How to introduce children to wealth

It’s difficult for many families to have frank discussions about money; talking about passing on wealth can be especially tricky. In the latest episode of our Conversations on Wealth podcast hosted by Sarah Widmeyer, we address the importance of discussing wealth with children early, with Sascha Isaacs Portfolio Manager at Richardson Wealth Private Family Office. Sascha shares that:

– Children develop money habits by the age of 7

– Establishing wealth objectives and philanthropic goals as a family can help cultivate a wealth stewardship mentality

– There are many tax-efficient ways for people to pass on wealth – a financial advisor can help

Sarah Widmeyer  0:16

Welcome to Conversations on Wealth, a podcast dedicated to helping Canadians navigate the complexities of wealth with a multi dimensional approach to planning and wealth management. I’m Sarah Widmeyer, Senior Vice President and Head of Wealth Strategies at Richardson Wealth. And today we’re talking about having “the talk” with your children. The money talk that is. It’s difficult for many families to have frank discussions about money related issues. And talking about passing along wealth can be especially tricky. But planning ahead and talking about money with your children now is more urgent than ever before, because something called the great wealth transfer is coming. Here to talk about that today is my colleague Sascha Isaacs, Vice President, Portfolio Manager and Investment Advisor at Richardson Wealth. Sascha heads up our private family office for the firm. So the challenges of passing along wealth is a frequent conversation with her clients and their families. Welcome, Sascha.

Sascha Isaacs  1:22

Thank you for having me, Sarah.

Sarah Widmeyer 1:23

It’s a pleasure. So today, we’re talking about this massive intergenerational wealth transfer that has begun to take place. Can you explain to us what this is, and why talking about passing along wealth with your family is such an important and necessary topic.

Sascha Isaacs  1:42

Certainly, in the coming years, we’re about to witness the most significant transfer of wealth from one generation to the next, when we see the baby boomers pass on wealth to subsequent generations. Unfortunately, most of these transfers will be unsuccessful. And the reasons for this are usually because of inadequate preparation, a lack of planning and poor execution. The good news is that all of this is within the realm of control of families. And so by being prepared and working with professionals, they can have better success of passing on that wealth.

Sarah Widmeyer  2:19

It’s such a critical topic. And it’s so interesting to me. I’ve done other podcasts talking about the future of wealth as female, and the importance that wives and mothers play in the passing down of wealth. And maybe if we have time, we can talk about that a little bit, but I do want to talk about the fact that statistics show that after wealth transfer, about 90% of the time, wealth is lost by the time it reaches the third generation, that’s staggering. Why is wealth retention so difficult?

Sascha Isaacs  2:54

So we tend to focus on the givers of wealth, so the people that are actually holding the wealth as opposed to the recipients of wealth. The other big issue is that parents feel very uncomfortable talking about money with their children. Our society views money as a very taboo subject, and so a lot of parents are uncomfortable talking about it with their kids, they wait until it’s too late to start discussing the subject around money, and they are afraid of talking about that money because they think it will lead to a lack of motivation for the child, it will create a sense of entitlement for the children, it might lead to poor work ethic, so those are all reasons why they may avoid the subject, but the truth is, if they address the subject earlier, it actually creates better inheritors, so it works out to be a better outcome.

Sarah Widmeyer  3:49

That’s fascinating. The focus is on wealth planning and intergenerational wealth transfers on the givers.

Sascha Isaacs  3:57


Sarah Widmeyer  3:57

not the receivers.

Sascha Isaacs  3:58

Right. The other issue is that they tend to focus a lot on the mechanics of passing on wealth. So they focus a lot on making sure they have a will drafted and they focus on putting structures in place, and they forget about the actual human being that is receiving that wealth. And that’s the most important part of the wealth transfer-the people.

Sarah Widmeyer  4:22

I’ve heard that, you know, sometimes the beneficiaries are surprised

Sascha Isaacs  4:28


Sarah Widmeyer  4:28

upon the–on the will reading, they’re surprised about the wealth, they’re surprised what they’ve inherited. And that just seems so counterintuitive to me that like why wouldn’t you discuss the will before you go, instead of leaving it till you know, the end and leaving people in a surprised unprepared condition?

Sascha Isaacs  4:49

Well, we all have this image and it could just be from, you know, movies that we’ve watched where the patriarch passes away and everyone gathers in a room and they read the will to everyone, and that’s when they find out who gets what. And so we think that’s the way we’re supposed to approach estate planning, where one of the important things really is communication with the family, right? That should never happen. Everyone should know what’s going to happen, right?

