Leaving a Heritage – Not Just an Inheritance

Feel free to reach out to PSG Wealth adviser Tunin Roy directly.

Thinking about the future and the heritage left to us is a good time to think about the financial heritage we will leave to those we care about. It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. How can you avoid that fate and be part of the 10% that successfully ensure intergenerational wealth, or indeed be the catalyst that increases that number?

What is financial heritage?

There are many ways of thinking about financial heritage. The obvious one is an inheritance – savings that you build up during your lifetime, to pass on to your children. There is also the question of how you pass on that inheritance to them – is it done efficiently and in a way that will preserve the value of the inheritance after your death? This brings us to the behavioural aspect of financial heritage – the way we handle finances.

Have you educated your successors sufficiently in financial matters to enable them to preserve your legacy and cope with their financial lives in an increasingly complex world?

A legacy of education

Saving to leave a legacy for your children may include more than passing on an inheritance to them on your death – also funding a good education.

In a recent edition of Big Picture Insights, Ronald King explained how a local university education would cost over R1m whilst studying abroad would require over R6m. He also illustrated that starting to save when your child is born reduces the monthly contribution needed to fund a local university education from R6 600 to R1 700 (rising in line with inflation) compared to if you only start when they are 13 years old (multiplying these amounts by six for studying at an international institution).

An inheritance for your heirs

You may also wish to leave assets behind for your heirs. Proper planning with your adviser can ensure that you have enough left to do so after taking into account your retirement needs. A good financial planner can project what your savings will be worth in a number of years using assumptions on inflation, investment returns and future costs. This will assist you in calculating what you need to save to leave the legacy you want.

Your will

A properly drafted will, combined with thorough estate planning, is crucial to avoid any unintended consequences with regard to the inheritance we leave to our heirs and paying more estate duty than we have to. If you have assets offshore, it is even more important to have a proper succession plan.

Your adviser can help with this and make sure that your wishes are carried out and that your will adheres to changing regulations. If you have a trust, reviewing your trust deed and possible letters of wishes in consultation with a professional should also be a regular event.

Financial literacy: preserving your legacy and your heritage

Equipping your loved ones to cope with complex financial challenges after you are gone is perhaps the greatest financial heritage you can give them. According to a comprehensive study by the Human Sciences Research Council in 2018, the level of financial literacy among adult South Africans tends to be in the low to moderate range, with a score of 54 out of 100. That means that about half of the adult population in South Africa do not understand basic financial concepts such as interest rates, inflation and savings.

Financial literacy encompasses a wide range of skills and knowledge related to money management – including budgeting, saving, investing, understanding debt, and making informed decisions about financial products and services. Communicating with your family and not being afraid to discuss money matters is key. It should not be a taboo subject.

· By talking to your family about financial decisions and instilling a culture of saving, you can help them achieve financial independence, avoid debt traps and be responsible with money.

· If your kids want to become entrepreneurs, they will need to understand cash flow, financing options and investment decisions.

· Education should start early with basic concepts like saving and budgeting. Board games and online tools can make it practical.

· Later, more complex ideas around interest and bank accounts, taxes, saving and investments and borrowing can be introduced.

· The best advice on saving that you can give anyone is to start early – introducing ‘the miracle of compound interest’, which Albert Einstein is said to have described as the most powerful force in the universe.

· You could open a tax-free investment account (or other types of investments) in your children’s names and your financial adviser could involve them in the decision-making and allow them to understand how it works.

Teaching the next generation financial literacy is an investment in their future. By starting early, we can empower young individuals to make informed financial decisions, achieve their goals, and contribute to an economically more stable society. Financial literacy is not just a skill.

It’s a pathway to financial independence and a brighter future – and a lasting heritage to leave behind.