Many parents are concerned about their children building solid relationships with money but are unsure how to approach the topic with their kids.
Done thoughtfully, conversations about wealth can be empowering and productive for families. Families who have forthright discussions about their wealth can help prepare younger generations to become responsible, informed stewards for the family wealth.
The important thing is to get started.
Having the Conversations
Like most major life topics, imparting your values around money to your children will not be the product of a single conversation. Discussions about wealth accumulate over time. Start with introducing financial fundamentals to lay the foundation for introducing more complex topics as your children’s understanding increases. Your confidence and comfort in navigating the topic is also likely to build the more you engage.
Early is Better, But It’s Never Too Late
Young adults are generally eager to achieve financial independence but may not know where to start. Because of this, it can be valuable to start young, such as when a child first receives money for birthdays, holidays or their first allowance. If you have young adults in your family who haven’t been exposed to many conversations about money, you’re not alone, and it doesn’t mean it’s too late. Start having the conversations now. Remember that it will be a process of many steps, but each step moves you all towards a better relationship with money.
Share and Learn from Each Other
As you move forward, think of the conversations you will have with the younger generation as an opportunity to share your values around money and find out about theirs. Conversations around money can, and often should, be collaborative whenever possible and can be a chance for you to find out more about what is important to your child and what motivates them. Their priorities for their money may not be the same as yours. Try to find some common ground and agree on basic ground rules as a family, so you can generally live and let live.
Where to Begin And What to Cover
Conversations around money are important, but they can be even more effective when backed up by concrete actions that get the younger generation involved. While these conversations and actions will vary depending on each child’s life stage, there will be many opportunities to engage your children on this topic as they move through life and become more financially independent.
As your children grow into young adulthood, talk to them about their personal finances. Do they have Roth IRAs, 401(k)s, or other investment accounts in their name? Use this as an opportunity to make sure they are practicing productive financial habits such as maximizing contributions to retirement accounts, managing their personal cash flow, and learning about basic investment principles.
If your children will eventually have access to large sums of money currently held in trusts for them, make sure they are prepared for the responsibility and can make sound financial decisions. Does the money come with stipulations – either explicitly written into the trust document or implicitly held in the mind of the person who created the trust for their benefit? Share stories with your children about the family member who created the trust, how they created the wealth, and why they put money in trust for them. Being a good steward of wealth often requires feeling connected to it.
Charitable giving can be a terrific way to help your children discover and nurture their passions. It’s also an opportunity to bring the family together to discuss values that motivate personal and shared family decision-making. Within your family’s foundation or donor-advised fund, give your children responsibility for selecting several charities that will receive grants. Have them share why they chose those organizations and the research they conducted to support their decisions. Use this time to discuss specific missions or values the family wants expressed through its philanthropy.
As you gradually give your children more responsibility in this area, start conversations with them about future expectations. Do you expect your children to eventually have an active role in the family foundation? What would that role be? How do your children feel about it? What can you do to help prepare them for this future responsibility? These are just some of the questions to consider and conversations to have as your children get more involved in your family’s philanthropy over time.
When you feel confident about your children’s financial maturity, you may feel it’s appropriate to start revealing more information about the family’s wealth. While you don’t have to share your exact net worth, you can support your children’s gradual understanding of the family’s overall picture by setting aside time to inform them about the different businesses, legal entities, or investment portfolios that make up the family’s wealth.
Find teachable moments that are appropriate for your children’s age and understanding to help them learn about some of the planning strategies your family has in place. Are your children beneficiaries of an irrevocable life insurance trust (ILIT) and need to sign annual Crummey notices? Are you creating a new LLC or charitable entity? These are all good times to engage your children in conversations about your family’s financial decisions and familiarize them with the various disciplines (e.g. investment management, tax planning, estate planning) that go into managing the family’s wealth.
Thinking about our own mortality is rarely easy. Talking about it with loved ones, even less so. However, there will come a time when you’ll need to start sharing with your children how you’ve planned for things to be taken care of after you’ve passed. Who will have power of attorney over your financial and health care decisions? How do you intend for your assets to be distributed? You’ve likely had these conversations with your Wetherby advisor and estate planning attorney. Eventually, when your children are settling into adulthood – and perhaps have even started families of their own – you’ll want to think about having some of these conversations together.
Having these conversations and more is an important part of preparing your children to manage their own and the family wealth. Your Wetherby team is available to offer resources and support as you navigate your children becoming the independent and self-sufficient individuals you hope them to be.