Some subjects are difficult to discuss, even with family members. Unfortunately, the more important the topic – like finances and investing – the tougher it can be to broach.
SEI’s recent report on wealthy Americans, called "Talking About Money: Breaking the Taboo," found communication about investment strategy is often difficult in families.
A survey, querying 275 individuals with an average net worth of $18 million and an average annual income of $616,000, found the age and gender of respondents made a difference in attitudes toward involving family in making decisions. The average age of respondents was 51, and about a fifth were under 21. Men made up 58% of those surveyed.
Family conflict over finances, SEI says, is often caused by too little communication rather than too much. The survey’s authors recommend families work hard to end the isolation many feel when making financial decisions.
For the younger generation, a large share of parents (61%) said children should be brought in the loop about finances at age 20 or older. That leaves many younger children in the dark about family finances. Teaching them about family financial strategies before they are old enough to be allowed to help make decisions, the survey says, will make them more comfortable when the time comes.
SEI advises families to promote financial literacy and to adopt a boardroom style of management for family financial discussions. Younger children can attend meetings as associate members. In this way, they can see how decisions are made by the rest of the group.
Wealth advisors are still relied upon and can help clients foster better communication within their families.
Keep reading for seven issues wealth advisors should know about how wealthy families talk about money:
1. What Holds Them Back?
What keeps respondents from meeting financial goals on schedule? Family friction was a big factor. But No. 2 on the list looks like an opportunity for wealth advisors.
The top answers were:
45% – Dispute over strategy with close family
36% – Lack of specific information on the financial products strategy
35% – Lack of time due to work or other family commitments
35% – Lack of interest in closely following financial goals
32% – Lack of confidence in own investment skills
2. When to Tell the Kids?
Teaching about finances early is important to many wealthy families, with nearly 40% of respondents saying children should be involved in making decisions about strategic financial goals. But they are split on when, exactly, the children should become part of the process.
Below are percentage of respondents and the ages they said family members should help make decisions:
9% – ages 10 -14
30% – ages 15-19
28% – ages 20-24
33% – 25 and older
3. All in the Family?
There’s a big split on whether family members should be allowed to be involved in making financial decisions. Women tend to rely on family more than men and millennials more than older respondents.
Here are the answers to the question: "Do you agree with involving family members in the decision-making process?" (agree and disagree includes those who mostly or somewhat felt that way.)
39% – agree
32% – disagree
29% – neutral
4. Who They Trust
Just whom someone would rely on for financial advice depends on who they are.
Here’s a breakdown:
40% – family
38% – wealth advisors
Percentage of women vs. men who trust family:
Men – 15%
Women – 29%
Respondents over 60 put trust in:
Wealth advisors – 53%
Family – 11%
5. It's Lonely at the Top
Those in the ultra-high net-worth category (more than $10 million) were more likely to feel alone when making financial decisions.
Here’s the breakdown:
40% of all UNHW respondents feel isolated
38% of UNHW women
35% of UNHW business owners
6. What They Want
Over the next five years, financial goals included being ready for retirement, buying a home and paying tuition.
Here are the top answers:
39% – Have enough for comfortable retirement
28% – Start business or have enough to support current one
27% – Better lifestyle
27% – Having enough to stop working or be independent from work income
27% – Upgrade home or buy new one
24% – Raise sufficient funds for charitable interests
23% – Double net worth
22% – Pay for children’s or grandchildren’s education
7. What They're Afraid of
What’s bugging the wealthy? Outliving their money is a common fear these days, with life spans and medical costs for the elderly both increasing.
Here are the top fears:
60% – Outliving money
21% – Won’t be able to pass on wealth
21% – Not making right impact via philanthropy
Related on ThinkAdvisor: