For families that have worked hard to build and preserve wealth, raising younger generations to become financially responsible adults is critical to maintaining a family legacy for generations.
While many parents are committed to raising children with strong values, financial acumen, and a healthy relationship with money, wealthy families may face several unique challenges. Parents may have differing relationships with money, and wealth can cause young people to grapple with complex social identities, making them uncomfortable. Wealth can also erase some teaching opportunities and requires parents to engage their kids more proactively—before their children develop assumptions about their family’s wealth profile from their friends or the vast array of information now available online.
While obstacles are inevitable, there are several time-tested strategies that clients can implement to help the next generation acculturate to wealth and embrace their financial adulthood.
Model Money Messages You Wish to Send
Children learn by observing, and as such, their family members’ actions can be far more influential than what they say. For parents, this means considering: “What do our everyday behaviors say about wealth?” For example, if a couple wishes to pass along 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 wish to share with their children. Although starting and navigating these discussions can be challenging, advisors can provide clients with tailored conversation prompts or facilitated activities. Takeaways from these discussions can be codified in a family mission statement to guide parents’ decision-making processes and inform their everyday behaviors.
Once a family’s mission is clear, advisors can assist clients in identifying 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 like family meetings. Advisors may even join family gatherings to help facilitate productive conversations. Over time, these spaces can serve as a forum for disclosing progressively more about a family’s wealth profile, plan, and expectations for the next generation. These messages must be paced with their children’s level of competency. Advisors can be helpful in creating financial education plans and exposure to wealth management concepts that are synergistic with family discussions.
Craft Age-Appropriate Lessons
The next generation is best positioned to steward the family legacy when they have a strong command of technical knowledge. Children must be engaged and given age-appropriate opportunities that suit their unique learning styles and interests.
For instance, it can be beneficial to start giving children access to small sums 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 may be an appropriate time to open a parent-controlled checking account and use mobile apps to build money vocabulary and an understanding of basic budgeting. By ages 13-18, teens should be introduced to core investing concepts and essential financial knowledge and skills. As they transition into early adulthood, parents can consider transferring the management of monthly expenses to their children and introducing credit to help them learn responsible borrowing.
Advisors can work with families, regardless of their children’s age or where they are in their financial journeys, to identify the appropriate measures to teach financial management and responsibility, equipping them for future roles in managing the family’s wealth.
Design a Plan that Speaks to Unique Interests and Abilities
Because all children are unique, financial education should never be “one-size-fits-all.” When imparting the technical and soft skills required to steward 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 might be an effective way to show how investments can grow over time to support something they do care about, like a local animal shelter.
Or, for a competitive child who is more inclined to learn about investing but also prone to risky, competitive behaviors, creating a practice investment portfolio may be an appropriate way to build technical skills, while previewing the importance of a long-term mindset. As the child’s financial acumen develops over time, setting up 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 apply 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 advisor support, parents can develop customized strategies that resonate across 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.
