For families who have worked hard to build and maintain wealth, raising younger generations to become financially responsible adults is critical to preserving a family legacy for generations.
While many parents are dedicated to raising children with strong values, financial savvy and a healthy relationship with money, wealthy families can face some unique challenges. Parents may have different relationships with money, and wealth may cause young people to confront complex social identities, making them uncomfortable. Wealth can also obscure some teaching opportunities and requires parents to engage their children more proactively – before their children develop assumptions about their family's wealth profile from their friends or a wide range of information which is now available online.
While setbacks are inevitable, there are some time-tested strategies clients can implement to help the next generation cultivate wealth and embrace financial adulthood.
The pattern of money messages you want to send
Children learn by observing, and as such, the actions of their family members can be far more influential than what they say. For parents, this means considering, “What do our daily behaviors say about wealth?” For example, if a couple wants to convey the values of responsible spending but doesn't have a formalized budget, messages about saving and spending may be unclear to children.
Modeling healthy money messages starts with parents clarifying the values they want to share with their children. Although initiating and navigating these discussions can be challenging, counselors can offer clients requests for tailored conversations or facilitated activities. The takeaways from these discussions can be codified into a family mission statement to guide parents' decision-making processes and inform their daily behaviors.
Once a family's mission is clear, advisors can help clients identify how to communicate about their wealth clearly and consistently over time, starting with casual discussions around the dinner table and progressing to more formal settings such as family gatherings. Counselors can even join family gatherings to help facilitate productive conversations. Over time, these spaces can serve as a forum to progressively discover more about the family's wealth profile, plan and expectations for the next generation. These messages should match the competence level of their children. Counselors can be helpful in creating financial education plans and exposure to wealth management concepts that are synergistic with family discussions.
Age-appropriate craft lessons
The next generation is best positioned to administer the family legacy when they have a strong grasp of technical knowledge. Children need to be engaged and provided with age-appropriate opportunities that suit their unique learning styles and interests.
For example, it can be helpful to start giving children access to small amounts of money distributed regularly when they are 5-8 years old to teach them how to handle money and prioritize spending choices . Ages 9-12 can be a good time to open a parent-controlled checking account and use mobile apps to build money vocabulary and understand basic budgeting. From ages 13-18, teens should be introduced to essential investment concepts and essential financial knowledge and skills. As they transition into early adulthood, parents may consider handing over the management of monthly expenses to their children and introducing credit to help them learn responsible borrowing.
Advisors can work with families, regardless of the age of their children or where they are in their financial journeys, to identify appropriate measures to teach financial management and responsibility, equipping them for future roles in wealth management. the family.
Create a plan that speaks to unique interests and skills
Because all children are unique, financial education should never be “one size fits all.” When imparting the technical and soft skills required to manage family resources, methods must be tailored to the individual child.
For a child who is less inclined to invest but loves animals, setting up a donor-advised fund with a charitable donation from their parents can be an effective way to show how investments can grow with spending time supporting something he cares about, such as local animal shelter.
Or, for a competitive child who is more inclined to learn about investing but also prone to risky and competitive behavior, creating a hands-on investment portfolio may be an appropriate way to build technical skills, given the importance of a long-term mindset. As a child's financial acumen develops over time, creating a small, separate account for them to oversee can help them regularly practice responsible investing and better understand the role of financial advisors.
Helping the next generation thrive
As more families prepare to transfer their wealth, advisors must adopt and implement best practices in next-generation education and generational transitions in a timely manner.
Raising financially responsible adults in today's environment is difficult, but with the support of counselors, parents can develop personalized strategies that resonate with all ages, developmental stages, and interests. When children are energized by a shared value system and empowered to express these values through their actions – big and small – all generations benefit.
Alyson Wise is a family and philanthropy advisor at Bessemer Trust.