Financial planning

Financial education for the next generation

Colin Dyer

Passing wealth down the generations is often a high priority for many of us when thinking about our financial planning. You want your children to benefit from the fruits of all your hard work over the years, and rightly so.


But here’s a question for you: just how well will your children cope with managing their inheritance?

Do you trust them to make sound decisions about their pensions and investments, or will they fritter it away dabbling in unsafe, risky strategies? Will your grandchildren end up with nothing?

There’s a Chinese proverb that says that wealth won’t survive three generations. Sadly, it’s often true that families end up seeing what’s been built up by one generation disappear by the time the grandchildren are on the scene.

But we shouldn’t be surprised by this. Those who are working hard to build wealth are financially savvy, but often have little time to pass on their wisdom to their kids. So Generation 2 has money to burn right from the get-go and never needs to understand how wealth is sustained. By the time Generation 3 is ready to spend, the pot is getting depleted, but they’ve no inherited wisdom to fall back on to ensure their wealth is well-managed.

Of course, this doesn’t happen in all families: financial education can make all the difference.

So is it schools’ job to teach them?

There’s been considerable debate about whether or not we should be providing more financial education in schools. It’s been on the curriculum since 2014, but the delivery appears to be limited both in scope and efficacy. There simply isn’t time in school to do the subject justice, and it is unlikely that schools would take on the thorny topics of investing, planning for retirement and dealing with a substantial inheritance. And anyway, the kids will probably have forgotten the complicated stuff by the time they reach an age where they need it.

Is the answer to keep it in the family?

A recent report suggests that 53% of UK families are educating their children on wealth and money topics, with 33% intending to at some point and 14% having no intention to do so at all. But the research is based on teaching them as adults, rather than as children. Respondents to the research felt that the right age to start learning about budgeting was 18, with education on investing starting at age 21.

If you have made your will and are planning to leave your wealth to your children, surely it makes sense to ensure they have the skills and understanding to use their inheritance wisely? Surely this isn’t something you should leave to chance?

I think the key to this is communication. If you’ve always included your children in financial discussions, right from an early age, then money matters will hold no mystique for them. Sharing with them, as you (and they) get older, how you’ve prepared for retirement will ensure that they understand the parameters of managing money. Discussing the level of risk you are willing to accept, and the insurance plans you have in place to protect your wealth will give them a framework for making their own decisions later on.

I’m not saying that your children will – or indeed should – follow exactly the same routes as you do when dealing with money. In many families, the outcome will be that they will do the exact opposite! But the point is that it’s up to you to ensure that they know the implications of any course of action and make informed decisions.

Bequeath your knowledge as well as your wealth

Of course, it’s not easy to sit down and talk about death… Families have a tendency to avoid discussions about what will happen after you die and the older you get, the more difficult it seems to be. The research report found that only 40% of respondents were comfortable discussing details of their wills with their heirs.

I believe that it’s important that your children understand the nuts and bolts of your legacy to them: what investments are in your portfolio, what death benefits are bundled into your pension scheme, and so on. Spend time explaining what measures you’ve put in place; make sure they know how you’ve structured your estate and why.

In short, get them ready for a life without you… As a parent, passing on your wisdom and experience can be as valuable as any portfolio.


The information in this blog should not be regarded as financial advice.