How and when to talk to the next generation about wealth

If you have a solid estate plan in place, congratulations. You’ve prepared your wealth to transfer efficiently to your intended beneficiaries. For those planning to transfer assets to the next generation, it’s time to think about a concurrent step that some families overlook: preparing your heirs to receive wealth.

Family money often is a sensitive topic, making some hesitant to bring it up. But avoiding it can carry the unintended consequence of leaving your beneficiaries unprepared to receive, appreciate and be good stewards of your wealth.

Fortunately, thoughtful and proactive planning steps can assist heirs with inheritance management. For parents and grandparents, it’s important to realize that the topic warrants ongoing conversation - and it’s not “one size fits all.” You know your family best and can determine what will resonate and be most effective.

The following guide based on children’s ages offers suggested ways to get started. Regardless of the path you choose, if you build a foundation of openness and education that makes sense for your family early, your wealth transfer path is more likely to be a smooth one.

What does your wealth mean to you?

It’s not an overstatement to say that open lines of communication between the generations are the basis for sustaining family wealth. Lack of communication can sometimes breed family discord; it also can lead to missed opportunities to share your values and ideas for what your wealth means to you and how you would like the next generation to think of themselves as stewards of that wealth.

We believe sharing your values and the meaning of wealth are a good way to begin, as opposed to discussing actual amounts. As parents, its best to start off with smaller conversations and build awareness, then bring up broader information over time as the children's skills and maturity develop. Keep it light and open, without initial expectations or stress. We suggest building conversation with questions, not statements or commands. Questions encourage discussions, which encourages trust and the sharing of ideas.

As children age, and develop their own opinions and values, having an understanding and ongoing dialogue of the family’s collective values and legacy can help to provide context.

These conversations can remain informal, or they can grow into more regular family meetings, creating an ongoing discussion format. This in turn could set a framework for shared decision-making and collaborating toward a shared purpose as children age.

And, of course, there are non-planned forms of communication, such as the behavior that you model towards your wealth and legacy. This is likely to have the greatest impact over time.

Incorporate financial education

Part of building understanding and confidence in children means taking time to teach them the basics of finances. Financial literacy is important for everyone, but for families it supplements the message about your wealth and why overseeing it effectively is so important.

If you want your children to handle wealth responsibly, and even grow it for future generations and philanthropic causes, they need to understand concepts such as budgeting, saving and investing, compounding returns, and the benefits of asset diversification. As they get older, one idea is to share your favorite financial books or websites with them, encouraging them to learn on their own and investigate topics they inevitably will hear about, such as the difference in stocks and bonds, how credit cards work, or how a trust works.

Another effective way to encourage interest in money management is to tie learning to individual financial firsts — think first phone, car, first job, first apartment. These milestones occur across a child’s life and provide ongoing platforms for saving, spending and paying off debt while fostering good judgement. Lessons are more likely to register when they are tied to actual activity versus a parent talking to them. Plus, it allows them the chance to solve problems or address needs on their own, while taking on responsibility and accountability.

If you have a private charitable foundation or donor advised fund, involving young adult children is a good way to teach them the importance of giving back and serving the community, while illustrating your family values.

An age-based teaching guide

As your children grow through stages, consider these tips to help them learn from an early age through adulthood.

5-10 years old

At this stage, be attentive to how you talk about money in front of them. Start simple conversations by asking them questions about what they would buy and giving simple answers on how money works. Steps to take could include:

• Start a savings account or give them an easy place to save. Piggy banks are nice and tangible. If you set up a bank account, consider matching what they put in each month.
• Discuss saving, spending and giving: keep some, spend some, give some, and budget for goals or treats.
• Give them a chance to earn money. Encourage personal chores for a regular allowance; it can involve supporting pets or a favorite activity. One caution: be careful not to tie what you consider to be responsibilities as members of your family to monetary rewards, or using money to drive behavior (I’ll give you $5 if you stop arguing).

Teen-age years

Time to emphasize financial literacy and thinking long-term. They are ready to learn how finances and financial systems work. Discuss questions and give honest answers. If you don’t have an answer, or it’s a complex issue, make it project to figure it out together. Other tips:

• Establish their own checking accounts with a debit card to help enforce saving vs. spending.
• Involve them in discussions of family finances or financial decisions, as appropriate. This provides a sense of responsibility and helps them view the family's money through the lens of a steward instead of a recipient.
• Allow them latitude to make their own financial decisions, good and bad, surrounding major purchases, treating friends, hobbies, dates, etc.
• Explain credit and interest rates in a basic way, in preparation for obtaining a credit card.
• Involve them in your philanthropic giving: encourage choosing a cause to help support and for volunteer work.
• Use preparing for college as an example to explain the benefits of saving, borrowing, investing in yourself, risk, choices, etc. Helping them understand the financial dynamics behind education can make it more meaningful.

20s

As young adults become more independent, it’s time to encourage more financial independence. Don’t hesitate to ask them how they are handling their finances and offer to help develop a strategy that they can manage on their own. Other steps include:

• If you are providing financial support, be clear on its parameters.
• Have a strategy for the support you give them – is it a bridge loan, are you providing a more affordable version of a mortgage, are you making a gift, is it temporary support for a particular transition, are they on their own? Be clear with them and yourself.

• It’s a good time for an informal discussion on how money impacts personal relationships, love and marriage, what a pre-nuptial is and its purpose.
• They may not be ready to jump into a family business yet, but be open about discussing your business, its opportunities and challenges.

35 and above

Ultimately, kids become responsible adults at their own pace. At this point, recognize that they also can help you. They may become more involved in a family business or have professional experience of their own to offer. At this stage, best steps include:

• They each will face major decisions and financial transactions where your insight and experience can help: career changes, buying a home, financial planning.
• Family issues will take on financial aspects that require even more communication: relocating to be near each other, helping to provide home care for grandparents.
• It’s time to have deeper conversations about your estate plan and trusts, where key documents are kept, information about your advisors.
• Make sure they know who your beneficiaries are. Discuss plans or the purpose of any funds you intend to leave them.

It’s more than money

As any parent knows, you can’t escape the feeling that your kids grow up quickly. The day you realize they are mature adults will be a rewarding moment, especially if you’ve been clear in following a process to share your vision for your wealth.

It’s not just about money. Your financial journey with your family serves to carry forward the family legacy. By sharing your values and plans, you provide future generations with purpose and peace of mind.