During the next 10 years, more than a trillion dollars will switch hands between Generation X and Generation Y.
But there’s one huge problem: Many of the 20-somethings set to inherit this money, the heirs of America’s richest families, have no idea what to do with it.
The “One per cent” has been receiving a lot of flack lately, so the business of managing your family fortune and getting it to grow can be a hard job, said Norman Jones, CEO of WealthTouch, a consolidated portfolio reporting platform for the ultra high net worth.
“Financial reporting tends to cater only to 40-year old white men,” Jones said. “But all of these young kids are about to inherit all this money and they are ill prepared to handle it. I see a train wreck coming.”
Jones’ company has partnered with Amy Butte of Tile Financial to tailor financial advice for people in their 20’s. The site, which will launch next year, provides a glossary, interactive videos and graphics to help members of that demographic better understand their portfolios.
The problems start for the next generation when a family’s trusted financial adviser talks to the parents and their children about money, and the adviser uses niche phrases that confuse the kids, Butte said.
Research has shown 90 per cent of people who inherit wealth switch advisers once the money has switched hands because of resentment toward the old adviser for never explaining himself properly, Butte and Jones said.
“It’s always been off limits to talk about the rich kids and their money,” Butte said. “Financial identity building is important for anyone, but the fact of the matter is high net worth families and advisers serving that community are kind of under attack right now and no one is really preparing young adults for what they are facing.”
“It’s important to create a dialogue and ask questions about your money. If you don’t understand what’s going on, you’re more likely to lose it.”
Butte laid out three specific goals to focus on when managing your wealth: Spending, Giving and Creating.
Everyone spends, but it’s important to control consumption and not blow it on $22 million vases. Most wealthy and affluent families are philanthropic; it’s good for the family name and great for maintaining wealth. As far as creating, the new generation needs to come up with new ideas to make money if they expect to maintain their fortune.
What can the young and wealthy do to make sure they’re starting off on the right path?
For one, learn the lingo of financial advisers, Butte said. It’s also important to know how the family portfolio is structured, whether it’s in property, bonds, or the stock market.
Know what you pay your advisers, he said.
“It’s a tough job for these young adults,” Jone said. “‘Don’t lose the money,’ ‘Don’t mess up.’ Between that anxiety and lack of knowledge — it’s a mess. Look at the mess economically going on right now, and its their generation being expected to pick up tab for all the mess. It’s a pretty scary macro economic phenomenon that trillions of dollars are transferred to the ill-prepared.”
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