Adolescence and young adulthood serve as a bridge between parental influence and adult autonomy. Wealthy parents who have spent their children’s younger years trying to instill a strong work ethic and a healthy attitude toward money shift gears to guide their emerging adult children to handle their wealth responsibly.
In some cases, the children have been shielded from knowing about the family’s wealth.
“I was not made aware of having significant wealth, which gave me the benefit of forcing me to figure out how to care for myself while enjoying the type of liberty ultra-high-net-worth families seldom allow their children,” says Alexander Degwitz, family council chair and head of GEMIS, the family office of the Maldonado family.
As the children approach adulthood, though, and parents prepare to ultimately hand off the family money, and in many cases responsibility for the family office, they want to be sure their children have practical financial skills and a sense of independence — and that they see wealth as tool rather than an identity. The challenge is to give them this responsibility without overwhelming them or creating dependency.
When wealthy children enter adulthood with more entitlement than responsibility, the consequences can be devastating. Adult children who are not responsible with money can deplete their trusts, for example, perhaps assuming that their parents will bail them out.
“They can run out of money, and then they’ve got to live with that, but that’s a really hard lesson,” says Shannon Zur, family office director for Vogel Consulting. This can be a very difficult situation if someone in their 50s or 60s with no job history or skills depletes their trust and suddenly has to find a job.
When children become adults with a sense of entitlement who are not living productive lives, parents often try to see if they can control the flow of money to the children, Zur says. This may or may not be possible depending on how and when the trusts were set up.
Experts and family office leaders offer several tips for avoiding this type of outcome:
- Teach financial literacy. Whether children will be spending their own earnings or managing an inheritance, or both, some financial basics are essential: how to budget, how to establish and manage credit, how to save and invest, and how to make responsible spending decisions.
“Our kids know how to do their own budgeting, live on those budgets, create, check and follow their credit scores — various life lessons that we believe help with this ‘grounding,’” says Josh Kanter, president of Chicago Financial, Inc.
It helps to give children controlled exposure to financial decision-making before the inheritance begins — for example, by having children practice saving their allowance for something they want.
“When they buy them a car, they buy them a used car,” says Zur of the families she has seen take this approach. “They are trying to say that you still have to earn your own way — you are still going to have to have a job. You still have to have these skills.”
This work is a continuation of work that starts when children are young — and it can allow parents to pass on their financial values to their children.
“If you want to have them start to come into real responsibility in their mid to late 20s and 30s, you need to start young in an age-appropriate way,” says Philip Benjamin, head of the Benjamin Family Office and co-founder and managing partner at Colzen Capital. He is also a licensed mental health practitioner and researcher with a focus on child and adolescent psychology. “You can parent in these values, and then appropriately, in adolescence, you can begin to educate around wealth more specifically, so the kids are not inheriting money that they have no idea how to manage. They will have been trained to do it for a decade or two decades by the time they’re really in full decision-making capability.”
- Encourage work and purpose. Getting a job as a teenager can help children build both financial and workplace skills.
“In our family office, all NextGens age 16 and up are expected to have a part-time job outside the family,” says Wendy Craft, chief executive officer of the Elle Family Office.
One reason it’s helpful for teenagers to have a job is that paid work teaches respect for effort — and they can take responsibility for managing their earnings. Beyond that, part-time jobs, internships and even volunteer work can help teens build perspective, confidence and skills — helping them find purpose beyond money.
- Balance privilege and responsibility. Wealthy parents generally try to balance the privilege their children have with responsibility — and to make sure they are comfortable with a less luxurious lifestyle.
“But it’s still hard, because then they go on a family vacation, and they fly first class and stay in these nice resorts,” Zur says. “That’s always the struggle.”
When wealthy children grow into young adults who are neither dependent on their wealth nor afraid of it, they will have both the skills and the freedom to pursue work that is meaningful. The best outcome is that children are raised to have jobs, but with the knowledge that they can choose a job they love, even if it is low paying, because they have family wealth to supplement their income.
“The parents tell the kids, ‘You have this ability to do what you want to do, not what you need to do, and to have the lifestyle that you want,’” Zur says.