HNW Corner: Talking to Kids About Money

When I read “Should clients let kids know they’re rich?” by Amanda Schiavo in FinancialPlanning, I was reminded of the Money Camps for Kids I created in the 1990s. By the time I started the Sudden Money Institute (SMI) in 2000, my focus was more on the effects of wealth on the entire family’s dynamic. This area is so important to our community of practitioners at the Financial Transitionist Institute (the training division of SMI) that we have a Special Interest Track that focuses solely on Families-in-Transition. Led by Peggy Frye, who’s a veteran in the HNW world and a faculty member here at FTI/SMI, the group meets regularly to discuss their experiences as well as the research in their area. I asked Peggy for some guidance in working with HNW families and talking to kids about money.

What do our experts recommend?

SB: What’s the best practice for talking to kids about money? How and when should you tell them about their family’s wealth? 

PF: Well, the decision as to when to share wealth information with children varies family to family. There is clearly not one right answer regarding timing. We do know that being purposeful about raising children regardless of the wealth in the family will lead to more productive families, though.

On Being Purposeful When Talking to Kids About Money

SB: What exactly does it mean to be purposeful when talking to kids about money? What does that look like?

PF: Preparing children to handle money at very early ages is an important piece of the equation. That can start as young as five or under, when a child gets as a gift, or later from the tooth fairy or by earning it from doing chores. The general rule is that it goes into three jars—the share jar, the save jar, and the spend jar. This continues as the child wants certain toys or games and they learn what they need to do in order to purchase them.

This learning takes time–as most learning does–with them finding it very difficult to not spend their money just because they have it, at first. It burns a proverbial hole in their pocket. But with time, they begin to gain wisdom, experience-by-experience. This prepares them for The Money Discussion and to truly understand and benefit from it because they have their own experience with managing money.

When to have The Money Discussion

SB: So what about The Money Discussion? When do you have it and how do you optimally structure it?

PF: We know how smart our kids are and that they or their friends can find information about their family’s wealth on the Internet, as Amanda mentions in the FinancialPlanning article. It’s important to be proactive and have money discussions before kids ask or find out on their own and then feel like something important was being kept from them. Depending on where the family lives, the access the children have to technology, the beliefs of their school regarding technology and the inquisitiveness of the children, we’re talking having the talk with school-age kids as young as seven in some families, but not until their teens in others.

The Game-Changing Internet

SB: You mention the Internet. How has it changed things?

PF: We’re both old enough to remember that not too long ago it was possible for most HNW families to sort of fly under the radar if they really wanted to. But that’s just so rare and difficult now that everyone’s so connected and personal information—for better or worse—is easy to come by. You don’t have to be too technically savvy to figure this stuff out in 2018, and that reality has nudged families to be more proactive.

What to Talk About

SB: What happens during The Money Discussion? Are you talking specifics of amounts and investments for young people?

PF: With certain families, particularly of UHNW ones, amounts and ownership and family culture for generations might make it difficult not to talk about amounts or ownership because it’s already out there. But most HNW families don’t need to get into those details. Instead, we talk about three components to the conversation. First, there’s the difference between wants and needs. That’s a conversation I imagine many parents have, regardless of wealth. The same is true for the second component–that we aren’t entitled to things just because we can afford them. Finally, there’s the idea that wealth comes with a measure of responsibility to make a positive difference in the world.

This kind of process is thoughtful and involves consistency and a lot of hard work. It involves parents modeling good money behavior and using a series of teaching moments with their children. We often say that it is as vital to be purposeful about raising children as it is to be purposeful about building a successful business or career.

What Isn’t Talked About Enough

SB: What’s the most important, but least addressed part of this conversation? What are most financial advisors missing when serving HNW families?

PF: That’s an easy one, but it takes some training to be able to identify it and work with it. When it comes time to actually begin to manage some or all of your money as an adult or close to it, there’s a difference between knowing it’s coming and knowing it’s accessible. Something shifts inside you. And it’s not like the rest of the world can see it or even you yourself realize it’s happening or what it is. You are experiencing a major life transition that too frequently is allowed to just kind of blow by. But if it isn’t handled well it can end up causing all kinds of headaches and even big problems, both personally and financially.

Young people—and not-so-young people—need time to process what’s happening and they need a structure for that time. Transitions affect us in a number of ways, and it’s important to acknowledge and honor that reality. That’s part of what we discuss with our Families-in-Transition group at FTI. Just because you grew up knowing you are wealthy doesn’t mean you’ll be able to navigate the moment some of that wealth becomes yours to manage. But you talked about that in Sudden Money nearly 20 years ago, so I’m preaching to the choir!

SB: Still, an important reminder! Thanks, Peggy!

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