Taking deliberate steps to build and preserve multigenerational wealth should be a priority for any family that wants to achieve lasting success over time. Not only does it place the family on the path to long-term prosperity, but it also compels the family to examine critical aspects of its existence to optimise them. Here are practical measures that every family can take to position itself for multigenerational wealth:
Take a wealth inventory
Many businesses understand their assets and liabilities within their balance sheet and work to optimise and increase assets for greater value.
There are also assets and liabilities within each family, and like a business, when the liabilities outweigh the investments, the family’s health is in the distress zone.
Many businesses keep track of their assets and liabilities through a balance sheet and aim to increase their assets to enhance their value. In the same way, families also have assets and liabilities, and when the liabilities outnumber the assets, the family’s health is in jeopardy.
To improve your family’s wealth-creating abilities, take an inventory of your assets, which include your human, intellectual, values, and financial capital. Conversely, your liabilities will consist of factors that could negatively impact the assets, including risks, threats to well-being, failure to manage all forms of capital, external factors, and more. Conducting this exercise will allow you to recognise the areas that require attention and prioritise them to optimise your assets and increase productivity for long-term prosperity.
Set goals for your family
We are often quite specific about our desired career and business goals but hardly give that type of detail or attention to our families. Achieving a vital objective like building and preserving multigenerational wealth cannot be left to chance. Goal setting for the family is a deliberate and detailed effort to define what the family seeks to achieve and how it intends to leverage its various forms of capital.
Work together to define your family’s long and short-term goals, both financial and non-financial. Discuss aspirations for each member’s personal development, the family’s collective well-being, investment and philanthropic plans and other values important to your family. A new year provides an excellent opportunity for families to hold meetings, discuss their goals, and ensure alignment that builds a sense of belonging and purpose within its members.
Many families only discuss money when a member is requesting it or providing it. Yet, the long-term safety of the family’s assets demands that every member understands, as early as possible, how money is made, managed and multiplied.
Start by talking openly about money matters with your family members. Encourage discussions about financial goals, values, and expectations. Creating a culture of transparency fosters understanding and lays the foundation for effective wealth management.
Develop initiatives to educate younger generations about budgeting, investing, and responsible financial behaviour. Consider organising workshops, reading sessions, or engaging financial advisers to provide insights and guidance.
Building financial literacy early will protect members from being victims of poor decisions, scams and avoidable losses as they progressively manage their wealth.
Deliberately manage risk
Families who want to secure, grow, and pass on their wealth to future generations must deliberately manage risk. In practical terms, this involves understanding how inflation and economic volatility can impact the family’s spending power and finding the best investment activities to minimise their adverse effects. Families must also consider if there is a structure for managing assets, any leakages or avoidable losses, and any specific practices or events that threaten the family’s unity or ability to lead fulfilled lives. Additionally, they must ensure that essential details about their heritage and journey are not at risk of being lost due to lack of communication or documentation.
Beyond identifying risk areas, families must take appropriate, consistent action. This could mean seeking professional guidance, maintaining a diversified investment portfolio, establishing new family practices to enhance communication, or planning for unforeseen circumstances.
The goal of risk management is not to be overwhelmed by the possibility of negative occurrences but to be proactive about measures that position the family for the best possible outcome.
Begin your legacy plan
A Legacy Plan is the gift of guidance, prepared carefully for the future well-being of loved ones. It provides a structured directive for preserving, distributing and using the family’s assets, particularly in the absence of the Patriarch or Matriarch. A Legacy Plan goes beyond the distribution of financial assets, encompassing the preservation of a family’s identity and the principles that matter most.
Legacy Plans can take various forms, tailored to each family’s unique needs and preferences. These may include wills, trusts, and beneficiary designations to dictate how assets should be distributed. A comprehensive Legacy Plan also encompasses a family mission statement, outlining the core values and guiding principles that define the family’s identity. Addressing financial, emotional and personal considerations that form part of a family’s legacy is crucial.
The complexity of these matters may require professional advice. Seeking the guidance of experts ensures that the legacy plan is robust, legally sound, and capable of withstanding potential challenges.
Make giving back a culture
Giving back to those in need is not only a noble act, but it is also an excellent way to build and preserve multigenerational wealth. Philanthropy allows families to demonstrate the values they hold dear, and it helps them connect with the society they live in. Charitable acts go beyond just benefiting the recipient; they also enhance the giving family.
One of the ways to build long-term wealth is by instilling a sense of social responsibility in the family. Look for opportunities that align with your values and foster a shared sense of purpose. Encourage each family member to participate in selfless projects that allow them to plan and execute philanthropic activities. Use charitable giving to reinforce values, develop planning and execution skills, and instil a sense of meaning and purpose from an early age.
We don’t realise that beyond the good of giving to those who don’t have, Giving back is immensely beneficial for building and preserving multigenerational wealth. Philanthropy is a meaningful way to demonstrate the family’s values. It helps family members connect with and better understand the society they live in, considering how isolating wealth can be. It is an opportunity to connect with larger issues in the world and participate actively. Giving back does more than improve the life of the beneficiary, but it also improves the giving family.
Part of the commitment to building long-term wealth should be cultivating a sense of social responsibility within the family. Explore opportunities for philanthropy or charitable giving that align with your values. This contributes to the community and fosters a shared sense of purpose among family members. Allowing each family member to participate in a selfless project where they can deploy their time and effort to plan and execute them is a great way to build a sense of purpose and meaning from an early age.
Review your investment strategy
Everyone has an Investment Strategy, whether they realise it or not. Whether putting money to work by investing in the right assets, mitigating risk through asset diversification, or simply keeping money in the bank and choosing not to invest, every action or inaction concerning one’s assets is an investment strategy adopted.
Ojenike is a family wealth adviser with the Meristem Family Office.
Adopting a strategy to provide returns, mitigate risk, and move your family towards financial freedom is wise. Families should assess the performance of their investments, rebalance portfolios if necessary, and align investment strategies with any changes in the family’s financial goals, risk tolerance, or market conditions. Work with financial advisors to align your investment strategy with long-term financial goals.
Prioritise health and well-being
A family’s most important asset is its members.
Human capital is central to creating and growing long-term wealth. Investing in each member’s ability to create value productively in the long term is crucial.
Optimise the health and well-being of family members by prioritising rest, promoting a healthy lifestyle, and encouraging communication, forgiveness and patience. Invest in the physical and mental health of the family so that members are strong and can navigate life’s challenges with resilience.
Document family history and values
Our sense of identity plays a role in how we engage with the world. The family is the first point of contact and a significant shaper of the views and perspectives of its members. Recorded information is a tool to capture the various experiences, lessons and values that shape the family over time.
Preserve your family’s intangible wealth by documenting your history, traditions, and values. Create a family archive through written narratives, photos, or videos. Members should document mistakes, lessons learned, challenges and stories of triumph over time. Those coming ahead should understand the journey to the present and should not erroneously assume that the present state of things was always the reality. Documentation helps pass down wealth and the rich legacy of your family’s unique story.
Prioritise compliance
It is not only the responsibility of corporate entities to comply with laws and regulations. Families who aim to create, safeguard, and transfer their wealth across generations should also prioritise compliance. Non-compliance can result in costly consequences that could significantly reduce the family’s assets and even affect their freedom.
To avoid these risks, families should make sure to use the appropriate legal structures, follow relevant laws, and manage their wealth sustainably. Regular audits and reviews of the family’s financial affairs can help identify and address potential compliance hazards. This will minimise the likelihood of legal issues that could jeopardise the preservation and transfer of wealth across generations.
Ojenike is a family wealth adviser with the Meristem Family Office.
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