact
• Family wealth

In this paper, we’ll look at each of these six core topic areas and offer ways you can begin implementing some education strategies. These strategies will equip your family’s next generation to be prepared to live a meaningful and purposeful life with wealth.

Personal money management

Topics: Net worth, saving, budgeting, credit & debt management, banking, home ownership

We all have things we wish our parents had told us when we were kids. But perhaps one of the most oft-repeated themes we hear from generation to generation is lack of financial education. And with each new generation, there are more challenges to face as our financial landscape evolves around us. From day-to-day expenses to long-term budget forecasting, preparing our children to navigate the world of personal finance is essential in the world we live in today.

When surveyed, both teens and young adults struggle to grasp financial literacy concepts. Only 24% of millennials understand basic financial concepts. Nearly eight in ten American teenagers don’t maintain a savings account and 87% say they don’t really understand their personal finances. And only 27% know what inflation is and can do a simple interest rate calculation.^{Disclosure 2}

This lack of financial literacy follows us into adulthood and poses a significant threat. As noted in a 2022 article in Forbes:

“Collectively, we are losing hundreds of billions of dollars every year because we don’t know how to manage our personal finances—and these are dollars we simply cannot afford to do without.”^{Disclosure 3}

“People who are empowered with financial literacy can be at a distinct advantage. The continuing acquisition of knowledge can benefit us all, including those who are just beginning their financial-life journey and those of us who are ‘practitioners’ within the industry. And just as in all aspects of our lives, the more we learn, the more we can benefit.”^{Disclosure 4}

It’s never too early to begin talking with your children about money. Parents play an essential role in teaching their children about money. The core topic of personal money management includes the principles of budgeting, saving and spending, debt management, credit score, and making major purchases such as a car or home.

It also includes developing an understanding of the financial system through learning how banks work, the difference between credit and debit cards, and how loans are amortized into monthly payments. By providing your children with foundational knowledge around personal money management, you can prepare them to achieve financial success later in life.

Ideas for teaching personal money management:

• Have each family member write down their top five values, and discuss with one another. Determine the values that you share and discuss where those values came from.
• Capitalize on everyday teachable moments and communicate about paying bills, buying groceries, and using a credit card.
• Discuss what an emergency fund is and what it should be used for.
• Help young children learn about the options they have with the money they receive or earn: saving, spending, investing, and giving.
• Have children assist with planning a day of vacation as a way of introducing them to the concept of budgeting.
• Encourage teens to get a job where they can learn about how money is made, and how gross pay gets reduced by taxes and other withholdings.
  • Talk with your children about what you do to earn money.
  • Talk about other jobs they may recognize or be interested in.
• Mentor and guide young adult next gens in your family during their first-time buying decisions, such as buying a car, securing their first apartment, or buying a home.
• Talk to teens and young adults about credit and credit scores, and what makes and affects a credit score.
• Talk to teens and young adults about consumer debt, the impact of compound interest, and using consumer debt wisely.

Wealth preservation

Topics: Risk management principles and strategies, taxes, identity theft, prenuptial agreements, estate planning, insurance, trusts

It’s extremely difficult to sustain and grow wealth across multiple generations without implementing strategies to protect it. The core focus in the area of wealth preservation centers on protecting your wealth from existing and unknown risks. This includes preventing identity theft, managing your reputation, and implementing tax, insurance, and estate planning strategies.

The reality is that risk is unavoidable.

The reality is that risk is unavoidable. But by being thoughtful about how you deal with risk, through controlling the things you can in an economically sensible way, you can be successful in effectively managing risk. For example, you can’t control the behaviors of others, but you can incorporate smart practices within your life to manage your reputation. For instance, be thoughtful about what you post on social media, and reduce the risk of identity theft by keeping your personal information safe.

Similarly, there are limited ways to prevent natural risks such as fire, floods, and earthquakes, or to prevent the possibility of illness and physical injury. However, you can take steps to manage those risks by having adequate and appropriate insurance and taking care of your physical and mental health. Likewise, estate planning helps plan for your family’s future in the event that you become incapacitated or pass away.

Ideas for teaching about wealth preservation:

• Talk to young adult children about using insurance to address catastrophic risks that would be difficult to recover from financially. For non-catastrophic risks, discuss the importance and value of an emergency fund.
• Discuss the essential elements of identity with teens and young adults, such as name, social security number, date of birth, etc.
• Explain to teens what identity theft is and share examples.
• Openly discuss smart online behavior with teens and young adults.
• Discuss with children the major types of insurance: property, casualty & liability, health, life, disability, long-term care, and business.
• Suggest that next gens regularly monitor their credit reports, financial accounts, and credit card statements for any potentially suspicious transactions.