Sarah Widmeyer  5:14

Yeah, exactly. One of our senior tax and state planners, Maureen Glenn, talks about giving with warm hands, as opposed to, ugh, cold hands, and–, and I think that’s a related topic as well. Obviously, it’s so important to talk to your children about wealth. When is the right time to do that?

Sascha Isaacs  5:34

Um, much earlier than most people think. So there was a study by the University of Cambridge that notes that children by the age of seven, develop money habits. Yeah, so I think as soon as a child can grasp the concept of numbers, and can do simple math, is a great opportunity for you to start talking about money. And you can do it in very, very simple ways. So for example, if you go to the grocery store, you might want to explain to them, why you’re buying something on sale. When you pay for those things, you can explain to them what that card is what it actually means. And those conversations can progress, right. So I think it’s important to teach children in our everyday life, we are filled with money moments, and we can take those money moments and have teaching moments with our children. One thing that I think is very powerful is teaching children at a young age, um, how to save, so give them a piggy bank and graduate them to a savings account later on. We need to teach them how to budget, we have to teach them concepts such as earning money, how money is earned. We should teach them about taxes because that’s a fact of life as well. We have to teach them about borrowing. So there’s ways that you can talk to your children at a young age, to help them grasp those concepts, and they can become more sophisticated as we get older. Another important thing for us to teach kids is the difference between needs and wants. And to teach them the concept of delayed gratification, right? So not spending today for something bigger and better later on. Right. So those are all concepts that I think are so, so important for parents to teach children. As children get older, I think it’s important to surround them with professionals. So introduce them to advisors early on, teach them how to buy stocks. So I think we have to remove the taboos from our conversations with our children around money, and start having those conversations much earlier.

Sarah Widmeyer  7:40

Great advice. If I can switch now to something that you said earlier in our conversation about the dark side of wealth, that families with wealth, are maybe hesitant to talk about money with their children, because they’re worried about making their children, you know, lazy trust trust fund babies, you know, kids, that won’t work hard. How can parents foster financial maturity without creating a sense of entitlement.

Sascha Isaacs  8:12

So I think going back to when kids are younger, when you have wealth, you will be exposing your children to perhaps things like foreign travel that not everyone has the opportunity to do. Or they would be getting more high end gifts, for example. So I think it’s really important that those times that we explain to children how fortunate they are and, and how it’s not everyone gets access to these types of things, and that they should not be taking things for granted. So I think we’re starting that conversation very early. But a really important thing is viewing wealth as a lot of families viewing the next generation as the subsequent owners of wealth. But it’s important to think about them as stewards for future generations, right. So when families tend to look at it in that way, there’s a more long term view on the wealth for many generations, as opposed to just the next generation. It’s really important for ugh, the generations that are receiving wealth to understand family culture. It plays a role in shaping that family identity. The other thing that we mentioned was creating goals for the family. So establishing objectives that the families want to achieve. The family meetings are important to, ugh, to communicate those goals and that culture. It also provides a really great avenue for mentorship and teaching the next generation how they should be viewing their wealth. The other thing that’s really great is getting them involved. So perhaps you have ugh, philanthropic endeavors, helping them understand how that helps others and getting them involved in actually gifting to charitable endeavors.

Sarah Widmeyer  9:52

Yeah, ugh actually making decisions around what charities they should support as a family but also in an early earlier podcast, we talked about the gift of time. So it’s not just the gift of treasure, it’s the gift of time. And you know, from a family perspective, is there an opportunity to do things together. So for example, go work at, we live in Toronto, you could go to the Toronto Food Bank, and many, many families have that sort of, or many cities have that opportunity to go work at food banks and volunteer to help sort food to help give the food out. That’s something that my family did, and does on a fairly consistent basis. And it’s building that family cohesion, and we’re all working together.

Sascha Isaacs  10:38

Mmhmm. And we can do that from a very young age, we can encourage our children to try to support something that’s important for them, and have that more personal connection with it, as opposed to telling them what we want to support and just dragging them along, right?

Sarah Widmeyer  10:56


Sascha Isaacs  10:56


Sarah Widmeyer  10:57

Mmhmm. Awesome. Okay. So when it comes to how we pass along wealth, what are some of the tax efficient ways that people can pass along wealth during their lifetime, or through their estate, and how can a financial advisor help them do that?

