How to introduce children to the family wealth picture
Raising children in an affluent household can mean significant privileges and opportunities. But it can also present challenges for parents who want to pass on family wealth to the next generation and instill positive values – without creating a sense of entitlement.
You may be aware of a generally poor track record around family wealth transfers. Estimates are that 70% of wealthy families will lose their wealth by the second generation, and 90% will lose it by the third. Sascha Isaacs, Portfolio Manager at Richardson Wealth explains that these transfers are frequently unsuccessful due to inadequate preparation and poor execution.
But the good news is that all of this is within families’ realm of control. By being prepared and working with financial professionals, they will have better success in passing on that wealth.
Sascha IsaacsHow do you know when (and how) to introduce the next generation to the family wealth picture? And how can you ensure that the next generation will be equipped to manage wealth responsibly? Creating a plan to navigate these complex wealth questions is key.
Look inward
As Sascha explains, “Children mirror what we do. So you might also want to reevaluate your own relationship with money and have that internal conversation with yourself … because your children will copy what you’re doing and how you approach money.”
Here are some things to consider:
▢ Undergo self-reflection
Take time to reflect on your own values, beliefs and attitudes towards money and wealth. Consider your own upbringing and how it has shaped your perspective.
▢ Identify biases
Be aware of any biases or misconceptions you may have about wealth, whether related to overindulgence, guilt or fear.
▢ Maintain open communication
Have honest discussions with your spouse or partner about your shared values, goals and expectations regarding family wealth and parenting.
▢ Learn from others
Connect with other affluent parents who have successfully navigated these strategies and share experiences and strategies.
▢ Seek professional guidance
Talk to your financial advisor for help in exploring your attitudes towards money and how they may affect your parenting and wealth transfer decisions.
Emphasize the importance of work
Some parents are hesitant to discuss wealth with their children over fear of dampening their child’s work ethic. If your financial situation is such that your children may not need to work for financial reasons, it’s important to instill a sense of self-worth and ensure your children know that gainful employment is about more than just financial reward. Lead by example and show your children that you work hard and take pride in your accomplishments. Share stories about your own work experiences – what you enjoyed or didn’t enjoy, and what you learned from the work you did. Starting early and giving children age-appropriate chores and responsibilities around the house can help them understand the value of contributing to a household or community.
Tackle money taboos
In many cultures, talking about money (and income), is considered taboo. And as a parent, you may feel uncomfortable discussing finances with your children and put it off.
“A lot of parents … are afraid of talking about money because they think it will lead to a lack of motivation, it will create a sense of entitlement, and it might lead to poor work ethic for their kids,” Sascha says. “But the truth is, if they address the subject earlier, it actually creates better inheritors, so it works out to be a better outcome.”
In fact, a University of Cambridge study says that the early experiences children have with money can shape their financial behaviour and decisions as adults[1]. Research shows that by the age of 7, most children are capable of understanding the value of money, the concept of delayed gratification, and how spending and saving decisions now can impact their future.
Open the lines of communication
Communication is at the heart of wealth transfer. No matter what their age, foster open communication with your kids and create a safe space for discussions. Encourage your children to ask questions and express their thoughts about the family’s wealth and look for teachable moments. For example, at the grocery store, include them in decisions on what you should buy and the cost of things. If you’re planning a vacation, include them in the planning process and talk openly about the money aspect of your decisions.
Hold family meetings
Regular family meetings are a great way to encourage character development, meaningful communication and active engagement, and help create a better understanding of wealth accumulation and preservation through open dialogue. Including younger members of your family in these discussions not only helps shape family traditions, but also encourages conversation that spans generations.
Want to learn more?
Listen to this episode of our Conversations on Wealth podcast: “How to introduce children to wealth.”
We can help
Have questions about how to initiate conversations with your family about money, facilitate family meetings or how to develop an intentional wealth transfer strategy?
Talk to a Richardson Wealth Advisor.
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