Most children are left in the dark regarding detailed information about their parents’ financials. Well-off parents may not want to tell their children for fear of them becoming dependent. Parents who struggle financially may not tell their children as a means to keep them from worrying. Both approaches are understandable, but in failing to speak to children about the family wealth, children may be unprepared for what will happen after their parents are gone.
As a group, baby boomers are heartened by this fact: It is estimated that baby boomers will inherit $12 trillion from their parents and the boomers will leave an additional $30 trillion to their own children over the next 30 to 40 years.
Most adults who have substantial wealth are concerned that letting their children know how much they have will take away any motivation for the children to be productive and involved citizens. They often want their children to learn how to live in the world as ‘normal’ people, and to be productive and successful in their own right.
Even those who are not as wealthy may not want their children to know how much they have. They may be concerned that all of their savings will be needed for retirement, medical expenses and end-of-life expenses. If that turns out to be the case, their kids would not receive an inheritance they may have been counting on.
But not knowing what they may inherit leaves children in the dark and can actually hinder their ability to handle money wisely. Those who inherit a substantial amount may be unprepared for what to do with sudden wealth. Some will feel separated from their friends, isolated, even confused about how to handle relationships. Some will be wasteful and lazy. Even those who inherit only modest amounts may squander it away. Stories of inheritances being channeled into expensive sports cars, lavish vacations and fast living are all too common.
If you are a parent, talk to your children about money and wealth, at least in generalities. There is no need to show them bank and financial statements. Instead of concentrating on money and material things, talk to them about your values, the opportunities money can provide, and what you want to accomplish with it. Most parents want their children to think about others, and many want to encourage entrepreneurship. Some parents give their children a small amount of money at a young age, teach them how to save and invest, give a certain amount to charity, and spend the rest wisely.
Of course, the most effective way to teach children about money is to be an example. Let them see you using your money in ways that reinforce your values. Many parents show how they value family relationships by spending their money on family vacations. Some even buy a second home where the entire family can gather for summers and holidays. If your children see you being charitable and helping others, chances are they will become charitable, too.
Remember, estate planning isn’t just about passing on wealth, it’s about passing on values.