While succession planning is a priority for many families, too few are involving younger generations in the management of their wealth. In today’s speedily changing financial environment, the greatest gift parents can give their children isn’t just the wealth itself, but the knowledge to manage it wisely.
Timothy Macharia, head of wealth management at KCB Investment Bank in Nairobi, notes that financial education is a critical yet often overlooked aspect of successful succession planning. Without it, he warns, inheritors may struggle to manage their newfound wealth, risking mismanagement or loss.
Succession planning involves the transfer of assets from one generation to the next, but the process is far more complex than simply handing over money or property. According to Mr Macharia, “succession is about wealth, and being ill-prepared is just planning to fail.”
He believes that many individuals, when suddenly in control of large sums of money or property, struggle because they lack the necessary financial understanding.
“You’ve worked all your life, been paid a monthly salary, and managed your money bit by bit. But when you’re handed a lump sum, like Sh20 million, it can be overwhelming, and people often start experimenting with investments they don’t understand.”
The problem, Mr Macharia says, is not limited to the wealthy.
Anyone who retires with savings or investments faces similar challenges if they are not adequately prepared.
He shares the common scenario of someone receiving a large payout at retirement: “You’ve never touched that kind of money before, and suddenly you’re considering truck businesses or farming without understanding the risks involved. Before you know it, the money is gone.”
This kind of financial experimentation is often disastrous, especially when individuals fail to grasp the issues and nuances of managing wealth or investment opportunities.
Mr Macharia emphasises the importance of financial education for wealth preservation. In his experience, families often fail to prepare the next generation adequately, resulting in wealth destruction rather than wealth creation.
“There’s a phase of wealth creation by one generation, followed by wealth destruction by the next. The children are often ill-prepared, and what was once a successful business or investment crumbles due to mismanagement,” he says.
A key reason for this, he argues, is the lack of appreciation for professional advice and the tendency to rely on outdated investment strategies.
“A lot of people, especially in Kenya, think of real estate when they talk about investments. There’s an over-concentration in one type of asset, and they fail to diversify their portfolios,” Mr Macharia says.
“People need to understand the value of diversification and the opportunities in capital markets.”
He adds that too often, individuals fail to recognise their limitations in managing wealth. “It’s important to accept that you might have a knowledge gap and seek professional advice. You can let a wealth management professional, who understands the market better than you, guide your investment decisions.”
By doing so, families can safeguard their wealth for future generations.
Mr Macharia says financial education should begin as early as possible.
“The responsibility of teaching wealth management should not solely fall on parents. It should be incorporated into the school curriculum,” says the investment banker.
He suggests that personal finance and wealth management lessons be introduced in primary school and built upon throughout a child’s education.
“In other fields like science, we see an accumulation of knowledge. Each generation of scientists builds on the work of the previous generation. But in finance, we don’t see the same accumulation of knowledge. Mistakes are repeated because we don’t take financial education seriously,” he says.
By introducing financial education early, children can understand how money works, the importance of saving, and the fundamentals of investing. This knowledge will better prepare them to handle the wealth they may inherit or accumulate later in life.
“If children are taught about wealth management from an early age, they are more likely to make informed decisions when they come into wealth, whether through inheritance or their hard work,” says Mr Macharia.
While schools can play an important role in teaching financial literacy, parents are still the primary educators when it comes to money management. Mr Macharia recommends that parents start engaging their children in conversations about money and finances as soon as they can understand basic concepts.
“It’s important for children to appreciate the value of money and to understand why their parents are making certain financial decisions. This helps them buy into the family’s financial vision,” he says.
Parents can involve their children in budgeting, talks about investments, and even philanthropy. By doing so, they can help their children develop a healthy relationship with money and an understanding of its potential to grow and create opportunities.
“The goal is not just to hand over wealth, but to hand over the knowledge of how to manage it,” says Mr Macharia.
One of the most common mistakes families make, he says, is assuming that their children will share their vision for the family’s wealth.
“Parents often assume that their children will have the same dreams and aspirations, but this is rarely the case. Children are individuals with their own talents and goals, and they may not want to take over the family business or manage the wealth in the same way.”
The wealth manager also points out that parents often overestimate their children’s financial capabilities.
