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Kristoffer Fu, CFP®, CPWA® – Your legacy is at risk. 3 reasons why boomer parents and their millennial children need to get on the same page

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The global financial and economic backdrop has changed profoundly in the last few years. The longest bull market in US history saw its demise at the start of the COVID-19 pandemic. Two years later many of us are still adapting to the so-called “new normal”.  Inflation levels not seen in over 40 years is causing economic and market uncertainty and putting added pressure on the survivability of our legacies and wealth.

It is no secret that we are in the emergence of the largest wealth transfer in history. An estimated $68 trillion is expected to pass from aging boomers to their heirs over the next 25 years. The concept of generational wealth is often spoken about with reverence. The idea that one’s wealth could last not just a lifetime, but for generations, is appealing to many. However, the reality is that very few families can keep their wealth over the long term. Studies have shown that 70% of wealthy families lose their wealth by the next generation, and 90% lose their wealth by the generation after that. There are several factors that contribute to this phenomenon.  I am going to share with you the 3 reasons why Boomer parents and their Millennial children need to get on the same page or risk losing the family wealth.

Lack of Trust

One is simply the fact that trust play a significant role in wealth management. Parents lack trust that younger people are capable of handling money well. When wealth is passed down from one generation to the next, it often goes to individuals who are natives to wealth, rather than immigrants to wealth. As a result, they may not have the same level of understanding or appreciation for the importance of preserving capital. Additionally, successive generations are often less risk-averse than their predecessors, leading them to make decisions that can jeopardize the family’s financial security. Baby boomers believe their kids will not be able to manage wealth properly until they are age 40 and 50% of wealthy individuals over 70 agree.  While it is impossible to guarantee that generational wealth will last forever, there are steps that can be taken to help ensure its longevity. Taking the time to educate future generations about financial responsibility and instilling in them a sense of stewardship can go a long way in preserving family wealth over the long term.

Succession planning is missing for business owners

According to Project Equity, baby boomers own nearly half of privately held businesses with employees in the US. That’s 2.34 million businesses with 24.7 million employees and $5.1 trillion in sales according to the US Census Bureau. Baby boomers are now retiring, and many don’t have succession plans in place for their businesses. A recent study showed that 75% of small business owners do not have succession plans in place. This is a startling statistic, given the importance of business retirement planning and estate planning. Without a succession plan, business owners run the risk of their business closing or not transitioning to the next generation. This means that all the employees will lose their jobs and the owner will have to sell the business, usually at a huge discount. This can be a huge financial blow, not only to the business owner, but also to their family. To avoid this situation, baby boomers need to start planning for their business retirement now. This includes creating a succession plan and estate planning to ensure that their business can continue after they retire. By doing this, they can ensure that their business leaves a legacy long after they’re gone.

Different thinking and life experiences between the Generations

As the children of most Boomers, Millennials have been dubbed the “save-happy” generation, and for good reason. Millennials are saving more than any other generation, according to a recent study and they prefer to keep more cash in savings than earlier generations. This may be due in part to millennials’ worries about budgeting and spending levels after seeing the damage caused by the great recession. They came of age during a time of great instability, with the dot.com bubble, the rise of terrorism and the Great Recession. As a result, they place a greater emphasis on short-term goals over long-term needs and values experiences over possessions, which causes them to struggle to look beyond near-term concerns. They are also much more risk-averse than their predecessors, which has led to a lack of trust in financial advice and investing. Millennials have set a high bar for financial freedom and success to avoid hardship or burdening others as they age. However, this generation is also at a disadvantage when it comes to financial advice. Despite their lack of trust in financial advice and investing, 72% of millennials and 73% of gen z say they do not know where to get their advice from, according to a recent survey. This lack of guidance can make it difficult for millennials to reach their financial goals.

The relationship between boomers and their millennial children has been known to be a difficult one. They are complete opposite sides of the spectrum. Millennials are in the early stages of their careers, while 10,000 boomers are retiring a day. This can create a feeling of insecurity on both sides – millennials may feel like they’re not ready to handle such responsibility, while boomers may worry that their children will squander their hard-earned wealth. Trust is also a major issue. Millennials have grown up in an era of increasing economic insecurity, and many have seen firsthand the devastating effects of financial mismanagement. Meanwhile, boomers may be reluctant to share financial details with their children out of fears of being taken advantage of or appearing “weak.”

