Ask any high-net-worth financial adviser to describe a parent’s feelings about their kids’ abilities to make good financial choices and invariably you’ll stir up a hornet’s nest.
Make the conversation about the parent’s confidence in their children’s abilities to manage a significant inheritance or if they would be comfortable with their kids managing their money or the business’ money, and many parents would probably confess they are quite concerned.
How did we get to this stage? Very few schools teach personal finance as part of the curriculum. Parents will often tell you they find it difficult to talk about family finances.
Who should know or should not know what or how much and why? And what age is best to start? The truth is, families often assume too much and discuss too little.
Believing their “trusted advisers” have answers, many affluent and business families turn to their accountant, lawyer, insurance adviser or financial planner for help. Often they have difficulty broaching the subject with their advisers.
Equally, advisers may feel a need to stay within their areas of professional orientation. Those advisers who have the courage to help families facilitate difficult conversations will truly wear the title of “trusted adviser.”
The Canadian Institute of Chartered Accountants has released A Parent’s Guide to Raising Money-Smart Kids. The five aspects of money management – earn, save, spend, share and invest – are explored with suggestions for family discussions and activities designed to reinforce these concepts with kids at various ages and stages. It’s available for purchase as a hard copy or e-book at: www.castore.ca/moneysmartkids.
Most parents will tell you they feel it is their responsibility to nurture financial competence in their kids, instilling financial values and integrity. One way of sharing the family’s values and cultivating financial integrity is through a family mission statement.
It can serve to articulate the family’s financial values, what the family stands for, and how the family uses its wealth. It doesn’t need to be extremely detailed or complex, but it should be easily remembered. Learning is a lifelong process so consider starting early.
Sadly, we have not been preparing children to inherit wealth. Many clients fear wealth may distort the values and perspectives of their children and grandchildren, limiting what they might achieve independently.
Plans are often put in place with the best of intentions but rarely communicated to those affected. The kids, on the other hand, might have entitlement issues; differing wants and needs, complex family relationships, and let’s face it – sometimes kids just don’t get along.
The real sadness is that, without communication, the family’s values and objectives might never be met. The issues are compounded when rules, roles, rights and responsibilities are not discussed.
One prominent Vancouver family has made it a practice to involve their children from an early age in their philanthropic decisions. When the kids were young, charitable targets were already determined.
As the kids grew older, they were able to choose which charities they supported and how much each received. Simple activities, like having young children write the name of the charity on the envelope, or personally delivering it to the charity, can create a lasting impact.
Over the years, the family has developed their financial values, supported various causes dear to the family, with the added benefit of instilling basic financial competency in their children. Today, the kids enjoy an expanded role in determining the family’s charitable endeavours and look forward to the process.
Children’s abilities to establish financial values are affected daily. The barrage of media messages promoting consumption is endless. It should come as no surprise that kids don’t understand the concept of delayed gratification (when it comes to buying choices) or the concept of saving.
It takes time and effort to ensure that the kids share your values and beliefs when it comes to money. In the absence of a system that nurtures your values, they risk adopting someone else’s.
Raising financially competent children can take a lifetime. Consider asking your professional advisers if they can help facilitate these conversations,or at least help you get started on the right foot.
The better your children are at understanding some of the choices they will be asked to make, the greater the chance that your family’s wealth legacy will be passed onto future generations. •
