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  • Writer's pictureAkshay Nayak

It's A Family Affair

All of us do everything we can to create enough wealth for all our needs over a period of time. And today, more and more of us are realising the importance of passing on wealth to our families effectively. But if there is one area where most of us are still severely lacking, it is that of developing the practice of talking to our families about our wealth at regular intervals. And this is even more true in the Indian context, where money management and wealth creation are almost always perceived to be under the purview of the men in the household. In most cases, our lawyers, chartered accountants and financial planners would know more about our wealth than our families do. And they probably should. But what we forget is that our families are the very reason why we create wealth in the first place. Therefore, they have as much of a right to know about our wealth as anyone else does. And that is why in today's blog post I'm going to talk about the importance of being open and transparent when discussing wealth with our families.

When talking about our wealth, we must first pass on the right financial habits and values that are conducive to wealth creation. These include values and habits such as frugality, discipline, humility and being unemotional about our investments. Most individuals who create any wealth of note would invariably have done it on the back of these qualities. Therefore, we must pass on all these qualities to those around us, and do it by example. And in the event that we don't possess these qualities ourselves, we must first work on imbibing these qualities ourselves before passing them on. Imbibing and passing on the right financial habits is not something that will happen overnight. It would be a slow process that would evolve over a period of time. But it is a process that is well worth going through. Because, passing on these qualities to our families would give them an impregnable foundation on which to recieve and digest our wealth. It would also enable them to manage our wealth applying the same principles we did to create the wealth.

Once the foundational principles are set, the actual process of talking about our wealth with our families can begin. The first thing that we need to understand here is that though we may pass on, our wealth will continue to live on even after our time. So conversations about wealth with our families must also educate them as to how to use our wealth in our absence. It is therefore important to set the right context to all conversations about wealth. Most such conversations only involve us telling our families about the avenues in which our wealth is parked, and how much is parked in each avenue. But doing so much will only direct our families to our wealth, without telling them what to do with it. Therefore, our wealth is more likely to decline rather than grow after our time. To avoid this, we must clearly explain to our families how much wealth we received from those before us, how much wealth we have added on to it, the circumstances within we received and grew our wealth and what we intend to do with it in the future. Doing this makes it easy for our families to relate to the wealth they would receive and give them a clear idea of what needs to be done going forward. This would give our families a clear plan to follow. And our wealth would hence have a much better chance to grow even further after our time.

Having understood the essence of what we need to communicate to our families with regard to our wealth, let us look at the ideal time and the ideal way to talk to our families about our wealth. In most cases, talking to our families about wealth is reserved until such time that we are too old or on our deathbed. Waiting for this long to talk about our wealth leaves us with too little time in which to put our thoughts across. Also, we may not be able to communicate effectively at that point of time owing to age or ill health. Most importantly, getting our families in sync with the way we have created and want to manage our wealth is not something that can be done in a day. It is a process that must be executed in a well calibrated manner over a decade at the very least. Therefore, discussing wealth with our families is something that we must do on a continuous basis throughout our lives and not just when we are at the fag end of our lives and our health is a lot more frail. When it comes to the style of talking about our wealth with our families, the best way to do it is to personally talk about the subject with our families. Some of us who may be too shy to openly talk about it may communicate our wealth through an exhaustive written document detailing our wealth, for our families to refer to. But such an approach may be too impersonal which would take away from the effectiveness of what we wish to communicate. Instead, creating a document giving details about every aspect of our wealth and explaining the content of the document to our families ensures that communication of wealth happens through both personal and impersonal means. Enlisting professional help to give our families the right kind of clarity and communication about our wealth at regular intervals is a highly under explored area of financial planning and should be made use of more often.

Though the things we communicate about our wealth should remain the same across all members of of our families, the way we approach the conversation should differ based on the person who is on the other side of it. In the case of our partners or spouses, it is important for both parties to come to an understanding on the way we would manage our wealth. A shared philosophy between both parties with regard to managing money would be highly beneficial. Each of us must involve the other in all major financial decisions and ensure that they play an active part in the decision making process. This would make it easier for our spouses to take over the exercise of managing our wealth in our absence. The approach should be slightly different when it comes to having this conversation with our children. Our children are the ones who ultimately inherit all our wealth. Therefore they must never be frozen out of matters related to managing wealth and money. But instead of involving them in the decision making process straight away, initial conversations with them must be limited to educating them with the right financial principles. This will help them develop the right financial habits over time. Asking them to apply what they learn from us in their own day to day spending decisions will help them learn what we teach them practically. And this will set the right foundation for them to take over from us in the long term. In fact, if we have created our wealth following the right financial habits, we may rarely show our children how much wealth we have created. This should not be done in a boastful manner. Rather, it should be used as an opportunity to show them what following the right financial habits can achieve. This effectively shows that involving our entire family in conversations about wealth and the decision making process before making major financial decisions would also improve our relationships with our families.

In conclusion, ineffective and infrequent communication about wealth with our families is the major reason why wealth that is created and handed down fails to survive past the second or third generations. Therefore it is something that we need to do in the right way and at the right time. Delaying this exercise would lead to unnecessary complications both for us and our families. Passing on the right financial habits to our families would help them receive and digest our wealth effectively. Setting the right context for our wealth and coupling it with a clear action plan would clearly tell our families what to do with our wealth going forward. We must get our families in sync with the way we want our wealth to be managed gradually over the period of a decade or more by creating and updating a detailed document about our wealth and communicating the content to our families at regular intervals. We must share a common philosophy on managing money with our partners or spouses and involve them in every major financial decision. We must give our children the right financial education to enable them to take over from us when the time is right. Enlisting the help of professional financial planners can help us streamline the entire process of managing and handing down our wealth a lot better. Doing all of this would not only protect our wealth, but also allow it to grow further, both during and after our time.

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