Sascha Isaacs  11:13

So, during the lifetime is a great opportunity for the giver to see the impact of their wealth, and again, provides a really strong ability to mentor the receiver of wealth. When a giver is passing on wealth during their lifetime, we want to be really sure of the amount that they’re passing on, understanding that we’re taking that away from their own ability to spend during their life. There are tax efficient ways that you can pass on wealth during your life, so if you give your children cash, there’s no tax consequences. We don’t have a gift tax here in Canada. But if you give them property or real estate, there are capital gains taxes associated with that. But giving during life is a great opportunity to help direct some of that and provide mentorship with the wealth. Once you pass, you can give wealth directly to inheritors. When you do it that way, though, you’re giving up some control. So we see a lot of wealthy families using structures such as trust, where you can have more control over the amount of wealth being distributed at certain times, you can engage trustees to help with your beneficiaries in terms of how they’re spending that wealth, how they view that wealth. So really thinking about the age and the maturity of that child when they’re receiving the wealth. We can also direct beneficiaries in certain types of accounts. So if you have things like RRSPs, or a TFSA, or insurance policies, those can be designated directly to beneficiary so they can pass outside of your estate, and avoid probate. But when you do it that way, you lose some control. So there’s not an ability to have it directed into a trust that way. So I think it’s very, very important for families to not focus too much on tax, because I see the focus being a lot on what’s the most tax efficient way to pass wealth on, and think about who the person is that you’re passing that wealth on to, what their personality is like, what they’ve been exposed to, how mature you think they are, and then try to think how best you want to achieve that. And then kind of build the estate plan around that. It’s very important to work with professionals and not try to do it yourself because it’s very, very complex.

Sarah Widmeyer  13:26

Yes, I get that sense. Sascha, at the beginning of our conversation, we talked about women and wealth and the importance that women play in, I think stewardship, education, attitudes around wealth. Women have unique perspectives on wealth. And I know in your own clientele, you have a number of very strong women that you work with, I wonder if you could spend a few minutes talking about the role that they play in their families, and the importance of women’s perspectives on wealth, as we think about our children and the next generations to come.

Sascha Isaacs  14:09

Men and women view money and wealth very differently. In the past, we have seen men take the reins and have directed most of those conversations around wealth, around passing on wealth, the taboo subjects of wealth. Women are caretakers, and I think it’s very important that they are more engaged in that communication with the next generation, because they see wealth in a different way, and it gives the children an opposing view, versus how men traditionally think about wealth. Women look at risk in a very different way. So that mentorship ugh, is very important if you have it from both parents as opposed to mostly coming from your father, right?

Sarah Widmeyer  14:57

Yeah, no, I agree. And you know, we talked to about demographics and the great shift of assets from generation to generation that we’re witnessing. I think one of the really interesting statistics is that women are becoming the primary holders of wealth in Canada and in fact, in the world. And we are doing it in a variety of different ways. There’s a greater workforce participation of women, there’s higher levels of education reached by women, but we also stand to inherit twice. Generally speaking, we live longer than our spouses. So we will inherit from our spouse, and we will also inherit from our parents. So it is, I think, critically important to include women’s attitudes around wealth, in the role of caretaking and stewardship, and teaching the next generation attitudes about wealth.

Sascha Isaacs  15:51

Agree. Okay. Agree.

Sarah Widmeyer  16:05

Thank you so much for sharing your thoughts and experience about this important topic with us today. Is there anything else you’d like to add before we wrap up?

Sascha Isaacs  16:14

I think ugh, in-in summary, I think the most important thing that parents can do is have open communication with their children, have very open dialogue, two-way communication is important. We see a lot of parents just telling kids what to do, as opposed to hearing their feedback and having a real conversation with children. Don’t be afraid to start talking about money at a very, very early age. And one of the most important things I think, is to lead by example. So you know, children will will mirror what we do. So you might want to also 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.

Sarah Widmeyer  17:03

Very wise advice. I think we’ve learned today that if you want your money to last well into the next generation and beyond, it really starts with a conversation with your family to set and manage expectations and hopefully open up discussions that may shape your estate plan. It’s a multi-pronged approach that’s made easier by working with a financial advisor and getting the right advice that works for you and your family. If you have any questions about estate planning, please reach out to your advisor. Conversations on wealth is available wherever you get your podcasts. Remember to follow us on LinkedIn, Twitter or Facebook for the latest on wealth strategies. Thank you all for listening. And join me again next time.

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