Today was a day that made me reflect.
I was in Docklands having breakfast before attending a meeting with a group of young entrepreneurs. As I was walking towards the meeting venue after a satisfactory breakfast, with my morning coffee in hand, I saw someone that I vaguely recognised.
After a few seconds I realised that the person I was looking at was the son of an ex-client of mine from a few years ago. I had difficulty recognising him because he looked very different to the last time I saw him, which was about five years ago. I remember him being quite fit and very health and fitness focussed. Today he looked tired, unwell and unhealthy.
I said hello and enquired about his dad. The son told me that his father passed away six months ago from cardiac arrest. The father was at work when the heart attack occurred. I expressed my condolences. I was shocked but I tried really hard to remain normal and calm. The son told me that it had been a stressful time for the family since the passing away.
The father passed away unexpectedly and never discussed his finances with anyone when he was alive. After the funeral, the family tried to track down all the assets such as bank accounts, superannuation, life insurance etc. They discovered that the life and the other insurance policies that I had put in place for the father were cancelled by him just a few months prior to his death.
The superannuation was paid but the amount was no where close to what was needed to pay off the mortgage, the car lease and the business loan. Creditor claims were made against the estate, lawyers were called in and not much was left for the family once all the paper work was tracked down, all bills and fees paid.
I won't go much further about what else happened and how the unexpected passing of the main income earner affected the family emotionally and financially at such a stressful time. But I have to admit, it left me pondering why people refuse to think and plan for such important situations?
Why do people work so hard in pursuit of money and lifestyle and yet majority of them end up with neither?
The Sad Truth
I came back home and dug up some old research papers from my courses to look up the statistics relating to legacy planning (planning for future generation/s). This is what I found:
According to research by Roy Williams and Vic Pressier of the institute of preparing heirs, there is a 70% failure rate in passing a family's wealth from generation to generation.
The first generation whose members worked so hard to accumulate assets did not prepare for its distribution and transfer to the next generation through the adoption of the right risk management strategies.
This means that most people work really hard to amass assets, but not much is left for the next generation, meaning the next generation has to start all over again, and the cycle continues.
On the other hand, the wealthy keep getting wealthy with every successive generation because they forward plan to manage financial risks.
Today only 7% of Americans and 10% of Australians reach $1m of household net worth (excluding their home).
With such dismal figures and the odds being against the average person, one would assume that the average person would be more committed than ever to plan their future and the future of their successive generations. However, this doesn't seem to be the case!
As a wealth adviser, it never ceases to amaze me that with more help and information available than ever before, why so many people still avoid these responsibilities and pretend that it won't happen to them.
As long as people remain indifferent, I suppose I'd better get used to coming across more similar tragedies, like the one suffered by my ex-clients family.
What do you think? Why don't more people act to protect their families? I'd love to hear your opinions in the comments section below, as it just leaves me completely baffled.