There’s been a lot of talk lately about succession planning and the intergenerational wealth transfer, as the baby boomer generation reaches retirement age.

One aspect that hasn’t been widely considered is the impact on other family members, and in particular children, as their parents think about selling their business or retiring from their career, perhaps selling their family home, and starting life in retirement.

It is important that children are prepared to deal with this process, not least so they are aware of the financial implications and how they may be affected.

For instance, children may be expecting to receive a certain amount of money from their parents – particularly those who are selling a business – and end up disappointed. Conversely, they may not be expecting to receive anything, and are therefore not equipped to deal with a windfall.

Gen Y and money

The children of those entering retirement today are usually Gen Y or Millennials, born between 1980 and 1994. Although they are considered to be ambitious, driven and income rich, research shows they rely heavily on debt and are somewhat financially illiterate.

They tend to believe they have a good understanding of their financial situation, however they most likely don’t have as good a grasp on it as they think. In addition, this is a critical time as they are now a few years into their career and earning money at a level they haven’t before. They could be purchasing their first home, planning for a wedding or planning to start a family.

Open a dialogue

For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations and also whether children have the knowledge and understanding to manage financial matters.

This is not an easy exercise, and some may not want to discuss their financial affairs with their children. However, it can be worthwhile. Parents may find their children’s eyes are opened when they see what their parents have been able to achieve financially. They may even want to know how they can do that themselves and change their own habits.

Foster independence

Everyone works hard to provide for their family, and perhaps even leave them a legacy. However, parents approaching retirement shouldn’t feel that their family is solely reliant on them, or that they need to be responsible for their children’s financial situation.

Some children may believe they don’t have to worry financially because mum and dad will always be there to bail them out. Indeed it’s not uncommon for children – even adult children – to think their parents have a financial empire they can rely on.

However, once their parents discuss their life plans after business, this attitude can change, especially if children come to the realisation that their parents’ retirement planning doesn’t take into account their own financial mishaps.

Establish a footing

A good approach is to help children establish their own strong financial footing and be ready for intergenerational wealth transfer. For instance, introducing children to professional advisers can provide comfort that there is someone they can go to for advice.

Having open conversations with children and expressing wishes and goals will also ensure that the family are all on the same page and help reduce potential conflict later when managing intergenerational wealth transfer.

This article was authored by Jess Lewis, Wealth Adviser, HLB Mann Judd Perth.