If you’re rich, tell your kids how rich you are.
They’re going to figure it out anyway. So might as well get ahead of it and “control the story.”
According to Merrill Lynch, two-thirds of Americans with min $3M investable assets have not once talked to their kids about how rich they are and/or never plan to.
They say it’s not anyone’s business. Plus, they don’t want their kids to “lose motivation” knowing they have family money to lean back on.
Meanwhile, a majority of those families have quietly made trusts/gifts to pay for their kids’ schooling, housing costs, and allowances.
In other words, their kids will sooner or later get money dumped on them with no skills or education for managing it wisely.
No wonder second generations blow all the wealth earned by first generations!
Don’t want this to be you?
Then read on for tips on how to broach the money conversation with your kids so they (a) don’t get complacent and (b) learn the skills they need to make smart money decisions once they inherit.
Let’s dive in.
Your kids are watching you
The most common reason parents say they don’t tell their kids how rich they are is because they don’t want their kids to lose motivation.
They think, if I don’t say anything, my kid won’t figure anything out.
Think about how you yourself speculate how rich others are.
Your kid is going to do the same thing.
They’re going to look online to see how much the family house costs, the family car, the nice vacation to the Bahamas.
They’re going to easily find out how much their private school fees cost.
How much the nanny, tutor, cleaner costs.
And obviously they see the menu prices when you and the family eat at fancy restaurants. (If you didn’t think >$30 entrees means “fancy restaurant,” then you are not only rich but oblivious, too.)
When they’re young, they won’t yet have positive/negative feelings about money, so you should seize these moments to teach them basic money values:
- That the family is fortunate to afford nice things, but not all families can.
- That earning money is hard work, and hard work, discipline, and a saving mindset are needed to enjoy the fruits of one’s labor later.
Since they won’t have any reference point yet, it’s a good opportunity to help set their values.
Soon they will also start hearing about the wealth of other families from classmates and peers.
That will naturally make them compare/speculate about their own family’s wealth.
The first feelings of jealousy may creep in.
This is a major reason why it’s disadvantageous to wait until your kids are older to have the conversation.
You don’t want them to form misguided perceptions from watching their parents and classmates.
You want to develop their basic values before then.
Values are set by daily behaviors and lessons you impart as they observe you and take cues from others around them.
Some parents also decide to avoid the money conversation because they plan to give most or all their money away to charity.
This is noble, but not telling your kids about both your wealth and your plans is even worse.
Look around your house, dude. They’ll figure it out. But they’ll probably make the wrong assumptions.
So why not tell them: “Hey, we’re wealthy but we’ve decided to give it away to the less fortunate. So this won’t be your money. We want you to work hard and accomplish big things on your own.”
And if you’re worried your kids may go broadcast it to classmates which eventually lands in the ears of other parents who may be your peers or even colleagues, just keep the conversation age appropriate.
You don’t have to disclose the full shebang all at once.
In fact, talking to your kids in stages will help alleviate your own anxiety.
The goal is to orient/educate them and instill good values, not show them detailed stock portfolio and real estate holdings.
Having the conversation early with your kids lets you do it on your own terms.
Here are tips for how to “unfold” that conversation in an age-appropriate way.
When they are elementary school age or younger, focus on the big picture
They’ll start seeing wealth differences from classmates and other parents, and will probably start to ask questions.
At this stage, talk to them about the big picture of what it means to have wealth:
“Having money means you are able to buy things and buy help from other people, but not everyone has the same amount to buy the same things.”
“It isn’t anything good or bad and it doesn’t mean someone is better or worse just because they have a lot of money. Just like being taller or shorter or darker or lighter doesn’t make you better or worse.”
Talk to them about how you get wealthy:
“The best way to earn money is to work hard for it. You work hard and do a good job at something other people need help with, and then they pay you money for it.”
“There are all kinds of things people need help with. Sometimes people are sick and need help getting healthy (doctor). Sometimes they want a new present like a nice new pair of shoes or a new toy, and someone creates just the one they want and sells it to them (entrepreneur). Sometimes they want to eat nice food, and someone opens a restaurant to offer them nice food in a fun place to eat it (small business owner).”
“There are so many ways to help people with what they need and get money in return.”
“But all of these ways require us to get a good education so that we have the right skills and talents to help people with what they need.”
“And all of these ways require us to work hard and do our best so that other people appreciate our work and we can actually help them.”
Talk to them about the role luck plays in life:
“Becoming wealthy also requires a lot of luck.”
“Luck happens all the time. We’re born in America with good opportunities, while many other kids aren’t as fortunate because they are born in not so well off countries.”
“We’re lucky if we have a good loving family that can give us yummy food, a nice house to sleep in, and good opportunities for school and learning.”
“We’re lucky to have a nice school to go to with nice teachers who care about us and want to teach us so that we have a good education.”
“We’re lucky to be safe each day because we live in a nice community and we have friends who support us and encourage us.”
“So while Mommy and Daddy have helped a lot of people and earned a lot of money, which has allowed us to buy you nice things, we have also been very lucky in life for these reasons and others.”
