Many families work hard to build up their wealth not only for themselves, but also for their children. And while it may be true that some families do this so their children won’t need to work as hard as they did, the reality is that maintaining generational wealth is its own kind of work.

We have all seen a movie with the trope of the rich kid who blows away all of their inheritance without any care. And while much of this stereotype is exaggerated for the sake of entertainment, children from wealthy families who aren’t taught financial literacy could end up on a similar path.

 

Teaching Financial Responsibility

According to research done by Jay L. Zagorsky, roughly one in three Americans who have received an inheritance will lose it all, either through reckless spending or poor investments. Therefore, teaching your children as early as possible about financial responsibility.

A great way to help your children understand how to manage your family’s wealth is to get them involved in some of the financial decisions now in their youth rather than waiting for them to reach adulthood. For example, if you have a teenager who wants to buy a new car, allow them (and assist them when needed) to do all the math that would be related to car payments.

Coming up with a budgeting plan is another way to teach your children financial responsibility. If they are given an allowance and learn how to budget around this allowance, they can carry these skills of budgeting and money management for the rest of their life.

 

Teaching Debt Management

As your children age, they’ll receive offers in stores and in the mail about credit card applications. Talk to your children very honestly about debt and the risks you can face when applying for credit cards and loans. This can also lead into a conversation about the importance of maintaining a decent credit score, and how they can do so.

Many companies now offer the option to add minors on as an authorized user to your credit or debit card. While the parents are still responsible for the child’s spending habits, some of these companies also allow for spending limits to be placed on authorized users, which can help to teach your child responsible spending as well. This route not only provides an opportunity for youth to learn and experience financial management but helps to build credit for them at an early age as well.

 

Teaching Investment Education

Oftentimes, a person thinks they are making a sound financial decision when they invest their money. And this is often true–unless they have invested without proper research or professional guidance.

It is often stressed that it is never too early to teach your children about finances, and this is even true about investing. For example, you can let them pick out a stock and then buy shares for them, all while teaching them about your own investments and why you made them. We recommend setting up an appointment with your financial advisor to do this, which will also help improve their financial literacy too.

 

Discussing Estate Plans

To get your children to understand your estate, you can hold family meetings where everyone openly and honestly discusses their plans with the estate. These discussions should also include plans on what to do when you are gone.

It might seem depressing, but it will get your children to think about what they will do with the family inheritance once you are no longer around to advise them. A financial advisor can walk you through on how to hold these conversations as a family so that you aren’t feeling as overwhelmed when having the discussions.

 

Final Thoughts

Ultimately, the best you can do to raise financially responsible children is to communicate with them as openly as possible. It might even be beneficial for your children to hear about your own financial mistakes, the consequences of them, and how you dealt with them.

If you need any sort of assistance on teaching your children about your estate, we would love to help you. Contact us today!

 

CRN-6304367-013024