At RegentAtlantic, we enjoy partnering with multiple generations of our clients’ families. Not only does it allow us to further build upon strong relationships, but it gives us constant exposure to new challenges and perspectives that previous generations might not have shared. We appreciate this as advisors because it forces us to continue to think creatively when discussing financial planning strategies.
On our inaugural episode of the Family Bonds podcast, advisor Chad O’Brien and I addressed one area where we often see contrasting views among different generations: taking on debt. We concluded that there may be a “right” answer from a quantitative perspective, but the intangible “sleep-at-night” factor plays just as big a role in financial decision-making.
My parents’ generation grew up in an era where mortgage rates were consistently 10% or higher. They were always told that debt was “bad” and paying it off was the best thing you could do. In reality, taking out a mortgage or completing a cash out refinance today may be beneficial for some in their situation. Those proceeds could be reinvested in the market with the idea that you earn a higher return than the interest you are paying on the loan. This could potentially leave you with more in assets at the end of the term. It may seem simple, but the environment they grew up in has convinced them otherwise.
More recent first-time home buyers have had the chance to shop during an extended period of low interest rates. Not only has this benefited them at the initial purchase, but it’s also allowed for the opportunity to conduct those refinances that I mentioned above. This likely younger demographic has not been forced to carry debt at those 10%-plus interest rates, which could be one reason why they are not averse to it. Another reason could be because they are used to carrying some form of debt given the multitude of student loans out there.
This is a simple illustration, but sometimes different perspectives can cause tension within family dynamics, especially when wealth is involved. Think about conversations you may have had at Thanksgiving dinner. Conflicting views likely come up on an array of topics, from politics to music to the use of social media. At the end of the day, it is important for each generation to understand that they did not lead the same lives as their parents, nor will their children live the same way that they did. Each generation is molded by the era in which they grew up. How can we handle these tensions? In my opinion, the first step in addressing this is to have open conversations about each individual’s values and the drivers behind those values. Understanding why each generation thinks the way they do is important as opposed to chalking up contrasting views to being a “rebellious teenager” versus an “old-school thinker.” Consider making these conversations regular, both in terms of frequency and attendees. Start with topics that may be less sensitive – such as music – to build confidence and comfort for all participants. Eventually, you can work your way up to areas such as finances. When that time comes, reach out to your Wealth Advisor to help you develop an agenda for and facilitate a family wealth planning meeting.
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