New research published by Netwealth reveals the risk of family financial friction as half of parents do not intend to split their wealth equally between children. But while 65% of parents believe their children have a clear understanding of their plans, only 39% of young adults agree.
A stark lack of candour on the topic of inheritance increases financial confusion for families, according to wealth manager Netwealth’s new study entitled Generation game: Financial Tribes in Family Finance, produced in association with Emma Maslin, financial coach and founder of personal finance education website, The Money Whisperer®.
The report’s findings reveal the gulf in understanding between parents and young adults about their families’ finances and in particular the often highly sensitive subject of inheritance.
The study identified seven ‘financial tribes’ that describe the varying approaches individual family members can have to finance, and the added psychological complexities these attitudes bring to how families deal with money matters.
A combination of poor communication between generations, plus these tribal characteristics, can have a significant impact on family financial planning, creating serious issues over the short and longer-term.
The report found that only about half (53%) of parents plan to split their wealth equally among their children. While two thirds of parents (66%) believe their children have a clear understanding of their plans, only 39% of young adults feel the same.
Worryingly, the research reveals the confusion over the destiny of family wealth is driven by money taboos. Less than a quarter of young adults (23%) have had open discussions with their parents about their respective plans for the future, and almost a third of young adults (30%) admitted that they have not taken any tangible steps to ensure their own family’s mutual financial security in the future.
This lack of openness means families are likely to lose out on the long-term benefits of family financial planning and put their wealth at risk.
Charlotte Ransom, CEO of Netwealth, commented: “While there is no one-size-fits-all approach to family financial planning, open communication early on is an absolute priority. There’s a tendency for parents to assume that their children are aware of their inheritance plans but our research shows that too often this isn’t the case. By breaking down the taboo of speaking about money, parents can provide helpful clarity for the future and enable everyone to make more informed financial decisions, both as individuals and as a family. This also allows disagreements or issues to be discussed and potentially resolved rather than leaving the next generation the task of tackling difficult decisions made by their parents.
“Ensuring finance is a topic discussed within the family unit can help educate and build confidence in the next generation. By having these transparent conversations, family members are empowered to make financial decisions that will stand them in good stead for the future.”