by Rick Kahler
never seen money passed from one generation to another in a manner that
actually benefited the recipient." When a psychologist said this to me
several years ago, I was dumbfounded.
parents scrimp, save, and sacrifice so they can "leave something to the
kids" with the intention of doing them good. It's hard to accept that
inheritances may actually do harm instead. Most of us have money scripts that
don't support this idea.
I used to hold several money scripts around inheritances. One was that leaving money
to your children is a loving thing to do. Another was that parents should
always leave their money to their children. A third was that anyone who
received an inheritance would invest it wisely, using only the earnings to improve
I know those money scripts were not universal truths. I have more understanding
of the problems involved in giving money away in a manner that is beneficial to
the receiver. It isn’t as easy as I once thought.
parents envision inheritances for their kids as "seed money" that
will be used for the health, education, and welfare of their offspring for many
generations. Research shows that is rarely the case; instead, inherited wealth
does not last long. Missy Sullivan summarizes some of the research in
"Lost Inheritances," a Wall Street Journal article published online
March 7, 2013. According to this article, 70 percent of those who receive an
inheritance of any size spend it all in their lifetimes. For the 30 percent
that do have something left to pass on, 70 percent of their kids also blow
everything they get. That means by the end of the third generation, 90% of the
money originally passed down is gone.
it’s easy to understand how an inheritance of $10,000 may evaporate, it’s
difficult to understand that inheritances in the hundreds of millions evaporate
just as quickly. How is that possible? Is the average American just incompetent
at managing money?
to Sullivan, a study done by the Williams Group found that poor investment
decisions were not the culprit. About 60 percent of large inheritances disappeared
because of a lack of trust and communication between family members. Another 25
percent of the time, money evaporated because the parents failed to prepare the
next generation to handle their impending inheritance. Poor investment advice
and high fees were the cause in less than 15% of cases.
more high net worth parents knew that only 10% of their hard-earned estates
would be around at the end of their grandchildren's lives, I wonder if they
might do a few things differently.
option would be to address the two biggest issues—lack of communication and
preparation for heirs—head-on during their lives. Parents wanting their money
to benefit their kids could engage the services of a financial therapist who
could help the family address their communication and trust issues long before
they pass on their wealth. Preparing their children to manage wealth and use it
wisely would be the best way to increase the odds of making an inheritance a
blessing rather than a burden.
option would be to secure their own retirement, then forget all the scrimping
and saving and just have fun blowing the money on themselves.
another option would be to give their wealth to worthy causes during their
lifetimes or upon their deaths. This would leave the kids to make their money
by ingenuity, hard work, wise money management, frugality, and a little bit of
luck. The same way, in fact, their parents did.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!