It's a sobering statistic: As many as eight out of ten parents' responses indicate that they are not fully confident their children will be well prepared to handle an inheritance.1 Many worry about the effect that a substantial legacy may have on their children's personal and professional lives 1 — especially as adults. That's when they're far more likely to get into trouble with drugs, alcohol and gambling. Trust fund disbursements, moreover, often begin when a beneficiary turns 21, prompting a student to drop out of college or a graduate to give up work altogether. The list of worries goes on and becomes seemingly more complicated every year as new and sophisticated problems arise — problems that we could never even have envisioned 5 or 10 years ago.
Yet, while there is no cure–all for these concerns, one approach may come close: Give a child a solid financial education around wealth — what it means and how to handle it responsibly. Most parents recognize a need for this kind of education. But at the same time, barely a quarter of them think their children are
ready to handle wealth.
If there seems to be a bit of an incongruity here, unfortunately there is. While some parents take great pains to educate their kids about wealth, not all succeed in delivering the desired message. Others acknowledge they're often so busy managing their businesses or dealing with their own professional or financial concerns that they have time for little else. So those chats about interest rates and trust terms, prenuptial agreements and philanthropy — in essence what it means to handle wealth in a responsible manner — tend to fall by the wayside.
That's when it's time to call in the professionals.
Many major U.S. financial organizations offer some type of wealth education for clients' offspring. But Financial Empowerment, the program from U.S. Trust, Bank of America Private Wealth Management developed for those in their twenties and thirties, includes what may well be a unique attribute: It tailors the course to a family's particular needs.
Financial Empowerment is divided into six components, each focusing on a different aspect of financial education. To begin, a U.S. Trust advisor works with participants to identify their values and goals and diagnose gaps in their financial knowledge. Participants then receive a customized program that focuses on the component skills they need. This personalized approach makes the program a surprisingly powerful tool — all the more so because the training can be delivered online, where so many young adults spend a good bit of their time; in one–on–one sessions with a wealth strategist; or in group get–togethers for the entire family.
The first component is Personal Financial Basics. This segment introduces participants to a broad base of topics including banking and credit cards, investing and income taxes. Most of those who take it are college–age young adults.
Another segment, Life Events, is aimed at individuals in their twenties and thirties, who might be about to get married, buy a house, change jobs or have a child. A third, Protecting Your Wealth, introduces insurance and estate planning. It also shows participants how to recognize and thwart identity theft, a growing problem in today's wired world, and how to manage their online reputation and protect their digital assets. Two other sections, Trusts and Managing Business, can assist young adults with understanding the fundamentals of being a trust beneficiary, and how to start a business or take over the family firm.
But perhaps the most important segment, for children of any age, is Giving Back, since philanthropic giving is at the core of almost every family's set of values. Included in this segment is an in–depth offering called Your Philanthropic Journey, where participants are guided through a series of exercises to develop a focused, strategic giving plan based on their values and interests.
Parents often feel wealth shouldn't be looked at simply as hard assets. For them, it also has human and social aspects. And what better way to acknowledge and engage those elements than through charitable pursuits? Many families incorporate philanthropy into their overall wealth plans, and they frequently find ways to involve their children in philanthropy at an early age. Parents may give young children a small amount, maybe $250, to donate to a charity of their choice.
Starting a process like this at an early age can help prepare kids for a larger role as they grow up. Parents can include teenagers in discussions about which causes the family should support, an important step that can help develop the social consciousness on which so many families of wealth place a premium. Recently, though, we have noticed that many older children already seem comfortable with giving to causes and charities for which they have an interest or even a passion — in part, perhaps, because of better preparation by their parents, but largely thanks to the Internet, which provides instant access to philanthropic information and opportunities. Indeed, most charities today have Web sites that let you research an organization and make a donation, all electronically.
Values: The Next Generation
These days, many high–net–worth individuals want to pass along their values during their lifetimes rather than through provisions in their wills. But first they may need to think about their beliefs and priorities so that they know what message they hope to convey to their children. If parents haven't been able to articulate those values clearly, we can help them take the time to define what is important to them. Then we work with them to decide how they can help their children understand and embrace those values.
To facilitate intergenerational communication, U.S. Trust may organize multiple family sessions over the course of several years. The value of these recurring get–togethers cannot be overstated. A family's philanthropic values may be constantly evolving, especially for the younger generations. So it's important to revisit them periodically rather than address them once and then put them on a shelf. In the long run, it's as if those core beliefs become a living, breathing thing for everyone in the family — almost second nature. And, as you might expect, having those conversations while parents are still around tends to be far more powerful than reading about their values after they're gone.
If you'd like to learn more about the Financial Empowerment program, please contact your U.S. Trust advisor and visit ustrust.com/education. Providing a solid financial foundation can be valuable at any age, of course, but our program may be particularly relevant for those of you with children in their twenties or early thirties who may only now be coming to grips with your family's wealth. And while financial education isn't the solution to every child's problems, it can help them understand the implications of their special situation.
Young adults as well as older adults can gain immeasurably, we have found, if they are able to grasp just three simple points. First, inheriting wealth carries a responsibility. Second, the best way to view that responsibility is in the context of a family's values. And finally, philanthropy is a powerful force. On this last point, you'll no doubt recall, the same has been said about education.
1 Estimates in this article are based on the results of the 2015 U.S. Trust Insights on Wealth and Worth® survey.
The information and views contained in this publication are for informational purposes only and do not provide investment advice or take into account your particular investment objectives, financial situations or needs and are not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument or strategy. Neither U.S. Trust, Bank of America Corporation nor any of its affiliates are responsible for this content, and before acting on any information in this material, you should consider whether it is suitable for your particular circumstances, liquidity needs, time horizon and risk tolerance and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Projections made may not come to pass due to market conditions and fluctuations.
Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
The 2015 U.S. Trust Insights on Wealth and Worth® survey is based on a nationwide survey of 640 high-net-worth and ultra–high–net–worth adults with at least $3 million in investable assets, not including the value of their primary residence. Respondents were equally divided among those who have between $3 million and $5 million, $5 million and $10 million, and $10 million or more in investable assets. The survey was conducted online by the independent research firm Phoenix Marketing International in February and March of 2015. Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level.
Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the "Bank") do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody, or brokerage products/services or referrals to other affiliates of the Bank.