Investing

Topics: Investing fundamentals, compound interest, stocks, bonds, mutual funds & ETFs, diversification, time value of money, portfolio construction

Investment knowledge is important in order to prepare for the future and make the most of your money. However, understanding investing principles can feel like learning another language with all its terms, principles, and financial concepts. Thankfully, the foundational principles of investing don’t have to be intimidating and scary. By introducing the fundamentals of investing early on, you can make a topic that otherwise would seem foreign and unreachable manageable and exciting.

The core topic of investing is broad and deep. However, even if you haven’t formally studied finance, you can still help children understand the value of investing. It’s important for children not only to learn how investing works, but also what their motivations and goals are for their money and the role that risk plays in investing.

A solid understanding of investing includes knowledge of various vehicles such as stocks, bonds, real estate, and owning a business. It also incorporates core financial concepts like compound interest, annual rates of return, time value of money, comparing investments to market benchmarks, and reading an investment statement.

If the previous list sounds daunting, don’t worry. Children don’t need to learn these principles all at once, and it’s never too late to start (even if they’re already adults). Parents can provide practical and tangible education at all stages of their children’s lives.

Before getting neck-deep in numbers, it’s helpful for parents to simply share their purpose for investing and how it will continue to help their family reach their goals and provide for future generations.

Ideas for teaching investing:

• Talk to young children about your investments and how you make investing decisions (you don’t need to give specifics around numbers).
• The earlier you begin introducing children to investing concepts, the better. For example, you can talk with your younger children about concepts like risk and reward.
• Teach younger children about how businesses make money, including profit and loss concepts.
• Discuss different investing options with your children, including basic concepts about stocks and bonds.
• As your children grow, begin introducing investing concepts in greater detail. For example, discuss stock and other markets, diversification, and different asset classes.
• Talk to teens and young adults about the time value of money and the difference between present value and future value.
• Consider providing an investment account (of any amount) for teens or young adults to practice investing by making buying and selling decisions. Help them make decisions and teach investing principles along the way.

Personal & professional development

Topics: Understanding personal purpose, personal goal setting, entrepreneurship, college planning, & career planning

For families of wealth, overcoming statistical odds around sustaining wealth requires the consideration of generational mathematics. As families grow, there are more and more family members all benefiting from the family’s wealth, which can contribute significantly to the reduction of that wealth over time.

In order to combat this problem, it’s important to support the next generation within your family to become wealth creators, in addition to helping them understand how to sustain the family’s existing wealth.

“Discovering the truth about ourselves is a lifetime’s work, but it is worth the effort.” —Fred “Mister Rogers” Rogers

This gradual transition from being cared for to being the provider, the leader, and the caretaker within your family can be exciting, but it can also be intimidating. Defining for ourselves who we want to be and what we want our lives to look like are huge undertakings. “Adulting” every day can sometimes override the all-important journey to understand our purpose, and to develop and implement goals and strategies for achieving this purpose.

For children of wealth, seeing the outward success of their parents significantly increases the weight of this challenge. Regardless of their age, helping your children develop themselves personally and professionally can be extremely critical to their success.

At the Center for Family Legacy, we work with our clients to help them develop themselves personally and professionally through education, coaching, activities, and exercises designed to help them discover and put into action what success means to them. We help them set goals and map the steps required to achieve those goals.

We also believe in cultivating a culture of personal autonomy and grit, understanding that practice and discipline, and the willingness to fail, are all part of obtaining proficiencies and achieving your goals.

Ideas for teaching about personal and professional development:

• Begin by talking with young children about their dreams and aspirations, and embrace their responses.
• Talk with young children about the importance of effort and that we can learn from failures (failure is not failure).
• As children grow, help them explore, embrace, and grow their talents and skills.
• Have kids think about a few businesses they think would be fun to start—and what they would need to start that business.
• Recognize children’s efforts, rather than only focusing on the outcomes of those efforts, to teach concepts of discipline and grit.
• As children and young adults prepare for college and career, encourage them to participate in education, internships, jobs, and other programs that will give them insight into the roles they are interested in.
• Help teens and young adults begin to explore and put into writing their purpose and passions, and to create long-term career goals that come from this purpose.
• Talk with teens and young adults about where they want to be in one year, in five, and in ten. Help them break down their goals into small, achievable steps and encourage them to put these goals and steps in writing.

Philanthropy & community impact

Topics: Philanthropy & community impact basics, family foundations, strategic giving concepts, sustainable investing, for-profit and non-profit impact strategies, philanthropic due diligence, collective giving concepts

Altruism is deeply rooted in human development. Our research and experience within the Center for Family Legacy has shown us that a spirit of gratitude and generosity plays an important role in both wealth creation and in sustaining wealth through successive generations. Implementing a practice of authentic generosity and altruism within your family can help you to grow stronger and closer together. Additionally, it helps you develop and understand your shared values as well as cultivate an appreciation for those values in the next generation. Understanding values and having gratitude for your family’s wealth significantly increases the chances of sustaining wealth across generations.

