One of the biggest challenges that many wealthy families face is how to talk about the money they have accumulated with their children.
Time after time, my clients tell me that the one fear, other than the need to protect their wealth, is the impact that their financial success might have on their children.
They are right to be concerned. According to a report by the Williams Group wealth consultancy, 70% of wealthy families lose their wealth by the second generation and 90% by the third. As the saying goes, shirtsleeves to shirtsleeves in three generations.
If handled poorly, our financial success could be doing our children the greatest disservice of all, stifling their confidence, self-worth and ambition.
In this blog, I provide some tips as to how best to prepare your children to understand, appreciate and manage money in their own financial lives.
Tip 1 – Start early
Most of our beliefs, assumptions and attitudes about money are developed during our childhood. We cling to the innocent messages and lessons we learn as a child and once set, they tend to be firmly embedded in our psyches.
Understand that messages are received both verbally and non-verbally. Set a good example both in what you say and how you act. You are already creating the legacy that will live on in your children.
Encourage thrift, budgeting, savings, entrepreneurship and generosity from an early age with age appropriate activities. Do not overspend, hoard or convey any feelings of panic, fear and dread that can often come about with money.
Tip 2 – Values first, figures last
Talking about the pounds and the pennies can wait. First, communicate the values you hold in life and around money. Do so regularly. What are the core values your family stand for? What are the responsibilities, opportunities and expectations that come with wealth? This will help to shape your children’s mindset around money far better than numbers on a net worth statement. Transfer your values and not just your assets.
A good way to develop a positive dialogue around money is to hold regular, structured family financial planning meetings. Alternatively, you may prefer to draft a family wealth mission statement detailing what it is you wish to accomplish.
Tip 3 – Help to establish financial independence
The best way to establish financial independence is by earning money yourself. Your children should know that they are expected to work to support themselves and encouraged to take pride and enjoyment in the work they do. For younger children, you may want to support their financial development by paying them for household chores. Young adults should be made to find and hold down a job.
Encourage your children to save and invest. Make use of your financial adviser and ask them to help educate your children.
Tip 4 – Transparency
Discussing your finances can be challenging and awkward at the best of times, but do not feel guilty or ashamed about the wealth you have accumulated. When the time is right, talk to your children about what and how much you have. Share your net worth summary with them.
A lack of transparency creates children that are not prepared for the wealth that will inevitably come their way. If your intention is to transfer a portion of your wealth to your children before you die, you should let them know. Explain specifically what they should come to expect and when. This may have many positive knock-ons such as a decision made to start a family or moving home sooner than planned.
Your children should understand however that your emotional support will be limitless, your financial support will not. Their own efforts and endeavours will result in a lifestyle in their own right and this might not be the lifestyle they enjoyed as children.
How Beattie Lockton can help
Preparing your children for their financial future is one of the most important of your parental responsibilities. Use us where you feel necessary in their journey.
Here are some of the ways in which we can help:
Financial education seminars – We organise regular financial education seminars for the children and grandchildren of our clients. These sessions are aimed at those aged 18-26 and intended to enhance their understanding of money and improve their relationship with money.
Family financial planning meetings – We can organise and attend regular family financial planning meetings with you and your family. These annual events are intended to introduce shared family values and to design a roadmap for family financial success.
Activities and templates – We can help with age-appropriate financial activities and games for your children to improve their understanding of money.
Contact us if you require any further help on this matter.