As several experts noted in a recent FO Pro article, talking to children about wealth is not always easy, but it is necessary. Here, Drew Egan, director of family education for Truist Wealth’s Center for Family Legacy, discusses the tools parents can use to teach their kids to be good stewards of wealth.
Transparency and communication
Children need to learn how to manage money and manage their lives — how to find fulfillment and purpose in their lives. Money can be used as a tool to empower and magnify that fulfillment and purpose. This includes learning financial topics such as budgeting, saving, investing, insurance and taxes — but also topics such as career development and family dynamics, as well as giving and philanthropy.
It can be very beneficial to speak with your children about finances and your family wealth in age-appropriate ways as they grow up so there is never any big shock or surprise when learning from you (or others) more details about the family wealth.
Engaging children in the conversation at all ages is key. Don’t wait until three months before they’re going to receive the wealth to start talking about it — start planting that seed ahead of time. Particularly with really big events, you want to give them several opportunities to prepare.
You can be more vague the further out the money event is, using words like ‘someday.’ Ask them questions and see what they think: What would you do if you had $5,000, or $300, or $50 — what would you buy? If you had $1 million, who would you want to give it to and why? What could be done to help someone responsible for a large amount of money make good decisions about it?
With teenagers, you should be able to start talking to them about trusts: ‘Here’s how people pass money from one generation to the next…. Here are some reasons why they would do it in a trust instead of giving the money directly.’
Technology
New technology is making it easier in some ways for parents and teens to start interacting more with money — with more than just piggy banks and cash. There are new and different ways to help your children manage money, including debit and spending cards.
If they don’t see their parents paying with cash, then a young child may not understand why they should hand over paper bills instead of a card to buy a toy. And since cash is not the main way they will transact when they’re adults, why not start teaching them how debit/credit cards work now?
For example, services such as Greenlight allow a child to have a debit card with their name on it. Through the associated app, parents can transfer money to their child when specific chores are completed. They can even set restrictions on how much their child can spend at specific stores or on certain categories.
Keep in mind that, while a cool debit card app or tools for budgeting can be helpful, if these tools are not employed in partnership with parents actually teaching and explaining important financial and life principles, the outcome may not be what parents had hoped for.
Motivation
How does inheriting wealth affect children’s career goals? Worrying that a child may have no motivation to prepare for a career is a valid concern, but so much of that can be influenced by how the parents communicate about the money.
They should be careful saying things like, ‘You’ll be taken care of,’ or ‘You don’t need to worry about money,’ or ‘When the time comes, we’ll buy you a home.’ While that may be true, some may not realize the negative consequences these statements can have.
Instead, say things that help instill ownership, responsibility, and the character traits you want them to develop. You could share messages such as ‘Our family works hard because it builds our character — work brings joy and satisfaction in life.’ Or ‘Even though our family has access to money, our family values hard work and making a difference.’
When the time comes and you inform your child you will be paying for their schooling, you can position the conversation with your values by saying something such as: ‘Being a good steward of wealth means we will make the most of the opportunities we have been given and give our best effort to magnify and sustain our wealth to make a positive difference in the world. This is why we feel your education is so important – we are covering the cost and investing in you.’
Strategies
One way to teach both teenagers and younger children about money is to engage them in family trip or activity planning: ‘We’ve chosen a trip for this year, and we would like you to choose the activity for one of the nights. We have $500 to spend on the activity — can you and your cousins do some research and share two options for activities that you think our family would enjoy?’
You can use this experience to teach children about budgeting and how money works, while also giving them a sense of ownership and the opportunity to practice in a safe space. It helps send the message: ‘I have $500 that I didn’t earn, that I didn’t work for, but I have this responsibility to make a choice about where to spend it and my decision will impact me and my family.’ Then later, when children actually start receiving more wealth that they didn’t ‘earn,’ they’ve developed a mindset that money is a stewardship — ‘I can make a plan for money and make money decisions that have the most impact.’
Another strategy is to think about what your children are going to need five years from now and find ways to teach them those principles now. For example, you can start talking to your 11-year-old about driving a car, saving money for a car, and explain what car insurance is. You can teach your 15-year-old some of the skills they will need when they’re living on their own at age 20.
Parents’ role
It’s important that we never abdicate our responsibility or rely on technology or the school to teach our children. There’s often a large disconnect where parents believe children are learning about money in school, but they aren’t.
And the education of your children is not just about money. It’s important for them to develop intellectually, physically, emotionally, mentally spiritually, and in other ways as well. Parents can play a big role in that.
Much of being a happy and successful person comes from being productive and helping others, whether that’s giving monetarily or in other ways. Research has shown that people who give regularly are happier, healthier, and better connected socially. Capitalizing on ways to help children serve others is a great way to reduce an entitled mentality.
Preparing your children to be good stewards of wealth requires more than just teaching them about the family trust documents, how money works and understanding investments. It involves teaching and guiding them in their personal development, professional development, character development — thinking about who they want to be, what their values are, and what their mission and purpose is.
