Legacy Financial Advice

By Richard A Balch, CFP

One of my biggest fears as a financial advisor is to see an erosion of wealth due to foolish actions. This oftentimes occurs in intergenerational wealth transfer as a family becomes even more wealthy.? You typically see a generation work very hard to build up the wealth and live frugally, the next generation continue building the wealth at a greater pace and begin to enjoy the fruits of their rewards, and then a generation that wants to focus on enjoying the wealth but not continue its creation.? This is known as the 3-generation wealth rule and there is a Chinese proverb that says, “The first generation makes the money, the second spends it and the third sees none of the wealth.”

If you are a grandparent in this situation, you have an essential role to imprint your values onto your grandchildren.? Very often the parents are busy working and not pushing deep values such as financial wealth management with their children.? Wealth creation takes on a role of increased lifestyle comforts and less focus on fundamentals like shopping for deals, saving for a rainy day, making occasional sacrifices.? The kids observe this and believe this is how life is to occur and further erode wealth creation.? Families that move up on the wealth ladder may feel peer pressure to attain certain financial milestones that may be unnecessary in the big picture.? These may include excessive trips, luxurious vehicles, multiple homes, etc.? I am not saying these are bad things, but sometimes the priorities begin to change as well.

My family heritage has wealth that built up over 100 years.? My great grandfather was President of Mutual Telephone Company in Hawaii in the early 1900s.? This was a period of great company build-up and the family had wealth.? From the stories I heard, the family had servants, they had many connections with high society, and did a great deal of travel back then.? But my great grandfather was also a very practical man and made it clear to his children that they must go out and find their own path in life.? Therefore, my grandfather pursued a naval career for 30 years.? My grandfather lived comfortably during the Great Depression but always took it to heart that wealth was never to be squandered and despite his ultimate inheritance of the wealth, continues to live a frugal but comfortable lifestyle.? As I was growing up, my grandfather often took the time to share his financial philosophies on the importance of wealth preservation.? He would mail me clippings from the Wall Street Journal or the Vanguard Mutual Funds newsletters and emphasize some Important aspect.? He was a person that always felt if he could find a cheaper way of doing something he would pursue that course of action (my grandfather also had an accounting degree from Georgetown University).? I would watch him toil on some project repairing something that now people just dispose of if it is broken.? He did not believe in spoiling us with material items but impinging the importance of family experiences.? In his final years he rented houses on the North Carolina Outer Banks and hosted a week-long family get together during the late summer which to this day I miss.? Those were great experiences.? He was a great influence on the way I think of wealth preservation and continued creation.

I look at my sons and see that they sometimes do things I would have never done when I was their age.? That is to say, I have never done anything foolish with my money – I have, but I observe the lifestyle and creature comforts that have were luxuries when I was their age.? I am not a grandfather yet but would like to think I can impose some financial values onto that next generation.? I can only imagine what their world will be like.? If there are any grandparents reading this article, take some time and think about what legacy you can impose you your grandchildren as they venture into a world foreign to what you had at their age.? The time you take doing this will have a lifetime impact and make a difference in their lives.

Richard Balch