Money matters that need to be shared with your next-gen adults

It’s not always easy to talk to the next generation about the responsibilities of money. Nor is it easy to explain the value of qualified advice to a cohort that is accustomed to relying on online information.

However, with recent reports suggesting an estimated 70% of families would lose their wealth by the second generation and 90% will lose it by the third [1], being financially literate has never been more relevant. In this article we explore the value of ‘advised’ financial decision making, how it delivers better ‘tangible’ outcomes than going it alone and why it’s important to have these discussions with the next generation.

Australians are standing on the precipice of the greatest intergenerational transfer of wealth in history, with around $3.5 trillion set to make its way from Baby Boomers to their younger beneficiaries over the next 20 years.

Meanwhile, many older Australians seem to be reluctant to have conversations about money with younger family members. A recent survey of 3000 private wealth clients conducted by Perpetual Private [1] found that only a third of them discussed money matters with their families. Most reported feeling ‘awkward’ discussing money with family and friends.

The same survey found that 62% were influenced by their parents in their attitudes toward money, and 32% wished their parents had given them more help to understand financial matters. With that in mind, an open discussion about money with your adult children could be well overdue.

The value of advice

A strong place to start is to share the value of ‘advised’ decision making in comparison to managing money matters on your own. A 2021 Australian study by Russell Investments [2] quantified the value of advised versus non-advised financial decision making, revealing that those who sought advice typically achieved an average outcome valued at 5.2% per annum better on their investment portfolios.

It’s an aggregated figure that takes in a broad spectrum of benefits over a client’s lifetime, including:

• Bridging knowledge gaps and addressing misconceptions around returns, asset allocation and diversification, which was found to have up to a 1.1% impact on client portfolios.
• Behavioural coaching, making up to 2.0% difference on financial outcomes for advised clients.
• Optimising cash usage and attitudes toward cash at different stages of the wealth journey, leading to a 0.6% better outcome for advised clients.
• Tax-effective investing and planning that can produce a 1.5% better outcome.

Personalised advantages

Advisers work hard to maintain up to date insights on clients’ values, preferences and motivations, and modify their advice to take these into account as things change in the client’s life.

If you have gained the advantage of qualified financial advice throughout your financial journey, and you’d like your next-gen adults to do the same, encourage them to investigate their options and consider the wider implications of seeking professional advice.

As our clients well know, engaging with a qualified financial adviser exposes you to a wealth of expertise and offers guidance when navigating financial matters, but also the legal, tax, superannuation and insurance matters that are closely tethered to financial decision making for achieving outcomes.

It’s this ‘big picture’ understanding that needs to be transferred along with your wealth to next-generation family members, who may be of the misconception that financial planning is limited to investments.

The guidance, shared knowledge, experiences and understanding of life’s stages (that your next-gen may not be able to appreciate just yet) aims to consider circumstances now, as well as in the future, to enable individuals within the family group to feel informed and empowered and able to develop a clear understanding of how to use their financial resources to achieve what matters most – which in terms of value is priceless.

Next steps…

As mentioned earlier, research indicates adult children want to know about your experiences. Now may well be the time to open up discussions about money management and not just about day to day money matters, but in terms of the family financial legacy you will leave when you pass away.

Regardless of whether that legacy is modest or significant, it is important to convey the financial responsibilities and expectations that comes with it.

If you’re unsure where to start, we are experienced at leading family discussions, providing answers to technical questions and explaining the reasons behind various financial strategies your off-spring might ask about.  We’re able to offer these explanations while remaining arms-length from the strong emotion that can sometimes affect these types of discussions.

To find out more about the value of advice, and how to share it with those you love, please contact Brett Cribb, Steve Nicholas or James Marshall  on +61 (0)7 3007 2007, alternatively please email info@stratusfinancialgroup.com.au, and let’s make it happen.

Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.