6 Tips to Kickstart Succession Planning with Your Business Owner Clients
Here are 6 tips you can share with your business owner clients to help kickstart their succession planning.
Helping set your clients’ children up for a successful financial future and encouraging them to be financially responsible can be an important conversation to have, as financial literacy is one of the building blocks of a successful life. But when and how should your clients start? Encouraging them to introduce their child to investing and saving for retirement can be a great place to begin. From there, more conversations can be had to stress the importance of saving for retirement early. For your client, investing with their child and teaching them the basics of financial literacy can help them learn how to grow their money, build wealth, and set and achieve financial goals.
Before diving into investing, it can be helpful to make sure your clients’ younger children understand the basics of money management, including budgeting, saving, and spending. You can encourage clients to start with simple, age-appropriate money lessons, and gradually build upon them as they go. For example, a client could give their child a cash allowance and help them choose categories they want their savings to go into using a piggy bank, jars or envelopes. By showing them how money can be allocated to different wants or “needs” they can learn the importance of money management.
For teens and young adult children, more in-depth conversations about investing and good money management can be had. It can be important to help them find their “why,” by asking them how they envision their life, not just for today, but for the future. It’s never too early to start planning for retirement, and the teen years can be a great time for clients to educate their children on the importance of saving for their future, whatever that future looks like.
In July of 2022, Nationwide conducted a poll of 1,150 U.S. families with children under age 18 to ask about their current perceptions and attitudes about their finances. We found that retirement and education savings goals are among the top financial goals for U.S. families, with paying off debt also ranking high on the list of financial priorities.
The importance of these goals is relatively consistent across different generations too, except among Generation Z (defined generally as adults between the age 18-25). For younger families, saving for retirement and paying off debt isn’t as high of a financial priority as buying a home and building credit.
Knowing this, having conversations about retirement and education savings can and should begin early, to save clients’ children future stress and help them plan for their goals of homeownership or building credit. Teens are at the age where some have begun part-time jobs or have had the opportunity to save birthday money—this can be an opportune time to help them save small amounts on a regular basis and stress the importance of retirement savings. The average age that Nationwide participants start saving for retirement is 31, which is late. One of the most important things your clients’ kids have when it comes to retirement savings is time.
One of the biggest considerations for your clients when getting their children started investing is custodial accounts. Since minors can’t open brokerage accounts or invest in stocks directly, your client will need to open accounts on behalf of their children. The age of termination, when the custodian relinquishes control of the account, varies based on the state and will either be 18 or 21.
Custodial accounts can hold a variety of investments, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). They can be a great way to get kids started with investing and can help them build a diversified portfolio over time that they can take over once they’re older.
Another way to teach children about investing can be to open a Coverdell or 529 Education Savings Account. That way, they can watch as their college savings potentially grow, and depending on the account, there could be opportunity for hands-on investing experience with money they will potentially use in the future.
Your clients can teach their children about money by bringing them along to meet with you, their financial professional, and include them when talking about general financial goals. Having those conversations and bringing them along to real-world experiences regarding money can help teach children financial literacy.
Because there’s a tremendous benefit for younger people to start saving as early as possible, I often remind my Gen Z daughters of a Chinese Proverb – ‘The first thing to do is to start and the second is to continue’. This quote came in handy this past summer when my daughter in college had her first fellowship. As part of her benefit package, the university offered her an opportunity to contribute to a matching 403(b) savings plan. At first, she was reluctant, but when we calculated the long term benefit her contribution could potentially generate over her career journey she was sold; and wanted to contribute even more!
Introducing investing to your client’s children can have several advantages; they’ll have a longer time horizon to invest, meaning that they can choose to take more risks and potentially earn higher returns. Investing early can also help children develop good financial habits, such as saving and budgeting. Additionally, investing can teach children valuable skills, such as critical thinking, goal setting and decision-making. Lastly, this is a great conversation starter to have with your clients to help build stronger, more meaningful relationships when families may be especially concerned about retirement and college savings.
Investing involves market risk, including possible loss of principal. No investment strategy or program can guarantee a profit or avoid loss. Diversification does not assure a profit or protect against loss in a down market.
Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.