Empower Them to Adopt a Healthy Philosophy About Wealth
Paul Getty once said, “My wealth is not a subject I relish discussing.” He’s likely not the only one! Talking about money is a conversation that requires a delicate balance and some strategy. Affluent parents, leery of creating entitled children, may hesitate to talk about the details and nuances of their wealth. But keeping too many secrets can cause issues later on, especially when the children stand to inherit substantial assets and have to manage their newly-acquired wealth.
With an estimated $68 trillion in nonfinancial and financial assets passing from baby boomers to their heirs over the next few decades, prioritizing those financial discussions is becoming increasingly important.
Just as you decide how much to tell your kids about the birds and the bees, approach conversations about your wealth the same way: age appropriately. Ideally, your discussions should take place in stages, unfolding gradually over the years. Don’t treat money as a “once and done” conversation.
Children under 20
Tweens and teens in wealthy families should have a basic appreciation of their family’s privilege, however, there is no need for them to know the specifics of your wealth nor details about your investments. Offer examples of how the family benefits from and enjoys its affluence, whether it’s designer clothing, fun activities, or the schools they attend. Engage older children in money discussions by inviting them to share opinions about what charities to support or where to travel on vacation. Teach and model discretion and empathy, too, since not all of your children’s peers may enjoy a similar financial situation.
Children in their 20s and beyond
Some parents worry that children in their 20s may grow dependent on the wealth they may eventually inherit. This decade offers a prime opportunity to talk about more details—not necessarily specific values but about investments like:
- Real estate
- Life insurance
- Stocks and bonds
- Other wealth vehicles
Discuss your retirement plans and your plans for your wealth. Do you intend to leave your children an inheritance, create a trust fund, or offer financial assistance sooner rather than later? Share how you intend to spend your money and where you’re not willing to spend it (on extravagant cars or vacations, for example). Consider involving children in the decision-making process for some of your wealth and investments, where appropriate.
Set boundaries and guidelines for younger adult children so they clearly understand your expectations. You might tell your recent college graduate she may live at home for a year to save money, but then she needs to find her own place. Financial experts agree it’s important for your children to learn how to live within their own means based on the salaries they’re earning.
Avoid sending conflicting and confusing messages to your adult children about the financial support you’re willing to provide. Set expectations with regular conversations and check-ins, especially if your children have depended on you for support while in college or after graduation.
Depending on your circumstances, you may want to talk about the importance of prenuptial agreements when your children are preparing to marry. Too many people view “prenups” as a negative—a sign of mistrust or a “future divorce” alert. But a prenup’s purpose is to identify your assets and provide a strategy to protect them. A prenup is not an indication that a relationship will go south. It’s a hard conversation, but one worth having, either with or without a trusted advisor by your side.
Will your children make mistakes with their financial decisions? Perhaps. Help them avoid costly mistakes by encouraging them to build a relationship with a financial advisor earlier in their own careers, so they can benefit from valuable advice on setting goals for the money they earn. Facilitating an introduction to your own financial advisor early on will help increase their knowledge and understanding about investments and financial planning, and set them up for success.
When It’s Time To Get Serious
Older children who’ve been in the workforce for a few years—and perhaps started families of their own—are ready to learn more about the specifics of your wealth. If appropriate, invite adult children for their input into financial decisions and encourage them to become more involved as they get older. It’s important to take your children’s approaches and strategies into account when creating or revising your estate plan, especially because younger generations have different views on investing. They’re often more interested in environmental, social, and governance (ESG) practices and many want to make responsible investing one of their overriding investment philosophies. In fact, ESG investing is predicted to reach $1 trillion annually by 2030. About one-third of millennials already make investments based on ESG factors, as compared to 2% of baby boomers, 16% of Gen X, and 19% of Gen Z.
Setting up a meeting with your children and your financial advisor or estate planning attorney offers an effective way to begin those conversations. It often helps to discuss your approach with your financial advisor and attorney in advance of the meeting. Not everyone is adept at discussing Transgenerational Wealth™ issues and if handled poorly, the conversation could backfire. At TAG, we’ve been having these difficult conversations with our clients and their families for years and have honed successful strategies to ensure smooth outcomes.
Let TAG Help With the Difficult Conversations
Whether it’s about a prenuptial agreement, an inheritance, or other estate planning strategies, society has conditioned us to think that talking openly about money is taboo. Too often we shy away from discussing wealth because we feel embarrassed or guilty—or we’ve been conditioned to keep mum about finances, even within our own families. Avoiding these discussions means we’re not living up to our parental responsibility to educate and prepare. We recommend having regular conversations about the challenges, obligations, and responsibilities that accompany wealth—how you built it, what you learned from building it, why you value it, what you hope to accomplish with it, and what will happen to it after you’re gone.
At TAG, we have deep expertise in Transgenerational Wealth™ management and often participate with our clients in these types of family discussions. If family dynamics dictate a more hands-off approach by parents, we have also conducted these conversations with family members on behalf of our clients, bringing their wishes and perspectives to the table in an objective manner. Either way, having your trusted advisor by your side can remove some of the stress and pressure around difficult conversations.
The information provided in this article is not written or intended as tax or legal advice, and it may not be relied on for purpose of avoiding any federal tax penalties. Individuals are encouraged to seek advice for the own tax and legal counsel.