Whilst an inheritance may be a blessing, it can also be a heavy responsibility to bear at times. This applies if there is a large sum of money, estate or company at stake, but also holds true when talking about an inherited approach to money. Indeed, some aspects of our relationship to money are inherited from our family.
Ever wondered why you tend to be a compulsive spender or, on the flip side, why your main priority is saving money and building a nest egg? Why do you always hesitate about investing, to the extent that you miss out on attractive opportunities? One possible answer is that your behaviour on financial matters is partly dependent on your family’s history with money. So it’s important to take the time to reflect on your own behaviour regarding money, to understand it, manage it and change it where necessary, so you are better equipped to handle your finances and investments in the future.
Your behaviour on financial matters is partly dependent on your family’s history with money.
Avid readers of the articles on behavioural finance on myLIFE will know that we are all irrational in one way or another when it comes to managing our money. Our cognitive biases make us overly confident, we are swayed by social norms and, more often than not, we put off to tomorrow what we should do today. Given this state of affairs, while the recommendation to seek the help of an objective and trusted financial adviser holds good, you have also learned that, at the end of the day, you are the person best placed to know what is best for you and to decide on the best way to achieve your life goals.
In order to take the right decisions, you must be able to reflect objectively on the most appropriate financial choices for achieving the life you want. And the first step in this process is take a close look at your past and to assess your family’s history regarding money. As well as our values and principles in life, we also inherit our relationship to money. This is passed on to us in our family circle where we first come into contact with money, and, from a very early age, via the reactions of our loved ones to financial issues.
Socioemotional wealth is inherited.
It’s not just material or financial assets that are handed down from generation to generation. The concept referred to by scientists as socioemotional wealth is also inherited. Socioemotional wealth specifically includes feelings of influence and control associated with money, as well as feelings of identification, attachment and belonging, which money may play a part in strengthening or weakening within a family unit.
Take the example of a family business handed down from one generation to the next. The children may have seen how family life revolved around this business, whether by sanctifying its values and transmission down through the generations, or depriving them of time with their ever-absent parents, engrossed in keeping the family business running at all costs. How will children who have experienced this behave?
Nothing is preordained! Some may learn to manage their pocket money just like a company’s budget. Their studies, future investments and energy will all be focused on a single goal: to take over the helm of the family business and to make it prosper. Others may react to the absence of their parents with wholesale rejection of this entrepreneurial lifestyle and spend all their money on enjoying life. Our aim is not to judge these lifestyle choices, but simply to state that inherited socioemotional wealth plays a key role in both types of behaviour.
Socioemotional wealth, including our family’s relationship to money, is not set in stone. It may evolve and be adapted, provided it is first properly understood.
The good news is that this socioemotional wealth, including our family’s relationship to money, is not set in stone. It may evolve and be adapted, provided it is first properly understood. If you want to take control of your future finances, you must first take stock of your family’s history with money.
Learn to heal your money wounds
Were you parents always arguing about money? This doesn’t mean that you must be conflicted by spending or investment decisions. It’s possible to make a conscious break with the cautious approach you inherited and to manage your assets better, taking advantage of the investment opportunities suited to your investor profile.
Did your parents teach you the importance of self-reliance, action and risk-taking if you want to succeed? You don’t have to apply the same level of confidence when investing your savings. After all, just because the risks you took in launching your own business paid off, that doesn’t mean you are a financial expert who can take similar risks on financial markets without any help.
It’s clear that the key is to take some time for introspection, to reflect on your past in order to decide which bits of your inherited socioemotional wealth to keep, and which to jettison. This process should be a bit like a strategic audit during which you assess your strengths, weaknesses, past successes as well as errors, with the aim of improving your future outlook on the financial front, in line with your life goals.
Parents can choose not to make money matters taboo, and to actively promote their family’s financial education.
Once aware of the impact that a family’s history with money may have on future generations, parents can also choose not to make money matters taboo, and to actively promote their family’s financial education. This is also the aim of myLIFE. But it may be much more important to teach children to appreciate life’s little pleasures, in particular those derived from their own efforts. This may be something purchased with the pocket money that they have patiently saved up for months, or holidays spent with their friends and paid for by their first summer job.
This point is worth emphasising, because many studies highlight that children from well-off backgrounds struggle to appreciate the small things in life. They tend to be blasé and think that you can only be really satisfied if you have spent a lot of money. This behaviour presents them from appreciating the things they have earned for themselves. A small pleasure achieved on your own merit brings greater satisfaction than having it all, immediately and effortlessly. If you take affluence for granted, it can lead to outrageously profligate behaviour, focused only on the here and now without any regard for the effort required to preserve and grow your assets. A good tip anyone hoping for “happy money”
Settle with your past to invest in your future
There are as many different approaches to money as there are family stories. And each of us must deal with our own particular heritage. You can unconsciously perpetuate a certain type of family tradition regarding money, or you can cultivate a different relationship with money than the one you inherited. However, what you must remember is that nothing is set in stone. If you choose to carry out an audit of your family’s history with money, it’s up to you whether to take a new direction or not. The important thing is to dare to face your past.
And so before coming to meet your financial adviser, please carry out a short exercise and reply honestly to the following questions:
- What have been your greatest financial successes or setbacks?
- What have you learnt about managing your money?
- What do you think about money and the role it plays in your life?
- How did you behave towards money when growing up?
- Did you receive pocket money? What did you do with it?
- What do you remember as your best and worst purchases? Why?
- How did money affect your parents’ relationship?
- How has the class or economic status of your family affected your financial beliefs?
Carrying out this exercise will take you to the heart of your relationship with money, and will teach you to handle this relationship in a calm and dispassionate manner. It’s then up to you whether you continue to behave in the same way regarding money, or whether to fully revise your approach. And in any case, from now on it will be easier for you to make independent decisions on how to manage, invest and spend your money. Confronting your past on financial matters is the price to be paid for being in a position to calmly construct the future you desire.