Teach Your Children Well
Your adult children will one day be charged
with managing the family’s wealth. By working
with them, you can pass along a legacy that
involves much more than money.
Most families dream of
leaving a legacy of prosperity
to the next generation. Unlike
the enduring value of humanitarian
and social legacies, financial legacies can
evaporate quickly. All parents would like to
think being good fiscal role models is enough
to help transform their children into good
stewards of the family’s wealth. But that
assumption doesn’t always hold true.
“Many parents believe they are somehow
transferring their values about money to their
children by osmosis,” says John Sestina, certified
financial planner and author of Managing
to Be Wealthy: Putting Your Financial Plan —
and Planner — to Work for You.
Communicate Your Vision
Hoping for passive absorption of information is
not the answer. What works better is clear and
open communication about parental expectations,
Sestina says. Certain strategies can help
parents instill investment and financial management
savvy in their children, even if they are
adults and have left the nest already.
There’s an even bigger upside when you
share your outlook with them. Frank yet nurturing
dialogue between the generations can help
foster not only financial acumen, but also character
transformation. “When children get older,
you want them to be responsible and selfassured,”
says Susan Bradley, a certified financial
planner and CEO of Sudden Money Institute in Palm Beach Gardens, Fla., which advises people on how to
address and handle additional income from financial windfalls,
such as inheritances.
Unfortunately, says Sestina, by the time many children hit 30,
they already possess ingrained habits, which may be in conflict
with the family’s protocol for dealing with wealth, and have
lost interest in changing their outlook. It’s not so much a sense
of entitlement, but rather a lack of sensitivity to the issue at
hand, he says.
The first step parents should take is to clarify their own position
on the wealth they will one day pass on.
Define Your Values
“Family beliefs surrounding money are often very loose constructs,
which is why it’s so important, no matter how late, to
create a stewardship policy that you can communicate to your
children,” says Bradley, author of Sudden Money: Managing a
Financial Windfall. The starting point, she says, is to address, in
writing, your own views on money, including your attitudes
about cash management, debt, liquidity and charitable giving, and
how your perspective changed over the years. You also should
write down the values you want to impart to your children.
Once you define these matters for yourselves, Bradley says,
it’s much easier to share your stewardship policy with your children.
“As an example, parents could say, ‘We probably should
have done this a lot sooner, but we didn’t know how or what
we needed to do. This is how we feel about you taking care of
yourselves.’” Bradley encourages these talks to be very specific,
even going so far as identifying family “policies.” For example,
she says, a parent could explain, “Our policy around debt is
nothing outside a mortgage or maybe a car payment. And, if
you rack up other debts, we are not going to bail you out.”
Then, she says, a parent can top it off with a lesson: “You
should spend less than you earn.”
The first step parents should take is
to clarify their own position on the
wealth they will one day pass on.
Not surprisingly, she says, adult
children — especially those who
expect to have access to the family
wealth whenever they get into financial
difficulties — often are not happy
to learn about these new restrictions.
Even if your children resist your new
policy, it’s important that you stick
with it, she says. However, also
remember that many adult children of affluent families live their
lives with the expectation that one day they will inherit a large
sum of money.
When Peter Bielagus, the author of Getting Loaded: Make A
Million ... While You’re Still Young Enough To Enjoy It, speaks
on the college circuit, students reveal a variety of assumptions
about finances. Young adults also often take for granted that
they’ll be awarded a place in the family business. Bielagus says
that invariably these young people feel they are entitled to
these benefits simply because they are “in the family.”
The best way to prevent such vague notions from taking
hold is to talk regularly about all aspects of your wealth transfer
plans, says Bielagus. If the answer to the question “What
happens when you pass away?” is not spelled out, it will create
problems for everyone down the road, he says.
Bielagus suggests a strategy his own parents have used
when discussing their real estate portfolio with him and his
brother. “They have been very frank about how and when
those properties will be distributed, the amount of income they
generate and even which property, if necessary, to sell off first,”
he says. He adds it’s also valuable to teach adult children about
the business that holds these inherited assets, in this case real
estate, so that they will be more knowledgeable about the
industry that generated the wealth. And, he adds, having an
advisor doesn’t hurt either.
Book Time with a Financial Advisor
Perhaps one of the simplest — and most beneficial — things
you can do is schedule an appointment for your adult children
with either your own financial advisor or, if it makes your children
more comfortable, an independent advisor.
Sestina encourages his clients to schedule sessions for their
children who have just graduated from college or are starting
out in the business world. “You begin to let them assume their
own financial responsibility,” he says, noting that to accomplish
this, the adult child must be interested enough to
articulate personal financial goals and learn what money is
A seed fund for investing is one way to motivate your children
to get real world experience, but another tactic may work
just as well. Sestina suggests that enthusiasm can grow when a
child’s passion is activated. For example, he says, if children are
interested in philanthropy, they can be taught that properly
managing money means they’ll have more money to give away.
“Reach your adult children at their level,” says Sestina.
Consider Making an Early Gift
You may want to consider giving your adult children a sum of
money at a certain age, or after a certain accomplishment, such
as graduating from college. This can allow them to develop the
skills they will need to be good financial stewards while you are
still available to provide advice. “Part of learning involves being
able to make mistakes,” says Sestina, noting that it’s better such
errors in judgment occur at this stage, rather than after the child
has come into his or her inheritance.
If you follow this strategy, Bradley adds, it’s important that
you let your child know about your expectations. Consider saying
something like, “This money is to help you get your own
home or to get started in business, and it should last you for a
couple of years.”
Find Your Balance
Successfully providing financial guidance or advice to adult
children often requires a delicate balancing act. Despite your
best efforts to impart your financial values to them, grown children
are, in the end, adults who are not always inclined to ask
for permission or advice. A strong educational foundation,
characterized by openness and honesty, is perhaps the best
guarantee that wise stewardship of family wealth can continue
for years to come.