The key is to avoid saying too much, too soon, or keeping your children in the dark for too long
A few years ago, Arthur Salzer was speaking at an event for high-net-worth families when he entered a breakout room to rub shoulders with a woman whose family is one of Canada’s wealthiest. At what age did she find out she was rich? It turns out that neither her parents nor her grandparents informed her. As Salzer tells it, her classmates at school divulged the truth.
“She never knew that they had billions,” says Salzer, who is founder and CEO of Northland Wealth Management, a family office in Oakville, Ont.
Ask wealthy parents about discussing money with their children and many will say it’s anxiety-inducing. Either they feel ill-equipped or they fear that disclosing financial details will kill their kids’ motivation to study and work hard. And don’t forget the fear that their children will brag to friends; that’s a concern, too.
According to a Merrill Private Wealth Management study of 656 wealthy Americans, respondents were less confident teaching their children about finances than managing their own debt and family spending, budgeting, saving and investing. Two-thirds have either never spoken to their children about money or have no plans to.
But concerns are often unfounded, says Salzer, at least if children learn about their family’s fortune in a thoughtful, methodical way. The key is finding the perfect balance between saying too much, too early, and keeping the kids in the dark for too long.
“Hiding from the wealth won’t solve it,” he says. “Neither will telling your 16-year-old, ‘You’re rich and here’s a new Porsche for your birthday.’”
Earlier better than later
There’s a reason to sit down and have “the talk” earlier rather than later: The kids probably already know the family is rich, says Samy Dwek, CEO of the Family Office Doctor and White Knight Consulting in Delray Beach, Fla. Even very young children can decipher where their own family sits on the wealth continuum when they go to classmates’ birthday parties or attend sleepovers. Clues might be subtle, but they’re there.
In other cases, the private jet is a dead giveaway.
“They know they have privilege,” says Dwek. “To pretend they don’t means either they’re blind or stupid. ‘I’m driving a Jaguar. I live in a big house in a gated community.’ I mean, how do you not know?”
Problems arise when parents decide to keep their finances secret – even when their offspring are grown. Salzer knows of one family that can afford private jets but only fly commercial when they travel with their kids. Another, upon selling their business for hundreds of millions, never divulged how much the company sold for, simply saying, “We sold our business. We’ve done well.”
But when children are kept in the dark about family wealth, they can grow worried about what will happen to them down the line. Will they be given a trust fund someday, or will they be expected to work full time? Will mom and dad help out with a house down payment – or the whole house – or will the kids be expected to save up? Planning for a hazy future isn’t easy.
In other cases, kids begin to worry that their family’s opulent lifestyle isn’t sustainable simply because they haven’t a clue what is in the coffers.
‘I get how much??’
It gets worse when children learn about their inheritance only after the parents die, essentially turning them into shocked lottery winners without a clue how to handle their new reality. Some feel guilty about their new-found wealth and want to give it away. Others careen off the rails with parties, cars, travel and overspending.
Salzer says he understands what’s often behind the reticence to show them the money, however: Parents fear that once children are told how rich they truly are, they’ll coast.
“The number one job of the ultra-wealthy families for the next generation is becoming ‘waiters’ – just waiting for your parents to die,” explains Salzer.
To avoid all this, communication is the key. And it should start early and often, explains Dwek. Just make sure it’s age-appropriate and that the first lessons focus on teaching the value of money. “It really should start from the crib. When you go to a shop and the kid goes, ‘I want a toy,’ you say, ‘No, you’ve got to earn it. You can’t just have it,’” he explains. Then, as they start to grow, give a monthly allowance, say, $100 on a debit card or prepaid credit card, with the expectation that they have to stretch that cash.
When kids are in elementary school, that’s the perfect age to start them thinking about philanthropy, too. Children this age are naturally generous. They are interested in making the world a better place, and they enjoy giving gifts.
A way to talk about family money
In fact, philanthropy can create a perfect opportunity to talk about family money in a positive way. Rather than focusing on how much money a family has, they can talk about their family’s values and how to use their wealth wisely.
“Get the kids involved in something that is going to drive them and give them values. Something they’re going to learn from,” advises Dwek.
Some parents offer their kids hundreds or even thousands of dollars to donate to a charity of their choice. Bri Trypuc, a philanthropy advisor in Toronto, says waiting until they’re teens is too late.
“You’re going to lose them because they get busy. They’re running all over the place,” she says, explaining that parents probably won’t be able to re-engage them until they’re adults if they wait.
Giving children opportunities to learn from doing will go a long way when it comes time to talk specifics, trust funds and inheritances. The goal is slow and steady, says Salzer, with families discussing finances annually or any time a situation arises with teachable moments.
“It’s like putting your toe in the bathtub and adding warmer water, as opposed to having it too hot all at once,” says Salzer. “You want them to get used to it.”