Teaching Financial Literacy to Heirs: The Missing Link in Generational Wealth

Learn why financial literacy is the key to preserving generational wealth and how to prepare heirs to manage, grow, and sustain family assets long-term. Featuring WHZ Associate Vice President, Wealth Advisor Jonathan Mathews, CFP®.

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Transcript

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Welcome to You and Your Money. Today's episode features Jonathan Matthews, Associate Vice President Wealth Advisor at WHZ Strategic Wealth Advisors. teaching financial literacy to heirs. Jonathan, when people think about generational wealth, they think about building it and passing it on. But the issue is that's only half the job, That is exactly right. Most people spend decades focused on accumulating wealth. They're saving, they're investing, they're structuring their estate. But if the next generation isn't prepared to manage that, that can really unravel much faster than what people expect. And from what I understand, this happens more often than people realize. I think I've heard a well-known statistic from your team at WHZ that something like 70% of the families who have built up generational wealth actually lose that wealth by the second generation. Yes, that does happen. It is a phenomenon sometimes called the third generation curse and Unfortunately, we do see that happen. What surprises people is it's rarely about investment choices at the portfolio level. It's, it's almost always about behavior, things like overspending, lack of planning, misunderstanding the risk, or reacting emotionally to decisions. So the weak link isn't the market, it's preparation. That's usually right. We often say the biggest risk in generational wealth isn't volatility. It's the silence. Silence, meaning families not talking about money? Yeah. Let me give you a real world example of a situation like that. Let's say parents work to build significant wealth. They've done this for decades, but they don't discuss it with their kids. When that inheritance happens, those heirs are responsible for decisions they've never had to make before. And sometimes they're pretty big ones, tax decisions, investment strategy, long-term planning. That's a pretty difficult position to be in actually. That makes sense. It's like being handed the controls without any training. Yeah, that's a good way to put it. And that's why early exposure matters a lot. So let's talk about that. How early is early when it comes to financial literacy? Earlier than you might think. With young kids, it's not complicated. It's basic habits, understanding savings versus spending, making choices, even small things like earning money for tasks, doing some chores, setting aside a portion of that later. It can be really important. So it starts with behavior, not theory? Yep. And as they grow, you layer in more, just like you're teaching something— budgeting, understanding credit, how investing works. Eventually you bring them into the real conversations. What does that look like for a family in practice? It can look different. It could be sitting down once or twice a year, walking through a simplified version of a family's financial picture, explaining why certain investment decisions or budget decisions were made, talking through trade-offs, why money was used in one way instead of another. That sounds like it'd make a big difference over time. It does, because you're not, you know, it's not just building in a vacuum. You're building knowledge, you're building financial confidence. The confidence leads to better decision-making. Is there a risk of overwhelming people if you bring them in too early? Yep, definitely it can be. That's— you have to— it's a careful balance. That's why pacing matters. It's not about giving someone everything at once. It's gradual exposure. Think about it like learning a language. You don't start with advanced grammar, right? You start with basic and build from there. Jonathan, what are some of the common mistakes families make when trying to do this? One of them is waiting too long, as I mentioned already before the break. Another is focusing only on tactics instead of principles. If someone only learns specific strategies, they can struggle when those circumstances change. If they understand principles like diversification, discipline, long-term thinking, they can adapt. talk about that long-term thinking piece, because right now that kind of seems critical. It is. It's hard to, to think long-term, especially when we're bombarded every day with some of these wild updates, but markets do go through cycles. Emotions come into play. If someone doesn't understand that volatility is normal, they may make decisions that hurt them long-term. That's where education really protects the wealth. So this is about as much about psychology as it is about numbers. That's a good point. It absolutely is in many ways more so. You also mentioned tying money to purpose. Expand upon that. When wealth is connected to a purpose whether it's a security opportunity, supporting family, giving back, people tend to treat it differently. They're more thoughtful about it. They're more disciplined, I would say. Without that connection, money can feel abstract and the decision becomes a lot less grounded. So purpose creates responsibility. It does. It creates a framework for the decision-making. Where does WHZ fit into helping families do this? I would say we're in every aspect of it. We help facilitate the process that includes guiding conversations, simplifying the complex topics, helping families, whether it's first, second, or the third generation, create a structure around how and when to involve the next generation. So your team doesn't just manage assets, you also work to guide families on how to maintain and grow wealth from generation to generation. That is right. We focus a lot more than just on the dollars. A big part of what we do is really making sure that knowledge transfer happens between the advisors, our team, and our clients, and then to even their heirs alongside with the wealth. If somebody listening today hasn't started those conversations, what's the first step? Like anything, I think start simple. You don't need a formal meeting, just begin talking within the family, explain a decision, share a perspective over time. Those small moments build into something much more meaningful. Consistency is key? Consistency is key. It builds confidence, confidence leads to the better decisions. One of my listeners sent an email just now and it says,"The saying is from rags to riches to rags again." But you can maybe put a stopper on that by having conversation with your heirs about what to do with the generational wealth. Exactly. That's a big part of it. One takeaway I think that I would want all the listeners to remember is that if your goal is to create lasting wealth, to have, you've got to invest in people, not just portfolios. The families that succeed across the generations that don't do that rags to riches to rags story, they're the ones that prioritize financial education, communication, and shared understanding. And one last note for the listening audience that WHZ has a free 1-hour seminar called Key Strategies to Build and Keep Generational Wealth. That'll be on Monday

at 10: 6:54

00 AM. The webinar serving as the capstone of a 5-episode educational series, Getting Ahead of the Great Wealth Transfer, presented by WHC in collaboration with KKC Law. And this webinar will deliver the most actionable strategies and practical guidance from across the entire series. Jonathan, you're not taking part in this webinar, but some of your partners are. Just give a little oversight on why people want to log on to

this webinar at 10: 7:20

00 AM on Monday morning. Well, registration is free and open to the public. So it's a free education. Can't ever give that up. It's you also, if you sign up and register, all registrants will, they'll get complimentary access to the full series and a downloadable guide. It's critical for folks to get through this and build and understand how to do things in the right way, what to do right now how to build a better system and protect that wealth for not just you but your future and future generations. For more information regarding wealth management and customized financial planning with WHZ Strategic Wealth Advisors, please visit whz wealth.com whz strategic wealth Advisors offer securities and advisory services through Commonwealth Financial Network Member FINRA sipc, a registered investment advisor Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street Pomfret Center Center, CT 06259 and 392AMerrow Road, Toland, CT 06084. They can be reached at 860-928-2341. WHZ Strategic Wealth Advisors do not provide legal or tax advice. The tenured financial services team strives to support clients in achieving their financial life goals while providing absolute confidence and unwavering partnership for life.