“And you are lucky for all these reasons, too.”
Finally, talk to them about the purposes and goals for money:
“Even though Mommy and Daddy have money, our reason for having it is not to buy everything we want.”
“We want to make sure you have a good education and good opportunities. But we also have money so that we can help other people who have not been as lucky as us.”
“If we were not so lucky, wouldn’t we be thankful if another lucky family who had the opportunity to earn a lot of money helped us?”
“If something happened to Mommy and Daddy and we couldn’t be with you, that would be very unlucky, and we would definitely want others to help you.”
Talking to kids in simple terms like this helps set their values.
Through these conversations, they learn what wealth is, how you get it, the role luck plays, and the larger purposes and goals of money.
These early lessons will help your kids develop positive mindsets and behaviors about family wealth as they get older, especially as they get more exposed to peer influences.
Between elementary/middle school, teach them that wealth comes from working hard
At this age your kids will start to want material things.
They’ll look to you for lessons on what values to ascribe to material things.
Will they get everything on their wish list as a gift from you?
Or will they have to work for it themselves?
I plan to set a budget for my kids that only covers the necessities.
They’ll always know how much they can spend and how much they have already spent.
Their budget will let them buy everything they strictly need, but nothing they simply want.
They are free to buy little luxuries here and there, but they have to figure out how to make it work within their budget.
That may mean sacrificing other things.
Or it may mean doing extra work/chores to earn more and increase their budget.
Just like health insurance: generic drugs will be fully covered, but brand-name drugs that are functionally the same as the generic must be paid out of pocket.
In this way, my kid learns how to maintain a budget, make spending tradeoffs, and earn more income to expand her budget.
These years are also ripe for introducing your kid to lessons about saving and compounding interest.
Creating wealth is hugely a function of these two things.
Since the most important ingredient for the magic of compound interest is a long time horizon, your biggest advantage in saving/investing is simply to get started very early.
That is why it’s crucial to learn these concepts (and why they reinforce each other) early.
When they are teens, reinforce budgeting skills / good money habits and up-level their financial literacy
When your kids are in high school, their desire for material things may increase.
More expensive tastes may develop – clothes, shoes, purses/makeup/accessories, phones, jewelry, even cars.
It’s a tricky period to navigate as a teen, because they’ll be influenced by peers even if they’re on a strict budget at home.
So you have to make sure your lessons rise above the noise.
Communicate your financial values clearly and often.
Keep teaching your teen financial concepts to increase their financial literacy.
Now is a good time to introduce lessons on stocks and bonds, real estate and mortgage debt, retirement planning, taxes, and insurance (health, life).
These are important concepts for their financial education/awareness.
In addition, double down on the budgeting responsibilities you’ve already been teaching them. This is the age where learning how to be responsible is most crucial.
They are old enough by now to hold a part-time job. Old enough to drive. They’ll probably want to earn some pocket money themselves.
Meanwhile, their tastes for material things may increase.
You can channel these forces in a positive way by making your kid work for what they want.
I recommend still setting a budget to cover their necessities, but make extra/branded stuff their own financial responsibility.
And if you give your kid a free car, at least make them pay for their own insurance and gas.
Not only will they be more practical about when/where/how much to drive, but they’ll also be safer drivers, too, if they are paying their own insurance.
When it comes to inheritance, questions (or at least thoughts) may arise at this age about how important school/college are if the family is already rich.
If you plan to give most of your money away to charity, you should let them know by this age that money won’t be bequeathed to them. You don’t want them to screw things up for themselves right when it’s starting to matter.
In my case, I plan to let my kids know about our wealth, so that I can teach them about how hard it was to accumulate, but that they should not expect any inheritance because it’s important they learn how to make their own way.
That doesn’t mean I can’t help them financially in the future.
I MAY decide to help them when they are older with “productive” things like school debt or a starter home.
But that’ll be case by case, not a guarantee.
My kids are going to learn how to work hard and stand on their own feet and be productive contributors to society.
By the time the kids are off to college, they should have solid basic financial literacy/competence.
Ideally, they’ll have a strong enough framework to be self-motivated to continue learning.
They might take courses in basic accounting, financial modeling, personal finance, and wealth management to round out their knowledge.
Putting things in perspective.
Ultimately, these are just guidelines
The point is: there is a difference between giving your kid an inheritance and giving them a financial education.
You can do the former without doing the latter.
You can do the latter without doing the former.
You know the saying: “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for life.”
Teach your kids to fish.
You don’t want them waking up one day like lottery winners (inheritance) with no education/skills to preserve it.
Now I’d like to hear from you
Do you plan to sit down and talk with your kids about your family’s wealth?
If not, why not?
And if yes, at what age do you plan to have the conversation with them?
Any tips/strategies for having that conversation that I didn’t mention here but should have?
Let me know by leaving a comment below right now.
Related: if you’re figuring out how to have the “money conversation” with your kids, you should also be thinking about how much life insurance to get to make sure your kids and family are protected should anything bad ever happen to you.
Make sure to check out my post on how to calculate exactly how much life insurance you need in 4 simple steps.