Pitcairn Update, September 2018
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Most wealth creators and family leaders place a high value on passing on assets to future generations. Many also prioritize sharing values, traditions, and family history with their children, grandchildren, and other family members.

But family leaders often see these goals as separate, when in fact they are inherently connected. The combination of assets and shared family identity passed on to future generations is at the heart of creating a lasting legacy.

Education is a powerful family tool for sharing this robust legacy and realizing positive wealth momentum for decades to come. With the right educational approach, family members can learn the financial skills and family history needed to transition into leadership positions within the family structure. Yet when it comes to actually defining what younger generations should learn about family wealth and at what age, too many families take a haphazard approach.

In fact, only 31 percent of wealthy families with a family office utilize a formal education program, according to the 2017 FOX Family Office Study. No family would even consider taking such an informal approach to other core elements of maintaining wealth, such as investments or tax planning.

A lack of financial education is a problem for many families today. Nearly half of Americans say they talked about money with their parents once a month or less growing up, according to a survey conducted by T. Rowe Price. Sharing financial knowledge is important for any family, but the stakes are often higher for more affluent families, where wealth can be shared across more family members and plays a larger role in family relationships thanks to a family business, trusts, or other considerations.

Creating impactful curriculum

In developing an educational framework for family wealth, family leaders should work to develop a structured curriculum that passes on best practices, family philosophy, and practical knowledge. Families should focus their efforts on these seven key areas:

  • Values – The attributes and attitudes that define how the family approaches wealth.
  • Personal finance – The basics of managing money, from balancing a checkbook and understanding compound interest to savings strategies and tax planning.
  • Investing – Not just the fundamentals of how investing works, but your family’s approach to investing with specifics on how family portfolios are managed.
  • Wealth planning – Key details about the family business and assets, the family’s long-term goals and the role individual family members will play.
  • Philanthropy – The family approach to giving back, including the causes the family prioritizes and how support for those causes is realized.
  • Governance – The family decision-making framework for spelling out how information is shared and how conflicts are resolved.
  • Personal and professional development – How secondary education, a career, and personal ambition factors into family wealth.

Adequately covering these foundational topics requires a considerable ongoing commitment. Developing the educational content and spending the time transferring knowledge is no small undertaking. There are a number of best practices focused on developing and formalizing the education program and verifying its effectiveness. Utilizing these best practices will ensure the time invested in family education is time well spent and subsequent generations have the knowledge they need to be informed, happy, and prosperous in their lives.

Establish specific goals and objectives

First and foremost, family leaders should define what family members should learn and what this education will accomplish. Establishing these goals serves multiple purposes. First, it forces family leaders to set realistic priorities about what learning is most critical and where to focus educational time and effort. Second, it helps create a roadmap for what information needs to be conveyed and when. A family’s goals around philanthropy education will be very different for an adolescent versus an older relative preparing to take a more active role in the family’s wealth.

Perhaps most importantly, these goals help define success for family members engaging in the education. The connection between setting defined goals and increased motivation and achievement is well established, according to the report “Setting Goals: Who, Why, How?” from Harvard University. Make sure goals are shared with family members to help them better understand where they should focus their learning and what this education will help them accomplish throughout their life.

Create a formal structure for educational sessions

Meaningful education falls between the cracks for many families for one simple reason: they don’t create a formal framework for the learning sessions. Families assume they’ll share important information when it comes up naturally or that over the years family members will accumulate the knowledge they need with informal learning.

In fact, this is rarely the case. By not formalizing when education will take place and what form it will take, families miss opportunities to provide targeted learning about family wealth when it will have the greatest impact. Families should set aside time to devote to family wealth education, particularly with younger family members.

Consider the age and knowledge of family members

Different family members will have different educational requirements depending on their age and the role they’ll play managing and accessing family wealth. These distinctions should be detailed in advance, and the structure and goals of the education should be clearly defined for different individuals.

For an elementary school-aged child, education focused on family values and introducing concepts around money and responsibility may be most appropriate. For a teenager, more advanced personal finance skills and an overview of investing may be best. An individual who may take over the family business one day needs a much different education than someone who will inherit a trust or a spouse who will make fewer family decisions. These roles will vary from family to family but must be considered when formalizing an approach to family wealth education.

Families also shouldn’t overlook specific educational needs later in life. Older family members may need a bit of education on more recent technology the family uses to manage its wealth and legacy. This includes communication tools used among family members or from financial institutions. In other cases, an aging individual may need more frequent family wealth education. Research published in Management Science shows financial literacy scores decline by about 1 percent each year after age 60, while confidence in financial decision making remains steady. Educating older family members on new ways of doing business and keeping their skills sharp can be a valuable tool in protecting a family legacy.

Leverage other educational resources

While a formal educational structure is vital to a successful transfer of knowledge, identifying other educational resources that can be incorporated into that approach is a recognized best practice. FOX’s study found that many wealthy families are already utilizing other educational opportunities to supplement their learning:

  • Annual Family Meeting – 67%
  • Attending Advisor Meetings – 39%
  • Industry Workshops and Forums – 29%

Families should not overlook the resources advisors, family office partners, and other professionals can provide. In many cases these trusted partners have materials already prepared, and including family members in regular interactions can offer a powerful glimpse at how family wealth works on a day-to-day level. The Family Office Exchange offers several other ideas for harnessing other learning opportunities, including job shadowing and internships.

Formal schooling can also be a valuable supplement to family wealth education. Everything from basic financial literacy concepts up to a master of business administration degree can help family members obtain the knowledge and skills they need to be productive and positive participants in family wealth.
Relying on other learning environments and other opportunities for learning can help take some of the pressure off family members in developing and delivering educational materials and can ensure access to relevant, high-quality educational information.

Test for comprehension

Testing is an essential component of the educational process for both students and instructors and is an important factor in wealth education. When it comes to family wealth and legacy, the definition of testing and evaluation should be expanded beyond traditional testing methods. Family leaders should be creative in coming up with ways to ensure family members are learning key concepts and are able to put their learning into daily practice.

For a family member learning more about investing, setting up a small portfolio with real or imagined money can be an effective way to give the individual some personal ownership over their new knowledge. Letting a family member run a family meeting to demonstrate what they’ve learned about governance and family values could be more rewarding and motivating than a bland assessment.

As with testing and evaluation, family wealth education should track with real life experiences. Every family value, philanthropic principle, and professional development pursuit should be rooted in how the family actually operates.

Connect education to real life

Effective and engaging family wealth education cannot exist in a vacuum. It must be adapted to the individual needs of family members, and resources and evaluation should be rooted in real-world experiences that draw on family legacy. Keeping this focus on the family will make the education more applicable and valuable and will make the benefits more apparent and tangible for family members.

Pitcairn has created an exclusive Family Education Guide to support families starting their own education journey. The Guide offers recommendations for age-appropriate educational resources and engaging activities that cover the critical areas of financial values, knowledge, and behaviors.

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