Talking to Kids About Money When You’ve Got a Lot

Wealthy parents are often reluctant to talk to their kids about wealth.

If they choose to err on the side of privacy and communicate little, the kids may resent it because they might have made different life decisions had more information been available about future inheritance. The lesson this teaches is that “money talk is taboo.”

If they choose to err on the side of transparency, it may undermine the kids’ motivation to accomplish anything great as they wait anxiously for trust funds to come or inheritances to be realized. I imagine kids groaning: “I always wanted to go to graduate school, but after you told me how much money was in my trust I figured why work so hard?”

Finding an effective middle ground for this conversation is crucial. The great hope is that family wealth will bring security, resources, and opportunities that ancestors never saw. The reality is that wealth can also amplify other family problems and strain relationships.

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Getting Started

The first challenge for parents is getting the conversation started. Because kids mature at different ages, there are no hard rules about when to begin. Given a choice between conversations about sex, drugs, or money, most parents might choose the sex or drug talk. Nevertheless, the earlier you start, the better.

One tip when getting started: Avoid the number. Money is an abstract concept to kids. If you need gas, $100 is a lot of money. So is $1,000, or $10,000, or $100,000. Parents may readily identify what a lot of money is, but for a teen’s brain, money is hard to put in perspective.

Stick with type of account, such as savings, retirement, education, insurance, or charity. Teens likely have money set aside for education. Talk about money for retirement and charity. If you have a private foundation or donor advised fund, that can help focus the conversation on how stewardship of wealth supports the family and others.

Be transparent…but save the details for when they are older.

Everybody Works

In 2014 the Obamas made a public push for their teenage daughters to hold minimum-wage jobs like they had done as teens. Barack had worked as a painter, waiter, and ice cream scooper. Michelle had worked in a bookstore.

The many benefits for your kids and grandkids in having jobs include first-hand exposure to how taxes get deducted from paychecks and the value of pre-tax contributions to retirement savings accounts. These are terrific opportunities for financial literacy.

More importantly, “Emotional maturity does not occur until an individual achieves financial independence,” according to Dr. Murray Bowen, Psychiatrist and founder of family systems theory. Holding a job is key to financial independence.

Conversations with Young Adults

Talking with your heirs about money becomes increasingly important once they gain financial independence, yet the topics change.

Numbers are more meaningful to a 30 year old or 40 year old. At this point in their lives, these adults are experiencing the highest demands on their time and resources as they grow careers and families. The demands of their kids’ educations, a mortgage, and retirement savings are at their peak. It is critical that they are aware of what resources might be available to them so they can make informed financial decisions.

Topics of increasing importance to this age group may include trust beneficiary rights, intra-family loans, prenuptial agreements, and estate plans.

If you want your heirs to be philanthropic, talk to them about how a charitable foundation could support their board giving expectation.

Your financial experience will become more relevant to them as they age. They also may grow to appreciate how much thought and effort you have put into your estate planning.

No Hypocrisy

Finally, you can’t talk the talk unless you can walk the walk. Your kids will not fly Southwest if you fly private.

From a very young age, kids are adept at spotting hypocrisy. If your kids are living off of trust funds, don’t waste your time encouraging grandkids to become baristas.

Your behaviors and your financial decisions will have more of an impact on your heirs’ attitudes toward money than any other sources of information.

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