The Great Wealth Transfer: financial planning across generations

The number of high net-worth female investors have increased by approximately 38% over the past decade, revealing that this generation of women is more financially independent than past generations. It is also interesting to note that a massive transfer of wealth labelled “The Great Wealth Transfer” is set to take place over the next decade, which will see millennials becoming possibly the wealthiest generation in history. It is therefore key to highlight the opportunities that this shift will present to South African women. 

The transfer of generational wealth is often a complex and emotional affair. It is therefore crucial that a wealth transfer plan is put in place to provide structure and guidance, along with a comprehensive financial plan which will assist and guide younger generations to build on what they have inherited, in a responsible way.

Financial planning is an essential practice that transcends generations and plays a pivotal role to ensure the economic wellbeing and stability for families. With the ever-changing financial landscape, it is important to understand how to effectively transfer wealth across generations, manage responsibilities toward parents and children, and encourage younger generations to become financially independent, thereby, ensuring that the next generation of women is even more financially secure than the current.

Estate planning: A foundation for women’s financial legacy 

Estate planning is the cornerstone of intergenerational wealth transfer and includes drafting a will, a living will (a document that specifies your preferences for medical treatment in critical situations when you are unable to make those decisions yourself), setting up a trust if it will be beneficial to your specific circumstances and designating a trusted individual to be assigned power of attorney in event of incapacitation.

While over 80% of women globally are comfortable leading short-term financial planning activities for their families, the World Economic Forum reports that only 23% are comfortable with long-term financial planning such as investing and insurance. This lack of confidence affects wealth creation and hinders taking the next step in investment plans. A comprehensive estate and financial plan ensure that hard-earned wealth which has been accumulated over time is distributed according to your wishes, manages expectations, minimises disputes within a family dynamic, and provides tax benefits.

Proper designation of beneficiaries for your assets is a critical step in estate planning. This process ensures that your assets are transferred smoothly and efficiently to your loved ones, according to your wishes. These designations should be reviewed and updated regularly, after major life events like marriage, divorce or the birth of a child.

Empowering future generations of women for financial freedom

A recent study by Fidelity Investments in the US found that women are doing away with misconceptions that prevent them from feeling confident financially and that more than a third of women have ‘unlearned’ the stereotype that men are better at managing finances.

A positive starting point is adopting intelligent financial habits and strategies which include creating and maintaining a budget, building an emergency fund to cover unexpected costs, and early discipline to saving and investing early in a diversified portfolio with the help of a trusted financial adviser, to take advantage of compound growth over time.

A case in point is the example of a client and her sister, who each inherited a diversified portfolio of quality stocks from their father who had purchased these stocks 30 years before and traded only upon the recommendation of his financial adviser. The result was the growth that had compounded exponentially over the years and resulted in portfolios that each of his daughters inherited and has ensured their comfortable retirement without financial concerns today.

Gen Z, growing up in a digital world, can leverage technology to enhance their financial literacy and investment strategies by using online platforms, digital financial tools and apps, and courses to learn about personal finance and investing. With a deep desire for financial independence, 44% of Gen Z women have been reported as eager to overcome financial insecurity as reported in the Fidelity Investments study. 

Research conducted by US research company Cerulli Associates concluded that regular meetings between trusted financial advisers and their clients’ families, as well as educational support and organised succession planning, are the most important contributing factors to a successful wealth transfer strategy. By understanding the essentials of estate planning, properly designating beneficiaries, managing financial obligations, and empowering the younger generations with financial literacy and investment strategies, female investors can secure a prosperous future and smooth transfer of wealth that has been built over a lifetime.

Affiliates of the PSG Financial Services Group, a licensed controlling company, are authorised financial services providers. www.psg.co.za 

By Carina van Rooyen, Wealth Manager, PSG Financial Services