Inheritance: The Mistake of Not Passing Down Knowledge
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whelan at The Wall Street Journal in New York.
How large is the upcoming generational wealth transfer and why does it matter?
There's upwards of $30 trillion in generational wealth ready to be passed down to a younger generation. Money is one thing, but the biggest mistake families make is not transferring knowledge.
Why is failing to pass down financial knowledge the biggest inheritance mistake?
We'll explore that in a moment. First, these money and market stories you should know.
What policy and market headlines set the context for this conversation?
As Congress returns from Thanksgiving, there are numerous tax and finance items on its to-do list before the end of the year, among them making it easier for small employers to band together to offer 401k-type plans. The House version of that provision would create a new type of universal savings account where money would grow tax-free and could be used for non-retirement purposes. It also features a provision to allow unborn children to to be named beneficiaries of tax-advantaged 529 college savings accounts. And Bitcoin's freefall isn't done yet. That's the word from the chief market analyst at ThinkMarkets in the UK. He says after its failed attempt to break above the $4,700 level, Bitcoin is likely to move even lower.
And he says the regulatory environment is keeping Bitcoin buyers on the sidelines. Elsewhere, the widespread declines in cryptocurrencies are causing the currency known as Ether to take a beating as well. That's because it's the currency most often distributed when a crypto-related venture pursues an initial coin offering or ICO. Well, now that a large number of fraudulent coins have been eliminated from the system, that's making Ethereum, the company behind Ether, less valuable.
By many estimates, millennials are in line to inherit as much as $30 trillion from their elders.
Who is Stephen Lewis and what research did he bring on inheritance education?
But money isn't everything. The intellectual capital and instinct to be fiscally smart with wealth transfer or with their own income and assets is just as important. But are elders transferring enough knowledge to their children? Stephen Lewis is principal and financial advisor at Alliance Bernstein, and he's here with us to discuss. So, Stephen, in your research, you've seen that wealthy parents in particular don't always educate their children, on how to build and maintain wealth.
No, that's right, JR. And, you know, the question I get oftentimes is how do we give our kids a leg up without giving them two legs up on a couch? And so much of that is about providing education along with the wealth that comes along and values of the family in addition to that education.
And this is the largest transfer of generational wealth on record. And it comes with a lot of responsibility, not just on the part of the parents, but also on the part of the children.
One of the big challenges in this area is how do we get that next generation to have a curiosity, a desire to learn more about where the wealth came from and take some responsibility to take it upon themselves to take the reins and start dealing with more of the family wealth over time. One of the things that we really were surprising when I went through and did the research is that when you look at the data historically, it shows that of the wealth that is supposed to be transferred in the next few generations, history would suggest that about 70% of that will be lost by the second generation and 90% will be lost by the third generation. And that's a huge amount of wealth destruction over time.
We were able to identify that there were really three things that you can pass on to your heirs And so often we only talk about the side of it being the wealth or the money. There's really three things. There's the wealth. There's the knowledge of how to build and manage wealth. And it's the family values that go along as the third thing. You need to have a combination of wealth with knowledge and values for it to be more productive than destructive.
You know, many parents just aren't comfortable enough with their own financial knowledge to sit their kids down. So they hire a professional. Is that enough?
I think it's really important to have a professional team that encompasses everything from the tax side to the investment side to the legal side.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How large is the upcoming generational wealth transfer and why does it matter?
0:09–0:20
3
Why is failing to pass down financial knowledge the biggest inheritance mistake?
0:20–0:25
4
What policy and market headlines set the context for this conversation?
0:25–1:50
5
Who is Stephen Lewis and what research did he bring on inheritance education?
1:50–4:32
6
What three things should families pass on besides money?
4:32–6:31
7
How can professionals and early exposure help heirs take financial responsibility?
6:31–7:17
Speakers
2 identifiedMore from WSJ Your Money Briefing
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