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A lack of financial education is set to leave families in the U.S, Canada and the U.K. with a $4 trillion burden in the coming years with the next generation failing to plan effectively for inheritance, a new report from RBC Wealth Management has found.
The new survey released Tuesday showed that almost three quarters of respondents felt they lack a full strategy for transferring their wealth to the next generation and just 35 percent of inheritors say they felt prepared by their benefactors before receiving wealth. The survey of 3,014 people focused on independently sourced high net worth and ultra-high net worth individuals. It included a series of online questions as well as in-depth interviews.
Just over half – 54 percent – of the respondents have a will in place but have done little more to prepare beyond this, while one in three have made no preparations at all.
This speaks to a wider issue of financial education within the U.S., Canada and the U.K. On average, individuals in these countries don't engage in structured financial education until the age of 27, leaving many lacking the confidence to make financial decisions and little time to prepare, it said. The survey suggests that inheritance begins at age 29 with the death of a grandparent.
The U.S. is making the most progress on filling this void, with parents in tune with preparing their children for inheritance.
60 percent of U.S. respondents say they are already providing their children with some form of financial education to ensure wealth is preserved between generations. This compares to 53 percent in the U.K. and 51 percent in Canada.
However, U.S. respondents are more likely to look to professionals to provide this guidance, whereas 66 percent of Britons prefer to self-educate. Canadian respondents were the most likely to start financial education at an earlier age, engaging at an average age of 26.2, versus 26.6 in the U.K. and 28.1 in the U.S.
The report also highlights a general reluctance among families to discuss inheritance due to the sensitivity of such conversations, leaving many inheritors unsure of how to use their newly acquired funds.
Just 40 percent of respondents said they felt comfortable sharing specific details about their wealth, preferring to talk about it in more general terms.
"There is a cycle of unpreparedness in wealth transfer that needs to be broken", explained Tony Johnson, head of sales and relationship management at RBC Wealth Management International, in the report.
"Family discussions around estate and succession planning can be daunting, meaning they are often put off until it's too late, which may result in damaging consequences. Open conversations, financial education for heirs, and advance planning are therefore critical to protecting the future of estates and assets that U.K. families have built."