Understanding values and having gratitude for your family’s wealth significantly increases the chances of sustaining wealth across generations.

A good place to start is to clarify your values and motivation around the impact you’d like to have in your investing, consumer choices, and giving. Is the motivation religious and/or spiritual in nature? Perhaps there’s a desire to promote a family or individual legacy or an appeal for action in a time of crisis. Regardless of the origins, it’s crucial that the next generation understands their individual and shared values and motivations when it comes to the difference you want to make.

The Center for Family Legacy works with our clients to explore philanthropic and community impact strategies and vehicles available to families. By engaging the next generation within your family in your philanthropy and community impact work, you can strengthen family relationships and help the next generation develop confidence in their abilities and beliefs.

Ideas for understanding and implementing your family’s philanthropic and community impact goals:

• Encourage children of all ages to learn about charitable organizations, what their missions are, and how they use donor money.
• Volunteer as a family with a local charity.
• Suggest that your children set aside funds from their allowance or a job to commit to a charitable cause.
• Encourage children to donate unused toys and clothing every year to give to others in need.
• On your next major purchase, discuss the values that drive your decision making such as sustainability.
• Talk with your children about various ways your investments could help accomplish your impact goals.
• If you own a business, share how key business decisions have an impact on the lives of your employees and the communities in which you operate.
• If your family has a foundation, a donor-advised fund, or other structure in place for giving, consider including children in grant-making decisions.
• Talk with your children about the causes that are important to them, and share yours as well. Discuss the interests around giving that you have in common.

Family wealth

Topics: Money & relationships, parenting with wealth, family communication, conflict management, communicating planning intentions, capturing and celebrating family history

Relationships and human connections are major contributors to personal happiness. By cultivating healthy communication and relationships with your children and/or your family’s next generation, you help them have a greater chance at fulfillment and financial success. The topic of family wealth focuses on the relational and familial elements that are impacted by or connected to wealth. This includes learning about and finding personal meaning and connection with your family history.

It also involves developing skills to communicate in a healthy way about money and finances, as well as learning about the ways that different financial backgrounds can affect relationships.

Most people are uncomfortable discussing money, even in their most intimate relationships. According to a new survey from the National Financial Educators Council (NFEC), only 21% of adults are comfortable discussing money with their romantic partner.^{Disclosure 5} The Center for Family Legacy educates families on the principles and best practices of healthy communication when it comes to finances.

Family wealth is also focused on helping parents determine what is best for their family when it comes to talking about money. Sharing your intentions around money with your children gives it meaning and purpose. However, 82% of parents cite fear as a barrier to talking about finances with children.^{Disclosure 6}

Preparing children for receiving and managing your family’s wealth requires open communication. This includes discussing your estate planning intentions at appropriate stages so that children aren’t left in the dark. This process doesn’t have to be intimidating or stressful, as life is full of many teachable moments. The Center for Family Legacy Education Team helps families navigate the challenges that come with educating children around financial concepts and communicating core family values.

Communicating with your loved ones about money can be difficult at any stage. When you add significant wealth to the equation, these topics can feel overwhelming.

Ideas for teaching about family wealth:

• Create a habit of sharing favorite family stories to teach the next generation about your heritage.
• Find ways to record your family stories. Begin by interviewing family members, especially those in older generations. There are many resources available to help you, such as Storyworth.com.
• Give children an open forum to discuss and share if and when they feel different from their peers.
• Consider providing adult children financial support and encouragement in pursuing their desired career path. It’s also important to take a step back and let children make their own decisions and learn from their own mistakes. This practice helps children develop confidence and independence.
• Consider talking to young adults in your family about the value and advantages of a prenuptial agreement.
• Discuss with young adults the importance of open communication with significant others, especially when it comes to money.

Conclusion

Helping families sustain wealth across multiple generations requires a wholistic approach to educating the next generation within your family.

Knowledge—or literacy—around each of our six core education topic areas comprise the wholistic approach of wealth literacy we find integral to successful wealth transfer across multiple generations.

Remember, a large percentage of families do not succeed in passing the wealth down for more than three generations. Research in this area tells us that poor communication and lack of education lead directly to this succession failure.

Incorporating wealth literacy in your approach to educating the next generation serves to break this cycle and guide your family to success again and again, empowering the next generation of your family to live a purposeful life with wealth.

Author: Truist Wealth’s Center for Family Legacy