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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 1/2/2013

Financial stewardship for the next generation 

Financial stewardship
You’ve worked hard to make a success of your family business and to build your family’s wealth. Not only have you done it to make your life easier, but to make the lives of your children and grandchildren easier, too. The last thing you wish to see is the wealth built up over your lifetime squandered away by the next generation.

Unfortunately, it happens all too often – heirs who flit away the family fortune because they lack an understanding of the value of money, and how hard it is to accumulate. The good news is that you can promote good financial stewardship amongst your offspring and heirs. Here’s how…

Talking about money

From an early age, engage your children in discussions about money. While many feel that money is an inappropriate topic of conversation, talking about it is the first step to understanding its value. Talk about:


  • What is money?
  • Where does money come from – is it given to us or must we earn it?
  • Should we spend all our money or save it?
  • What about investing money?

Also talk about the family’s wealth; specifically – how the family fortune was made and the size of that fortune. Help children feel engaged with and connected to that fortune by asking them how they think the money could best be put to use, or what they would wish to do with it if they were in control of the purse strings.


Remember to discuss the pros and cons of less-than-noble suggestions, and why looking after family wealth to pass on to the next generation is important. Emphasise that they are the custodians of the family future, and that this responsibility must be carried with great care.

Money for nothing

Yes, it’s tempting to give your children all the things you never had. But money for nothing is the fastest way to entrench a sense of entitlement.


Rather encourage a strong work ethic by rewarding children for jobs well done – for example, give a weekly allowance for doing chores around the house. Give your children total ownership of the money they’ve earned – it’s theirs to spend or save as they please.

Financial stewardship and management

One of the most vital lessons in financial stewardship is learning how to compile and manage a budget – it’s a skill your children will need to use in both personal and commercial contexts. Start early – have the little ones put their allowance into jars; one for spending and one for saving. When they get older, have them open bank accounts.


Ask them to keep track of how much money they have and what they’re spending it on, and to compile lists of what they need, what they cost, and how much they need to save to get them. Don’t bail them out if they blow all their money on sweets, and then have nothing to pay for an outing with friends. Rather, help them explore how they can make up for the shortfall themselves or devise a plan for accumulating the money they need to acquire the things they want – doing extra chores, finding a part-time job, or embarking on entrepreneurial activities.


Allowing children to take ownership of their own financial situation – even if they make some glaring errors – will help them to take responsibility.

The danger of credit

A good financial steward must understand that credit is not a source of income; an all too easy mistake to make if they’re simply allowed to charge whatever they like to credit and store cards.


Start credit lessons early – here’s a fun way children can learn about credit in a safe environment:


  • Issue a ‘credit card’ – make it look like the real thing
  • Draw up a credit agreement with your child, setting out credit limits, repayment terms, and interest rates
  • Allow your child to make purchases on the ‘card’ (you pay for the goods on your child’s behalf)
  • Issue them with a receipt for the goods purchased, and a slip to sign
  • At the end of the month, give them a statement detailing what they owe – installment plus outstanding balance
  • Now, they must pay you from their allowance
  • Be sure to charge realistic interest rates and to repossess goods if needs be.

To successfully transfer values from one generation to the next, you need to ensure that you are a worthy financial role model. Let them in on your own financial situation – show them how you pay the bills, how you budget, that you have a savings fund, retirement annuity, reserve fund, and don’t spend more than you earn. Provide opportunities for lessons about managing family wealth.

Faith, Hope and Charity

These old-fashioned virtues are wonderful tenets around which to centre stewardship of the family’s financial affairs. Help the next generation:


  • Have faith in the family constitution – carry its values forward
  • Feel hopeful for the future – use the family wealth and name not for oneself but for the greater good
  • Be charitable – get actively involved in philanthropic activities.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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