In financial planning, we focus primarily on helping clients build financial capital. We work to understand all aspects of a client’s life. We learn about their goals, aspirations, current and future projected income, assets, liabilities, and risk tolerance. All of this is in an effort to find areas of opportunity, where the limits of the client’s financial knowledge are preventing them from unlocking their full potential. The majority of people we meet want to build wealth. But what is wealth, really? Is wealth just money?
Most people recognize that wealth involves more than just financial capital. “Your health is your wealth” is no less true just because it has become trite. Sometimes referred to as physical capital, a healthy mind, body, and spirit cannot be underestimated. However, your health will not transcend your own life.
Financial capital has the ability to last multiple generations, if stewarded correctly. However, multi-generational wealth will not last in the absence of the most important kind of capital - intellectual capital. Information is the most valuable resource. For successful individuals, this truth becomes quite intuitive, and yet it still might be underestimated. According to a study, 70% of inherited wealth is spent by the first person that receives it, with 90% of inherited wealth is spent by the second generation to succeed the person that built the family fortune.
I recently started reading Superabundance by Marian Tupy and Gale Pooley, and stumbled across a quote from famous economist Thomas Sowell. “The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference in the knowledge they could bring to bear on those resources and the knowledge used today.” Individuals who stand to inherit significant wealth would seem to have a better launch point in life, which in theory should indicate a better financial trajectory. And yet, the stats are the stats. If future generations fail to adequately internalize the message of the original family wealth builders, they are doomed to become “cavemen”, having all the same resources as the previous generations, but with no knowledge of how to harness their power.
The transfer of financial assets, while helpful to our progeny, pales in comparison to the value of transferring intellectual capital from one generation to the next. Our ideas, our values, our perspectives…these are the things whose value is immeasurable and yet so paramount to our family’s long-term success. This makes this process job number one. It is not an easy process; if it was, the data on family wealth transfer would not be so bleak. However, one way to start is to begin writing an ethical will today.
An ethical will is an informal estate planning document that does not require an attorney to draft. This document is something you can create yourself. It is written as if you are speaking to your survivors after you are gone. It should state, in clear language, any relevant information you think has been valuable to you during your life. It could include stories of your early memories about money that shaped your financial behaviors throughout your life. It could include rules you live by, or values that are most important to you. It could include great quotes that influenced you or a list of books, movies, music, or art that inspired you. The point is, this should not be something you go cheap on. Get these ideas out of your head, and onto a piece of paper for the next generation to learn from.
In addition to the sentimental and real value you are creating by committing your thoughts to paper, there is an extra incentive to get started on this right now. You will force yourself to more narrowly define what you find to be important about your life and legacy, which will help you live your life with greater intention. Also, you will likely be more acutely aware of any deficiencies in your family’s understanding of your thought process, and have time to discuss some of these things with them while you are still alive. Those conversations could end up being some of the most cherished memories your family has of you when you are gone.
Don’t wait. Start writing your story today.