A woman I once worked with had just turned 70 and was divorcing her husband of 50 years. She was terrified, but her fear was not just of ending her marriage, but of losing the affluent lifestyle to which she had become accustomed. As we sat down for dinner, she tugged at my arm, leaned over and whispered, “I hope you can help me; I have no skills and am afraid I’ll have to get a job as a department store greeter!” At that moment I realized she was wholly unaware that her personal financial net worth (post-divorce) was in the hundreds of millions of dollars—in short, she had financial freedom, but she lacked financial literacy.

The story demonstrates how financial literacy can affect people of all walks of life, even those who have substantial assets. Complacency as to your finances creates hidden risks; and practicing good financial habits is not just for those who are still building wealth—I believe it’s critical to stewardship of generational family wealth as well.

Wealth erosion can happen to anyone no matter how much you have because financial assets may be depleted over time due to a variety of factors such as lavish spending habits, inadequate investment strategies, a lack of financial planning, conflict among family members, fraud and embezzlement due to missing internal controls, and “key person” risk, where there is overreliance on one or two individuals handling all of the family’s financial matters.

Even where you have sound financial habits, unpredictable “black swan” events like 9/11, the 2008 financial crisis and the COVID pandemic can threaten wealth virtually overnight. In my view, advancing financial and wealth literacy for rising generations is crucial to ensure that your family legacy is not only preserved, but sustained over time. This is the essence of NextGen stewardship, which I explore more fully below.

Common Pitfalls Due to Lack of Financial Literacy

Overspending and Lifestyle Inflation (“I Don’t Need to Budget, I’m Rich!”). Children raised in a life of privilege and wealth are often conditioned from infancy to expect that their lifestyle needs will always be met, no matter how excessive. This encourages a sense of entitlement and lifestyle inflation, where spending increases exponentially as they mature and are given access to income from family wealth. Without a basic understanding of a budget, or financial limits, children can easily wind up spending substantially more than the family enterprise is earning. Clearly, if your spending is high, income earned must be higher or you’ll start to deplete savings and investments—this rule applies to everyone, even the rich, with the depletion of the Vanderbilt fortune over generations offering a prime example.¹

Poor Investment Decisions. Investing in high-risk ventures without proper understanding or research can lead to significant losses. For example, the 2008 financial crisis saw many wealthy individuals lose substantial amounts due to investments in mortgage-backed securities and other risky assets. A lack of the requisite knowledge to perform due diligence on complex investment products, assess the risks, and stay on top of economic and market trends can lead to poor investment choices and vulnerability to bad actors who prey on the unsophisticated.

Failure to Plan for Taxes. Tax planning is a critical aspect of wealth management. Without knowledge of tax laws and strategies, individuals might pay more than necessary or face penalties for noncompliance. For the ultrawealthy, this is not just about income taxes, but also wealth transfer taxes—the federal estate, gift and generation-skipping taxes imposed on family wealth when it is passed on to beneficiaries. Currently, the tax rate for each is 40% with a 2024 exemption of $13,610,000 per individual, scheduled to revert back to pre-2017 levels (indexed for inflation) of roughly $7,000,000, at the end of 2025.² Timely tax planning can save substantial sums of money, while the failure to plan can lead to diminishing wealth.

Wealth Literacy for Intergenerational Wealth Transfer

A significant challenge for affluent families is often sustaining wealth across multiple generations. The development of wealth literacy can play a crucial role in achieving this goal if it goes beyond financial issues to address dynamics whose neglect may worsen the risk of wealth depletion. As illustrated in The UHNW Institute’s Domains of Family Wealth, rising generations should be equipped with the knowledge base, skills and tools to handle qualitative challenges that may arise from a failure to cultivate “family capital.”

The Domains of Family Wealth

Unprepared Heirs. It’s clear that heirs’ lack of technical skills needed to handle large sums of money can lead to mismanagement and financial loss; less apparent is financial risk due to the underdevelopment of personal identity and life purpose beyond the family’s wealth.

Failure to Communicate Family Values. The failure to articulate and communicate shared family values, responsibilities of wealth ownership and the need for purpose may result in heirs who don’t understand the effort required to build and sustain wealth, establishing an entitled attitude rather than a stewardship mindset. Shared family values are the “why” that supports family members by guiding behaviors that foster the desire to preserve and respect the family legacy.

Lack of Formal Governance for Decision-Making. As families grow in size and complexity, decisions and conflicts are unavoidable. Without formal structures to enable family members to share and obtain access to information, and to learn, debate, collaborate, vote and resolve conflict amicably, family relationships can become strained, chipping away at foundational trust and communication.

Poor Estate and Succession Planning. Estate planning involves legal mechanisms to manage and transfer wealth, while succession planning entails identifying and grooming the individual(s) who will assume control over responsibility for managing family wealth (whether a business or portfolio of assets). A lack of planning can expose the estate to high estate taxes, while ignorance of a plan’s true impact can invite costly legal battles among heirs. Not only can this result in loss of family wealth, but it also can destroy family relationships.

Advancing Wealth Literacy

Family Education Is a Process. Family education viewed as a process (not a transaction) establishes lifelong learning habits in the next generations. In my view, education should incorporate academic technical teachings as well as interpersonal skills, development, enhancing self-awareness and emotional intelligence. Taking financial literacy courses, participating in customized experiential workshops through facilitated family meetings, and attending topic-focused seminars or webinars can be invaluable. Each modality is distinct, and a mix of all can maximize learning “stickiness.”

Professional Wealth Coaches. Working with experienced wealth coaches and advisors can enhance the family education process by providing structure, creating accountability, documenting progress and offering individual support. Families often find NextGen education overwhelming because they don’t know where or how to start. Experienced professionals can help design basic and highly tailored education workshops, taking into account a wide spectrum of ages, maturity and financial sophistication among family members.

Family Involvement. Including family members in financial discussions and wealth planning can foster a culture of transparency, inclusion and stewardship. Family involvement ensures that all members understand the financial situation, and more importantly, can strengthen family relationships, fortifying family alignment and shared purpose in achieving a lasting legacy.

In Conclusion…

I believe that advancing financial and wealth literacy is indispensable to sustaining wealth across generations. Without a strong foundation in basic financial and investment management knowledge, along with proactive cultivation of family capital, even substantial fortunes can be eroded by excessive spending, a lack of planning, poor investment choices, mismanagement, fraud and conflicted family relationships. Building that foundation over time may involve a multipronged effort that includes fostering appropriate values, developing financial knowledge and working together to achieve common goals.

About the Author

Sisi Provost is Co-Founder of Succession Advisors, a media company producing NextGen financial and wealth literacy courses and offering educational content on topics ranging from family legacy planning to luxury lifestyles. With almost 20 years of experience in the ultra-high-net-worth space, she consults with clients on estate planning and advanced wealth-transfer strategies, and facilitates family meetings to foster education, governance and strengthened relationships. Sisi began her career as an estate tax attorney before transitioning into wealth management, where she held senior positions at multiple leading institutions.