“Every parent thinks their child is a genius, but that’s not always the case when it comes to managing wealth,” he says.
He advises parents to have open and honest discussions with their children about their strengths and weaknesses and to set realistic expectations for their involvement in managing the family’s wealth.
Another common mistake is failing to plan for the continuity of wealth.
“Many families focus on creating wealth but don’t put enough thought into how it will be managed after they’re gone,” says Mr Macharia.
He encourages families to work with financial advisers and estate planners to create a comprehensive succession plan that includes not only the distribution of assets but also the education and preparation of the next generation.
Role of Professional Advisors
For those who are unsure about how to manage wealth or prepare their children for succession, professional advisors can play a crucial role.
“A professional wealth manager can help you walk through the challenges of investing, tax planning, and estate management,” Macharia explains. “They can also provide guidance on how to prepare your children for the responsibilities of managing wealth.”
He adds that working with a regulated institution ensures that your wealth is being managed in a way that is transparent and in line with legal requirements.
“It’s important to work with licensed professionals who have a deep understanding of the markets and can help you make informed decisions about your wealth.”
Preparing Next Generation for Success
Wealth management is about more than just accumulating assets—it’s about preserving and growing that wealth for future generations. By teaching children about financial responsibility and involving them in the family’s financial decisions early on, parents can help ensure that their wealth is not only passed down but also managed effectively.
Macharia emphasizes, “If we don’t prepare the next generation, we’re setting them up for failure. Wealth creation is one thing, but wealth preservation requires knowledge, discipline, and the willingness to seek professional advice.”
Incorporating financial education into both the home and the school system can create a culture of financial literacy that benefits not just individual families but society as a whole. With the right tools and guidance, the next generation can build on the successes of their predecessors and ensure that their family’s wealth continues to grow for years to come.
Despite the clear importance of wealth management, many families lack adequate platforms and tools to equip their children with the knowledge they need.
This issue is compounded by the fact that estate planning and wealth succession are often misunderstood or overlooked in Kenya. Macharia, notes that trusts, which are widely used in other parts of the world for wealth preservation and distribution, are still a relatively new concept to many Kenyans.
“Few people truly understand what a trust is, how it operates, or the benefits it can offer in ensuring that wealth is effectively passed down to future generations,” he explains.
In recent years, however, there has been a slow shift toward greater financial literacy. Financial institutions, such as banks, have introduced products specifically designed to foster an early understanding of money management.
Macharia highlights products such as Junior accounts, Minor investment accounts, and other child-friendly financial products that have been launched to help parents introduce practical financial concepts to their children.
“Opening a junior account or Minor investment account is one way of teaching kids practically about money management. You can even incentivize them by offering to match their savings,” he says. These tools allow young people to engage with money management in a hands-on manner, learning the value of saving and investing early in life.
While these steps are promising, they are not enough on their own. Macharia stresses the need for a more comprehensive approach that involves families, educational institutions, and financial professionals working together.
“Parents must lead by example. Regularly discussing family financial goals and planning at the dinner table can help children become oriented toward the importance of wealth management,” he suggests. Schools, for example, could incorporate basic financial education into their curriculums, covering topics such as budgeting, saving, and the principles of wealth management.
The legal system also has a role to play. Mr Macharia emphasizes that more effort needs to be made to demystify estate planning and succession law so that families can avoid the costly and often lengthy legal battles that prevent wealth from being effectively utilised.
“A lot of wealth today is tied up in succession cases—nearly a trillion shillings’ worth. These assets are blocked, sitting idle because of sibling disputes and lengthy appeals,” he notes.
He believes educating the public on the importance of wills, trusts, and other estate planning tools is crucial to ensuring a smoother transfer of wealth.
Lastly, preparing children for wealth management and succession is not just about ensuring financial security for the next generation—it’s about creating a legacy.
“There’s a strong correlation between earning your own money and being able to manage wealth,” Macharia says.
The more we can equip young people with the knowledge and tools they need to manage wealth responsibly, the greater the chance that wealth will be preserved and grown across generations.
It’s time for all stakeholders—parents, educators, financial institutions, and the legal system—to collaborate in creating an ecosystem that promotes sustainable wealth transfer, benefiting not just individual families but the economy as a whole.
