Editor’s Comment: The generation game


Editor Kevin O'Donnell

There’s been a lot of coverage lately on how older generations, particularly the better off and HNW clients, are helping out younger generations by funnelling cash to hard-pressed family members.

We ran a story this week which provided more details on what’s happening. You can about the Saltus Wealth Index report here.

I posted a link to the story on LinkedIn and there was some interesting reaction. Some questioned whether this substantial generational cross-subsidy was a good idea and I have to admit it got me thinking.

I should say first that it’s perfectly understandable, in fact praiseworthy, that older generations are helping adult children and grandchildren. These are tough times and families sticking together is a good thing.

There is no doubt that many clients of Financial Planners have felt obliged or even compelled in the last year or so to help out family members walloped by the cost of living crisis. Some have lent a hand with school fees, energy bills and even holiday costs.

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This cross-generational ‘subsidy’ has always happened to some degree and, for example, wealth transfer down the generations is often a key part of any financial plan but has the pendulum perhaps gone too far?

A look at the Saltus report suggests that while some parents have been helping family members with basic living costs some HNW clients are handing over the equivalent of £10,000 a year. Some payouts may have been to the detriment of their own retirement saving. Some have sold assets such as properties to help out.

The issues will come when things ease, as they seem to be now, and the handouts need to stop or slow down. Will that create family tensions? Perhaps arguments over inheritances and sharing legacies between generations? Will the handouts be expected for ever more? Quite easy to turn the tap on but harder to turn it off.

I’m reminded here of a very wise Financial Planner who once said to me that one of the first and most important parts of Financial Planning was not investing or pension saving but teaching clients how to budget. She said there were often two types of clients, the ones spending too much – who would eventually go bust – and the ones not spending enough who needed ‘permission’ to spend more of the wealth that they had built up. Good budgeting also helped avoiding running out of money in retirement, she said, a key Financial Planning aim.

Despite this, budgeting skills are often forgotten when it comes to Financial Planning. For older clients with a bit of cash who want to help younger generations it may be sensible to also have conversations with hard-pressed younger family members about budgeting and planning. This could well be something a Financial Planner gets involved in.

These lessons in life and how to handle money and budgeting are often not taught or considered but Financial Planners have a key role in helping all members of a family manage their money as best as possible over the long term to ensure that the cashflow ‘balance sheet’ really does balance.

It’s positive that in recent times more Financial Planners are advising several generations of the same family. Family Offices have excelled at this over the years and Financial Planners can benefit, both professionally and in business terms, by following their lead and taking a holistic view of extended and inter-linked family finances and ensuring older generations are not disadvantaged financially by helping younger family members in need.

• Our latest issue of Financial Planning Today magazine has just been published. Here’s link to view the issue with my compliments: https://bit.ly/2ZdVXWz. If you have any questions or want to drop me a line to provide feedback you can reach me on editor@portfoliopublishing.co.uk. I reply to as many messages as I can.

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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days.  Email: editor@portfoliopublishing.co.uk Follow @FPT_Kevin

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