Your Financial Values are an Important Part of Your Legacy

You may plan to pass along some of your wealth to your heirs. But what about your values? Do they understand and share what's important to you? Do they understand how to handle the opportunities and responsibilities that come along with some level of wealth? Learn how to convey your financial values to the next generation.

Many people spend 40 to 50 years (sometimes more) working hard, saving, and investing. What’s the purpose? To take care of your family, buy the right home in the right community, pay for your kids’ education, and so much more. If you are really successful, you get to pass along some of your accumulated wealth to your kids and grandchildren. But most of us would like to do more than leave them a hefty bank account. We also want them to inherit our values on how to live a fulfilling life and handle the opportunities and responsibilities that come along with some level of wealth.

This article is the first in our series on intergenerational family wealth planning. The emphasis is on those values that are attached to the money you pass on. Today we will focus on spending.

Financial Values Begin with Establishing Priorities

The key lesson in developing spending habits revolves around establishing priorities. Even though we may be able to afford to buy our kids and grandchildren many of the things they want and ask for, it’s important they learn to make informed decisions and good choices, and learn the difference between satisfying immediate wants against longer-term needs. We have learned that just because we can afford many of life’s comforts and excesses doesn’t mean we can or should buy every enticing thing that catches our eye. That’s the type of value we can impart to our heirs.

This lesson applies to day-to-day purchases as well as big-ticket items. What values do we convey by the type of car we drive, the house we live in, and the vacations we take? There are no right or wrong answers for any of these things, but it’s worth remembering that our choices influence the way future generations think about these things too. If we are fortunate enough to leave a generous financial legacy, we want to be confident the recipients will be responsible caretakers of that money.

Let’s consider the family vacation that likely costs thousands of dollars. What does that say and what lessons can we teach? The experience of taking that trip, spending time together, seeing the world and creating memories, may be invaluable. Of equal importance, it also might be an opportunity to talk about that expenditure. Explain how your family can afford this because you have saved and planned. Point out that even well-to-do families have a budget (you do, right?) and this trip is accounted for in that spending plan. Teach them that there are times when an experience is more valuable than physical things.

Other spending decisions have to do with balancing quality against value. How important is it that we buy the $200 pair of Jordan Nikes, and is it worth waiting until they’re likely to go on sale? Even if you can afford to “pay retail” for everything, it may not be the value you want to pass along.

Financial Values Must be Communicated and Demonstrated

The key to a successful plan is communication, and it’s not a one-time or once a year event. The communication has to be part of your everyday life, partly in what you say but also in what you do and how you live your life. When it comes to learning about money and the values that we attach to it, parents are the first and by far the most influential teachers.

It’s important to start these life lessons early on. Talking to your kids and grandchildren about how you perceive money needs to start long before they become skeptical teens and young adults. That doesn’t mean you have to share your balance sheet or net worth with a 12-year-old. It means that we can impart values and life lessons to help shape how the next generation treats and thinks about money. Elementary school-aged children are ready to learn some of the basic lessons of personal finance and the general values we attach to money. Older teens and young adults can be instructed on the risks and rewards that come with certain financial decisions.

Many baby-boomers learned at the knee of parents who grew up in the wake of the Great Depression or the World War II era. In many cases, they did not have a silver spoon upbringing, and that influenced the life lessons they passed along to us. The current generation of 50-60-and-70-something year-olds may be able to pass along much greater affluence than we had growing up. The responsibility that comes along with that is to make sure the money is not squandered and is spent and invested wisely.

The communication process is not just a matter of telling heirs to “do this” or “don’t do that.” It also includes telling our own stories and passing down our own experiences. The values we are trying to teach didn’t just develop out of thin air; they came from our experiences and the successes and mistakes we have made along the way. Those stories represent important “teachable moments” that help put our lives and our values into context.

We want to make sure that our money helps future generations have a good life, but we don’t want it to reduce their ethic to work hard and have fruitful careers. You don’t have to be a Rockefeller or a DuPont to plan for several generations into the future. It does require that you develop and communicate family financial values. Be aware that your spending choices mirror your values and that your kids and grandchildren will pick up on what you do and how you do it.

Read the rest of our series on Managing Intergenerational Family Wealth:

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