Prepare Your Children for Wealth, Not Just How to Inherit It
“How do I make sure my children handle the money well?” is one of the most common questions we hear from clients. Talking to children – young or grown – about wealth often feels taboo in our society.
Some families say nothing about any financial subject until a trust distribution or letter must be issued. Other families talk about expectations for hard work but fail to address the role they expect wealth to play in the lives of their children as adults. In our experience, most parents trying to prepare children for wealth talk only about budgeting and investing.
Working with families at Tolleson, we believe conversations about wealth can be enriching, connecting, and approachable for both parents and children. We also believe that the process of preparing a child for wealth is a journey, not a single conversation. It can take place over time and be developmentally appropriate at addressing the five competencies that children from ultra-high net worth families will need: financial, wealth, governance, business, and philanthropy.
We are seeing a new approach emerge, one that is driven by some of America’s wealthiest families. We are collaborating with these families to prepare their children for a healthy relationship with significant wealth. It also aligns with our service-driven mission and how we support families holistically with all their financial needs.
Disclosing Wealth is a Process
Introducing children to the full reality of wealth is much more comparable to turning on the lights with a dimmer than quickly flipping on a traditional light switch. Done properly, it’s a three-step process where the first step is introducing the family’s values about wealth through conversations and activities. This can even begin very early in a child’s life.
We provide young families with questions and activities they can seamlessly incorporate into their daily routines and charitable practices to engage children in discussions about how and why they spend, save, and share family resources. For example, we recommend parents discuss items they choose not to buy at the store and other spending decisions they choose to avoid, particularly when opting to save, invest, or donate instead.
We believe that the conversation about wealth starts very young and not with dollar amounts but with conversations about values.
It’s Never Too Early to Begin
Every day presents an opportunity to talk with young children about values. The youngest client we work with is less than 10. With this family, we began our work with a discussion with her parents and older siblings about all the good things that money can do and how we show respect for the things we have. One of the family’s main values is gratitude, so they talk often about being grateful for the experiences they can have and how they can, through their giving, help others.
Our method encourages families to begin talking about their values of saving, investing, and spending. In the absence of this conversation, children can often only observe spending decisions. Without context, children cannot understand why certain decisions are made and misinterpret what wealth means.
Children Inherit Structures, Not Dollars
Children do not typically inherit wealth outright; they are often the beneficiaries of trusts or have rights in other legal entities like family limited partnerships. After parents start conversations about the values and expectations of their children and the purpose of family wealth, the fundamentals of the structures they will inherit can be taught.
Our experience has shown that young adults who have grown up in conversations about family values, who understand the expectations and structures they will inherit, are more prepared to have conversations about the real value of the wealth from which they will benefit. When a child is well-prepared, the sudden overwhelming revelation of wealth and its impact are often more digestible.
Often, the anxiety eases when parents realize they have years to gradually discuss important topics rather than one perfect conversation. And, by partnering with an advisor, parents can teach children the basics of the legal entities that they will inherit. Then, when a child is ready, disclosing financial details becomes straightforward.
We find when applying a value-driven method over time, preparing children for wealth can be a deeply connecting experience for families.