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7 Tips for Raising Wealthy Children to Be Financially and Socially Responsible

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7 Tips for Raising Wealthy Children to Be Financially and Socially Responsible

Written by: Chris Creed

How do parents with substantial assets raise fiscally and socially responsible children – both older and younger? How do you talk to your children about the wealth they are likely to inherit?

Many successful people with significant wealth don’t know how to talk to their children about money. Emotions and a willingness to involve your children are often intertwined with estate planning, taxes, philanthropy, and legal issues

Try these seven tips for both talking to your children about money and the responsibility that goes with it.

1. Start Talking About Money from A Young Age

Not talking about money doesn’t help your kids feel more normal. It actually can make them less prepared for a financially responsible future.

“In the name of not wanting their children to develop a sense of entitlement, parents don’t speak about money,” said Dr. Richard Orlando, Founder and CEO of Legacy Capitals. “As a result, the rising generation won’t be ready to successfully handle their eventual inheritance. They’ll have a sudden-wealth experience, similar to a lottery winner.”

Start talking with your children about money from an early age. A piggy bank as early as five years old, sectioned into fun items, short-term goals, long-term goals and charity, for example may be a good start. No matter how much you have, allowances should be a limit you set per week, and your child has to budget it. For instance, the Money Savvy piggy bank (https://www.amazon.com/Money-Savvy-Generation-LMSP-Blue-Pig/dp/B0002HRWBQ)

is divided into spend, save, donate and invest.

2. Teach the Basics

Don’t forget to cover basics with your children, like how you manage your monthly budget. From an early age, in kitchen table discussions or similar, you need to show your kids how you pay for food, housing, insurance, cars and more. In addition to your own chats, your financial planner, accountant, lawyer or other professional money manager may offer structured guidance and go beyond basic financial education.

3. Encourage Volunteering

Volunteering is important for your child’s financial and overall well-being for two reasons: they’ll learn the importance of charity for others and gratitude for what they have.

But don’t just have them volunteer for one day at a soup kitchen or library or similar. Have them work with an organization with a cause they care about. Search for a local cause or charity they can volunteer with to help their community. Children as young as 12 have created irrigation projects, been mentors to younger children, and have organized fundraising drives at their school. By being involved in their community, your children will develop a connection to the world and valuable leadership skills.

4. Require Work for Money Given

Requiring your children to work helps them value money. Work doesn’t necessarily mean employment. It can mean assigning chores, volunteering, and grades earned that lead to merit scholarships. Find the amount of money and hours that fit in your long-term goals for your child’s future.

Regardless, doing some sort of work for allowance arrangement is vital. “It is important that children develop a strong work ethic,” says Dr. Orlando. “But many parents pay for all their child’s needs and wants—well into their 20s and sometimes into their 30s. They then wonder why their children don’t have a job or stick with a job, especially when the job causes inconvenience in their lives.”

5. Take Your Children to Investment Meetings 

Because you want your children to take over their own finances at some point, your kids need to see the process of how you handle yours. Take your young teenagers with you to meetings with your financial planner. Encourage them to ask questions about your investments. Push them to ask about how to pay for their college and to explain 529 plans and other college savings plans. Your child might be better off working during college or partially paying for their own education. This is a good time to discuss how much of their education is their own responsibility.

Also, have your children discuss with your financial planner how the income you receive from investments factors into your income—and pays for expenses such as housing, utilities, and their car insurance.

Related: Cybersecurity and Privacy: Tips for People with Substantial Wealth

6. Give Older Children Jobs Within Your Company

If you would like your teenage children to one day take over your company, they will have to earn the respect of your employees. Assign them a low-level position in your company such as working in the mailroom, doing data entry, or working on a construction site for several hours per week or more.

Then, add in a mentorship program once per month from you or another member of the management team. Another idea: arrange shadow time during which your child can follow a senior and/or mid-level executive to see what and how they perform their work. A shadow day can be as little as two hours of your child asking questions to see what their career is like.

7. Write Clear Estate Plans

Instead of just saying your children will have your assets passed down to them no matter what, put conditions on everything from taking over your company to the amount of money they can acquire and at what age. For instance, you could write into your estate plan that before your child can take over your business or inherit money from your estate, they have to work for your company for three years and graduate college.

Your goal should be “to prevent heirs from misusing the grantor’s wealth,” says Dr. Orlando. “Estate plans are over-engineered, resulting in perpetuating the parent-child dynamic from the grave via the new parent(s) – the trustee(s)”.

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