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.

LEARN MORE: Wealthy children need financial skills requisite of living with the reality of wealth. In "Insights on Children and Wealth: Preparing Children for a Life of Wealth,” Joline Godfrey, CEO of Independent Means, Inc., shares why teaching children to manage money is one of the most effective ways to provide them with training that will serve them through life. LEARN MORE: The Living Well program takes a fresh look at the importance of successful financial and health planning, and provides helpful guidelines on financial and health management through all stages of life.

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.”

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.

Address Assumptions
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 all about.

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.

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