It happens in the best of families! Young adult children inherit large sums of money, which can be a wonderful blessing or…a terrible curse.
How can you, as a parent, prepare your children to prudently manage a future significant inheritance? The answer is very simple: begin talking to and teaching them as early as possible!
Despite the compelling logic of early engagement, we see many parents elect to withhold information from their children. Their intentions are good, often driven by fear of either spoiling the child or killing a healthy work ethic.
Unfortunately, this approach may create unanticipated consequences, including the following:
- Some children end up completely lost and unprepared to manage their wealth.
- Others become confused and angry that they were not trusted about important information.
- They become vulnerable to unscrupulous advisors, family members, and ‘friends’.
- Their inheritance arrives after they have made important life choices about things like education, career, and even who they choose to marry…choices that might have been very different had they better understood their financial future.
So…engage your children as early as possible. Although your approach will be driven by age, maturity, and circumstances, it may include the following elements:
- Youngsters and teens often benefit from being placed on an allowance. It teaches the concept of limits and the need for ‘saving up’. The end result is a growing understanding about responsibility.
- Use ‘buckets’ to introduce the notions of using, investing, and giving. Here, children begin to learn about the importance of making choices.
- Help them discover satisfying and appropriate charitable causes. Reinforcing a habit of philanthropy at an early age can set the stage for a lifetime of generosity.
- By late middle or early high school, it can be very appropriate to ‘earmark’ a small investment account for a child to begin learning (by doing) about investing as he or she experiences the ups and downs associated with securities markets.
- Once in high school, it can be appropriate to begin discussing the idea of an inheritance. It’s important, however, to focus on what positive and healthy things they can accomplish with the money rather than discussing the dollar amount.
- Involve your trusted wealth manager!
By adhering to the six steps outlined above, you’ll create a solid foundation that will enable your children to invest wisely and use their inheritance to pursue healthy ambitions, support worthy causes, and generally become good stewards of that which they have been given.