It is important for both groups to realize that they each have different strengths and weaknesses. They need to work together for the best possible outcome if generational wealth is to be a success. Despite having different views then their boomer parents, millennials are still interested in saving money and taking care of their financial future. This provides an opportunity for boomers to help lower the failure rate of generational wealth transfer.

How can we be successful in securing the family Legacy?

Intergenerational wealth transfer is a complex process that can often be fraught with tension and misunderstanding. Parents usually do not trust their children with information about their wealth, while the adult children are afraid of making the wrong mistake when it comes to their inheritance. This can cause a disconnect and lead to the failure of successful intergenerational wealth transfer.

It is estimated that over the next few decades, millennials will inherit upwards of $30 trillion from their baby boomer parents. With so much wealth transfer taking place, it is essential that millennials and boomers have open conversations about their respective family values and mission statements. This will ensure that everyone is working towards similar goals. To have these discussions, it is important to create a safe and respectful environment where everyone can share their opinions openly. One way to do this is to hold regular family meetings. During these meetings, everyone should be given the opportunity to share their thoughts and ideas. Most importantly, everyone should be open to listening to the opinions of others, even if they differ from their own. By having these open conversations, millennials and boomers can ensure that they are on the same page when it comes to important family matters.Additionally, philanthropy should be discussed as it can be a wonderful way to pass down family values from one generation to the next.

For families who want to ensure that this intergenerational wealth transfer goes smoothly, enlisting the help of a financial advisor is a wise move. A financial advisor can educate millennials on their parents’ financial plans and help ease discussions about estate planning. This is especially important if parents have not yet had these conversations with their adult children. By enlisting the help of a financial advisor, families can ensure that everyone is on the same page when it comes to money matters. And, as a bonus, the financial advisor can also serve as a resource for all family members when it comes to financial planning and decision-making. Millennials can take advantage of opportunities to collaborate with the advisor and get the advice they seek, build upon the foundation that their parents have built, while also staying true to their own family values, mission statement and goals. In this way, a financial advisor can be an invaluable resource for intergenerational wealth conversations for your entire family.

 

My name is Kristoffer Fu, CFP®, CPWA® and I am the Founder and Chief Executive Officer at Maven Bridge Capital a Wealth Management Company based in Orange County, CA.  At Maven Bridge Capital we are dedicated to helping Women and Small Business owners achieve financial freedom through our personalized holistic planning approach.  We focus our efforts in helping our clients reach their financial goals as well as helping them secure a legacy for their families.  Reaching a new destination always involves some level of risk, but it’s important to remember that you can minimize those risks by having a plan and being willing to adjust as needed. If you’re looking for help in developing your own personalized financial plan and need wealth management advice, our company is here to help you. With over 15 years of experience managing wealth for our families, we have the knowledge and expertise necessary to help you reach your goals and achieve and unlimited return on life.Contact us today for a free consultation and let us show you how we can help you reach financial freedom.  Please see our contact information below.

3 Pointe Drive, Suite 111

Brea, CA 92821

https://www.mavenbridgecapital.com/

email – hello@mavenbridgecapital.com

office – 714.332.2915

Sources:

https://www.cnbc.com/2020/11/05/68-trillion-transfer-of-wealth-in-america-is-evaporating-amid-crisis.html

https://neworleanscitybusiness.com/blog/2022/05/25/10000-baby-boomers-retire-each-day/

https://www.entrepreneur.com/leadership/most-family-businesses-dont-have-a-succession-plan-in/383633

https://www.yahoo.com/video/5-huge-lies-generational-wealth-181719865.html#:~:text=Generational%20Wealth%20Lasts%20Forever&text=A%20staggering%2070%20percent%20of,passing%20along%20to%20their%20heirs.

https://www.cfp.net/knowledge/industry-insights/2022/04/what-financial-planners-should-know-about-millennial-and-gen-z-clients

Estonian-born, Tallinn-based entrepreneur, CEO, manager, marketing strategist and professional athlete. My work have been featured by Tech.com Engadget, Medium and other publication. In my free time, I love to get engage with people, and travel to explore the world.

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