Many families of wealth struggle with a fundamental question: Can our wealth be sustained across generations and have a positive impact on those who use it? The answer is yes, but the odds aren’t in anyone’s favor.

Beating the odds to sustain family wealth for future generations requires a commitment among all the family’s members. Seeding that commitment with the young members of the family and nurturing it through their adolescent years will go a long way toward successful succession of wealth.

The successful transfer of wealth across generations is as low as 30 per cent. Yet, less than 3 per cent of these failures stem from poor estate planning and poor investment returns. The majority of wealth-transfer failures - 60 per cent - is attributed to the breakdown of communication and trust within the family unit (Williams & Pressier, V, Preparing Heirs, 2010.)

To avoid this breakdown, communication must begin early. The senior generation typically initiates the conversation, and it is often difficult to do. We have found, however, that the manner in which the dialogue begins can have real impact on its ultimate success. For example, we have found that doing so in an interactive family setting can be a positive first step and provide the foundation for ongoing conversations.

In order to promote these conversations, GenSpring created an interactive board game for family members of all ages dedicated to understanding the challenge of perpetuating family wealth across generations. The $hirtsleeves to $hirtsleeves board game seeks to explore this dynamic concept through three generations. The board game includes cards that correspond to typical issues families might encounter in each generation of wealth. The goal of the game is to get to the end of the board with money – a successful transfer of wealth across the generations.

The game is one of more than 100 learning programs we use, but when it comes to the younger family members, we’ve found the games to be quite effective in helping prepare the future generations, given that 25 per cent of wealth-transfer failures is due to inadequately prepared heirs (Williams & Pressier, V, Preparing Heirs, 2010.)

The games simplify the otherwise complicated world of finance for the younger members. If you turn a word such as “diversification” into something they can relate to, such as a bowl of different colored M&Ms, with each color representing a different stock, they begin to make connections.

Games can be created to reflect any given set of circumstances, allowing players to employ various actions with varying consequences.

Stock card game

In this stock market simulation game, each participant has $2,000 to build a stock portfolio based on well-known companies. The game simulates a year of changes to the share price based on news reports and economic events. Participants decide whether to buy or sell shares each quarter according to what is happening in the news and the economic sector.

Concepts discussed include: portfolio value, diversification, various impacts on the price of the shares and investing for the long term.

Ages: This game is pretty flexible, based on the age and can be effective for children as young as 10. They are often quite surprised to learn they actually sell the stock when it has earned them money – not when it has done poorly. Thus learning the concept: buy low, sell high. As the kids mature, more complex issues, such as diversification, come into play.

Needs and wants

A deck of cards with pictures of various objects is dealt. The cards represent such things as pants, shoes, a purse, candy bars, a house, pool, vacation. The children must create two separate piles: one for needs; and one for wants. We then go through each card and discuss why they think it is a need or a want.

Concept discussed: There are a few items that repeatedly come up for debate: sunglasses, a purse and pizza. The conversation is great and really helps the kids understand the difference.

Ages: This is a great game for little children as young as 5.

Risk and reward

Three buckets in descending size are placed in a row with the largest bucket closest to the participant and the smallest bucket the farthest away. Different levels of prizes are attached to the buckets. The level of prize increases as the buckets get more difficult. The participant is given a ball and a choice of which bucket to try to throw their ball in to. If they make it, they get the prize, if they don’t, they get nothing.

Concept discussed: A conversation of risk and reward begins. Depending on the kids’ ages, we can begin to discuss asset classes and their relationship to risk.

Ages: For little children, this isn’t tied to investing, but the idea of risk becomes clearer. Middle school students tend to roll their eyes at what appears a simple game, but when they understand the risk/reward relationship, the concept and importance of losing or gaining the prize due to the level of risk becomes much clearer.

Scavenger hunt

For kids who have participated in any of our learning programs, we often review their understanding through a scavenger hunt. As an example, we have a program for kids based on earning money and then discussing the options: saving; spending; investing; and giving. For this scavenger hunt, they unscramble words they’ve learned - interest, philanthropy, inflation, and diversification – which gives them clues to their next task. After unscrambling “inflation,” for instance, they are given a camera to take pictures of something that increased in price since their grandparents were young. Unscrambling “philanthropy,” sends them in search of a picture of them “giving back.”

Concepts discussed: Various concepts can be the focus depending on what the family wants to accomplish.

Ages: This plays out well with family members of all ages and has become a recurring event at some family meetings.

M&Ms

Multiple portfolios are created made up of different stocks represented by M&Ms. Each color represents a different stock. Each portfolio has different levels of diversification. Every participant chooses a portfolio. The price of the stocks goes up and down and each portfolio is impacted differently based on how many different companies were included in the portfolio.

Concept discussed: The power of diversification. Although a portfolio full of high tech stocks may look like a sure thing, it inevitably loses to the diversified portfolio.

Ages: This is a pretty straight-forward game that can begin in fifth or sixth grade and be used through high school.

GenSpring has used these games over and over for years. We have found that families who devote time and effort to the successful adoption of this sort of generational learning process – one of the best practices GenSpring has identified - will be better able to anticipate and navigate the many challenges of a successful transfer of multi-generational wealth, and mitigate the risk of the shirtsleeves-to-shirtsleeves paradigm.