Clients work with us because we create customized plans based on each client’s unique goals, and we continuously reevaluate client plans to ensure they are aligned with changing needs. When preparing plans and advice, we focus on “Generational Wealth Management” and help prepare clients’ heirs for the time when they will receive wealth.
This year I have had over a dozen planning meeting with “next generation” heirs, all of whom were one to five years out of college and working in their careers. As a group, their top questions related to budgeting and managing their debt. As I worked on one of the plans last week, it occurred to me that parents today should be having conversations with their kids about debt, conversations foreign to our parents because debt availability and variances today didn’t exist when we were young. Our children and grandchildren can get into more financial trouble much faster today than 30 years ago when I graduated from University of Illinois.
In 1984, I graduated from U of I with an Accounting degree and roughly $5,000 in student loans. As a starting CPA with Ernst and Whinney (now Ernst and Young), I was earning a salary of $21,000/year, so I could afford loan payments. My loan balance of $5,000 was only 23% of my salary and the monthly loan payments were only 7% of my monthly income. Needing a car and a credit card for work, I purchased a Ford Taurus for $18,000 and applied for a credit card with a $1,000 limit, which seemed like more than enough at the time.
My recent meetings with college graduates revealed that most have had credit cards and iPhones – and related credit through all of the related Apple media sites- since high school and graduated from college with student debt that is 100% to 500% of their salary. They have been and will be solicited weekly for auto, credit card, pay-day loans, education, and many other “Free” loan offers that can put them in a hole very quickly.
So how do we start having the conversations with our children once they are living on their own? If they are still in your basement, this conversation will be much easier! If you aren’t comfortable with or don’t feel qualified to start the conversation, how can you offer them the resources and tools they need to succeed? Can we expect them to be able to handle an inheritance if they can’t manage their own debt?
The conversation covers the definitions of “Good Debt” vs. “Bad Debt” and how to evaluate which is which. Your advisor should be able to offer advice and plans to your heirs that they can use to prioritize debt and discern how and when to pay off each loan. We create 90-day plans with loan balance goals and then meet to review and measure progress. Each client is different, so we use monthly budget and loan analysis worksheets to create a custom plan for each client. We become an accountability partner or coach with clients, helping them set goals, define and measure success, and then review and revise goals as they progress.
With the complexities of all parent/child dynamics, I’ve found that even if parents have the right answers when it comes to handling money matters, having the children get the answers from someone who isn’t a parent can make a big difference. If your children need to discuss money matters with a professional, send them to me.
Tim Scannell, CPA, CFPTM. provides Personal and Business Tax Planning, Estate Planning, Investment Management, and Generational Wealth management to his clients. “We deliver proactive, objective advice, plans and solutions enabling our clients to reach their unique family goals.”