10 Tips for Teaching Your Children About Wealth Management
Are you confident that your children will be able to responsibly manage the wealth they inherit from you? They’ll have a better chance of success if you introduce them to wealth planning and money management as early as their teen years. Here are 10 tips to get them more involved.
Q: Should My Young Adult Attend a Meeting With My Wealth Advisor?
A: Many high-net-worth families find it difficult to discuss wealth transfer with their children; however, delaying this sometimes-sensitive conversation can be counterproductive and could affect your ability to pass on wealth effectively. Consider bringing your young adult to a meeting with your wealth advisor so they better understand the aspects of wealth management from investments to insurance and estate planning.
Q: How Can I Improve Communication About Wealth?
A: You might want to establish a family meeting at least quarterly to discuss wealth management. Family meetings are one of the best ways you can involve the next generation and ensure that family members are proactively addressing sensitive issues while adhering to your family’s values.
Q: What if I Want to Instill the Importance of Making Charitable Contributions?
A: Have your wealth advisor help you research causes that both you and your children care about. Your advisor can help set up shared philanthropy goals while involving your children in the process. He or she can also go over the pros and cons of establishing private family foundations, donor-advised funds and other charitable vehicles.
Q: How Do I Establish Roles for Family Members?
A: As you think about transferring your wealth, you’ll want to plan specific roles for each child, such as meeting with the wealth advisor and you to discuss contributions to a donor-advised fund. Creating roles helps provide your young adult children with knowledge and capabilities to manage wealth once they inherit it.
Q: How to I Prepare My Child to Take Over My Business?
A: Preparing the next generation to take over and operate a family business can be key to preserving wealth across multiple generations. Getting children involved from entry-level positions on up through the business can teach them valuable business lessons and entrepreneurial skills while increasing family interaction and making the children feel they are making a direct impact on wealth accumulation.
Q: How Can I Keep My Children Motivated?
A: You may be concerned that the thought of an eventual inheritance will stunt your children’s ambitions. One thing you can do now is to put milestones in place over a set period of time to grant your children a limited amount of control over the inheritance.
For example, a trust that gives your children increased access as they get older may encourage them to establish themselves in their careers. It also gives them control of smaller sums early on, which will help give them the financial experience to direct larger amounts of wealth responsibly as they get older.
Q: What Are a Few Initial Ways to Get My Teen Involved in Money Management?
A: Most teens likely opened a checking account once they started working summer jobs. If they have a checking account, sit down once a month to go over their online transactions and savings with them. Because using a debit card can result in real-time deductions, your teen will need to learn how to track purchases against the balance of the account.
Another way is to open a credit card in your teen’s name without co-signing on it. Be sure the limit is set low, and your teen understands charges on the account should be paid off each month to avoid interest payments. If they max out their card, rather than paying it off for them, work on a chore or part-time job contract with all allowance or salary going directly to pay off the card. Helping your kids establish credit can build a strong financial foundation when combined with solid financial management.
Q: How Can Young Adults Improve Their Credit Profile by Paying off Student Loans?
A: For students who may never have had a loan or credit card before, a student loan might be the first account that establishes their credit report and makes them eligible for a credit score. Assuming your student made payments on time and paid off the loan(s) by the due date, the loans can remain on their credit report for 10 years after they pay it off, which is actually positive. While it’s on their credit report, the account’s history can continue to positively impact the length of their credit history, credit mix and payment history—which all contribute to better credit. President Biden has paused student loan repayments including interest until Jan. 31, 2022. The pause only applies to federal loans, not private ones.
Once graduated and working full time, your students will need to ensure they are also saving for retirement through pre-tax withdrawals from their paycheck as well as setting up after-tax automatic withdrawals to pay for student loans. That way they aren’t sacrificing one goal for the other.
How Will These Steps Help?
All of these steps together can help you pass on good financial habits to your children early to ensure they have the resources, values and life skills to manage their inheritance and pass along those same lessons to their children.
For more on this topic, check out our podcast on how to keep your kids financially literate.
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