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Emotion. Fear of judgment. Complexity. Cultural taboos. Privacy concerns. There are few topics that reveal our idiosyncrasies as dramatically as money. If you have kids, grandkids, or nieces or nephews of any age, whether they are in elementary school, or even if they have children of their own, the topic of money remains one of the most important – and yet one of the most difficult – subjects to effectively navigate in family conversations. But while this difficulty is no small obstacle, it must be overcome. Savants aside, because you obviously would not speak to your 30-year-old the same way you would talk to your 10-year-old grandchild, I have divided this article into two parts. First, I explore how to talk to adult family members about money: specifically, as it pertains to family finances, estate planning (always a challenge), and ongoing financial support. In the second half, I shifted the focus to young family members and how to plant the seeds of financial literacy early in life. Lastly, I’ve added some resources that will help you take a deeper dive into the key issues surrounding talking to family members about money. Adult Family Members: Because They Don’t Know What They Don’t Know The topic of money is so difficult for people to discuss that many avoid it altogether. But talking about money with adult family members isn’t just about an inheritance, it is also about protecting them, sometimes from themselves. And my decade-plus experience as an advisor has shown me that avoiding this conversation will almost certainly lead to misunderstandings or even hardship down the road. That’s the negative. But turning the focus to the positive, the effective execution of a conversation about money is a teaching moment that allows you to model great financial behavior. Start with Your “Why” It’s important to remember that the math behind saving and investing, compound interest, and financial planning do not come easily to everyone. So, before diving into numbers or plans, the first – and among the most important parts of this equation – is that you make it clear to the adult family member the reasons why you’re initiating this conversation. Whether you’re establishing an estate plan, helping your adult child purchase a home, or you’re worried about their financial habits, beginning the conversation with patience and caring can reduce defensiveness and launch a freer exchange. For example, maybe you’re speaking to an adult grandchild about money you intend to leave them: “I’ve (we’ve) been thinking a lot about the future, and I/we very much want us all to be on the same page when it comes to my estate and what I want to do to help you succeed financially.”
Being on the same page is important, especially for efficient generational wealth planning for inheritances (but also for charitable giving). That’s because this affects your decision-making process on key planning areas like Roth conversions and distributions (and more), so you can effectively reduce taxes (and potentially save thousands of dollars) over both your and your relatives’ lifetimes. Inheritances, the Future, and Setting Boundaries The concept of a future without you. The legal, financial and tax complexities of efficiently passing along wealth. The fear that a child with an inheritance might lose motivation. While talking about money and the future are minefields of emotion and hard-to-digest realities, avoidance is worse. Case in point, often referred to as the “third generation curse,” an astounding 90% of inherited wealth does not make it to the next generation.1 And the consensus reason for this is a lack of financial education and inadequate planning. But with some proactivity you can beat the odds. If your goal is to someday pass on wealth, or to try and help a financially irresponsible family member, we suggest you approach it with structure. Let the person know what your plans are, and whether you’ve developed a will, trust, or you intend to transfer wealth via gifts during your lifetime. Then, clarify what you expect of them (if anything) in return. (Many estate plans specify age, educational achievement, work history, or some other meaningful milestone that must be accomplished before wealth is transferred.) Which brings us back to the fact that many parents and grandparents worry that disclosing too much financial information might stunt an adult family member’s motivation for embracing challenging work, or it could result in a lackadaisical approach to managing money. And as the 90% “third generation curse” statistics confirm, it is a real thing. We encourage you to approach the conversation with the intention to guide and not to enable. (And Lauren Williams, CFP®, MBA, CRPC®, my ProsperPlan co-founder, and I would happily meet with you and your children to help facilitate this conversation.) Explain YOUR Financial Values and Not Just the Numbers Talking about money isn’t only about your portfolio. It is about your lifelong decision-making processes. You have created and maintained a standard that has elevated you into a position where you have something to share with a charity or with future generations in your family. That is no small achievement. Frugality, delayed gratification, generosity, consistency, hard work, and forward-thinking, proactive planning: Share and describe the values that shaped your financial habits and have comprised the foundation of your success. Accept that it Might Not be Easy While conversations about expectations and money are rarely seamless, the most difficult part can simply be initiating them. I encourage you to stay the course and keep the big picture – their future wellbeing – in mind. Tips for managing tough financial discussions:
Lastly, even though you’re obviously able to help your adult family member financially, make certain it doesn’t cost them their independence. This means helping rather than enabling. Saying “yes” to a loved one can feel great, but sometimes saying “no” will lead to better outcomes overall. · Offer guidance and tools. · Have them meet with your advisor. · Help them understand the importance of creating a budget. · Consider offering incentives such as a “match” for saving instead of a handout. Remember, you don’t want to give them money (even if you have plenty to spare) that they are unprepared to manage. As all bankrupt former lottery winners and professional athletes can attest, people who suddenly come into money without proper financial education often end up worse (unbearable debt levels, for one) than those who have never had much money at all. The goal is to help your adult family members develop a healthy, long-term relationship with money so they can achieve a sense of prosperity, and then hopefully someday have similar conversations with children and grandchildren of their own. Part Two: How to Speak with Younger Family Members About Money Start Early According to a study by Cambridge University, children begin forming money habits as early as the age of seven. To provide your kids and grandchildren with a head start, you do not have to turn your home into a think tank: just begin with simple, age-appropriate lessons and build over time. Make Cash Visible Cash. Coins. Rolls of quarters. In today’s virtual world, a huge challenge to tutoring young people about money is that physical cash is increasingly absent. Many people don’t carry any, and children need barely notice as we tap a card or click a button to complete even a massive financial transaction or transfer. We recommend that you use actual physical currency when instructing young children. Let them handle coins. Encourage them to count the bills. Let them see money go in and out of a piggy bank or envelope system. Talk Openly About Everyday Decisions Kids are observant. Children watch as you buy groceries, pay bills online, or decide whether to purchase something new. But, rather than merely race through the transaction, tell your child or grandchild what you are doing. Explain that you worked for the money, so it transferred from your employer (or an investment) to your bank or lender, and now you are using that money to buy things that you want or need. Consider introducing concepts such as: “This pasta is on sale, and it tastes the same as this other brand, so I’ll get this one and we can save that money, or we can use it to buy something else.” By doing this, you are showing them how to make decisions and trade-offs, which are essential skills in money management. Reinforce the Basics of Earning Young kids can understand the concept of earning money. Whether it is helping with chores, selling Girl Scout Cookies, having a garage sale, or completing some sort of craft to sell at a school fair, to help them understand the value and workings of money, encourage entrepreneurship and work ethic. In a meme driven world, where hits of dopamine are everywhere, using cause and effect (chore/achievement => reward => feelings of accomplishment) to promote early financial literacy and good decision making can be a great approach. Utilize Age-Appropriate Tools As your kids grow, introduce them to more sophisticated tools. For example:
To build their comfort and confidence, let them manage increasingly larger budgets for things like school supplies, outings, or clothes to give them real-world experience. Simply, when it comes to kids and money, first share, then show, and then watch them grow. Please feel free to reach out to us for more information, to schedule an appointment for you and your children, grandchildren, relative or mentee, or if you have any questions related to our partnership. And lastly … Along with our partners at NewEdge Wealth, I have compiled a list of books that support the “financial education” topics I’ve introduced above. · “Investing for Kids: How to Save, Invest, and Grow” · “Raised Healthy, Wealthy &Wise: Interviews With Successful Inheritors” · “Raising Financially Fit Kids: A Practical Guide” · “Family Wealth: Keeping It In the Family” · “How to Adult: Personal Finance for the Real World” · “Children of Paradise: Successful Parenting for Prosperous Families” · “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money.” · “In Three Generations: A Story About Family, Wealth, and Beating the Odds.” Also, because they have numerous items for educating kids, I am a big fan of Dave Ramsey Financial Peace University and Financial Peace Kids (kids money teaching set), and Foundations in Personal Finance: Homeschool Edition (Print and Digital) (coursework for kids).
1 Generational Wealth ‘Curse’ Is Causing 90% of Families To Run Out of Money — How To Beat the Odds Your team at ProsperPlan Wealth, Lauren M. Williams, CFP®, CRPC®, MBA |
