An important way high-net-worth parents can teach their kids about money

Parents and toddler at a dog shelter

As a high-net-worth parent, you may be poised to pass on generational wealth to your children, but what about passing on your financial values and know-how as well? A reason why so many families lose their wealth by the second or third generation is because children or grandchildren don’t have the financial wisdom to manage their inheritance.

I know it’s not always easy to talk to kids about money and you might worry about the effect your wealth will have on them. As I discussed in my last post on generational wealth, you’re not alone, and these are common challenges that high-net-worth parents face.

This is why, at my Calgary wealth management firm, we bring our clients’ families into the conversation. This allows us to develop strategies to teach kids and grandkids important money values and knowledge. One of the key tools we use to do this is philanthropy.

Kids and money: Living in a cashless world

A major hurdle is that money doesn’t feel real anymore. Most people don’t carry cash and, instead, use credit cards or debit cards to pay for things. This trend has accelerated over the last year with online ordering and cashless options in response to the pandemic. We even had a time in the last 12 months where stores would not accept cash. So there is a disconnect between earning money and paying with money.

This makes it difficult for our children to learn the value of money: what it takes to earn it and how to save it, how to spend it, and how to give it away. Ordering goods online and paying with a credit card can create a false sense that money is everywhere and infinite. It can also lead to the feeling that you’re entitled to money just because you are you.

COVID has further complicated matters. Our kids are staying home, isolated from friends, extended family, and the broader community. They may have no awareness of the needs of others who aren’t as privileged as they are. Philanthropy is a powerful way for high-net-worth parents to overcome these obstacles and teach children to be good stewards of wealth.

How to teach kids about money using philanthropy

Teaching kids about money through philanthropy doesn’t mean donating to a cause and forgetting about it. The best way to teach kids about money is to share your beliefs and thoughts on money with them. Avoid entitlement and raise awareness by discussing your values and what you see in the community around you.

What are the needs? For example, if your child’s school gets new computers, where do the old ones go? Who needs them and why? Why can’t parents just buy them? Talk, read, and make sense of the challenges and opportunities in the world. Think about how you can help and where your family’s interests lie. Is it supplying students with computers? Or is it volunteering at animal shelters and talking about why they exist? Maybe it’s providing monetary support through a savings plan.

Yes, there are books, apps, and even money games for kids meant to teach children how to manage and save money. These can certainly be great for covering the fundamentals. However, helping children become financially responsible in a way that carries on your family’s legacy and values is really about tying awareness into conversations of visiting, helping, volunteering, or providing monetary gifts.

Bringing children into the wealth management plan

Whenever we work with a client, we have an in-depth discovery period where we learn about their unique values, goals, financial life, and family life. We have conversations with our clients’ spouses, children, and/or grandchildren and make sure the entire family is on the same page. Depending on the family’s values and goals, we use strategic philanthropy as a teaching tool in stewarding wealth.

The constant requests for money are everywhere you turn, including social media, the checkout counter, and GoFundMe pages. All of this is reactive. My team and I create a plan for proactive or strategic philanthropy where you are giving thoughtfully in line with your values, and your children understand the “why” behind the action. The exact strategy will differ depending on the children’s ages, but the ultimate goal is to create better citizens who are able to maintain the family wealth and continue to pass it on to future generations.

For a younger child, we can start small. Perhaps they love animals. If that’s the case, the example we used above about talking about why animal shelters exist, having your child volunteer at one, and creating a savings plan they can use to donate to animal causes would be an excellent start. For older or adult children, a more in-depth approach, such as the one illustrated in our case study below, can be beneficial.

Strategic philanthropy: A case study

We had a mom and dad in their late 50s who were in need of a Calgary financial planner and wealth advisor. When they came to the Susan O’Brien Group, they were concerned about the impact of their wealth on their adult children. They weren’t confident that leaving them with a large sum of money would prepare them to steward the wealth effectively.

During our legacy planning, they also noted they would like to give to the charitable sector when they died. They felt thankful for the education and opportunities they had been afforded and wanted to leave some money in their will to causes that helped children access educational opportunities.

When my team and I analyzed their situation, we discovered they had the capacity to do something today, allowing them to see the impact of their giving, reduce taxes, and, ultimately, teach their adult children money values. They agreed that giving while living was a better option and were curious about how we could help their children.

One of our solutions was to set up a Family Charitable Fund at a well-respected community organization. The capital would be there in perpetuity and the income would be donated to the family’s choice of charities. We had the adult children choose causes they believed in.

By researching the various charities that supported those causes, their children learned to differentiate between charities that were using the money wisely to create the best outcomes and those that spent most of the money on overhead and fundraising. This research helped them learn how to be good stewards of wealth and allowed them to develop an awareness of the world around them, showing them they could be a solution for causes they felt connected to.

As you can see, teaching kids about money doesn’t have to be a struggle, and wealth does not automatically equate to entitlement. By looking at wealth through a Net Worth Thinking Lens that accounts for your unique family dynamics and needs, you can learn how to teach kids about money and empower them to successfully manage the family wealth, while also making a positive impact on society.

If you’re interested in creating an integrated, long-term financial plan that enables your children and grandchildren to be good stewards of wealth, contact the Susan O’Brien Group today.