Secrets to Talking with Kids about Wealth
by Joline Godfrey, CEO Independent Means.
Last week I was in Houston, delivering a talk for the Greater Houston Community Foundation. The group included grandparents, adult children, twenty somethings—and 7 pregnant moms! The questions from such a diverse audience tend to cover a lot of ground and had it not been for the dinner I could tell they were eager to get to, I might have spent several more hours covering the very broad topic of ‘how to talk with children (using the term very broadly) about money’. But these dinners are meant to be appetizers for a bigger conversation so I stopped short for risk of losing my audience to hunger!
But later, over dessert, I was asked to expand on some of my comments. I know the hope is ever present that there is some secret to talking effectively with one’s children (whether 5 or 25). And I suppose there is—it’s just not a quick—or easy—or single secret. But wanting to be helpful, I promised I would reprise the key themes in my talk in my next blog, so here it is to share with you all. For the purpose of this column, I focus mainly on almost adult children, though the tenets are applicable at every age.
Seven Steps to Talking with Your Children about Wealth
Acquiring financial mastery, even at the most fundamental level that any beneficiary needs, takes three things: an understanding of context (who are we and what are our values in regard to the wealth); skill building (specific, concrete skills and language for stewarding wealth); and practice, (an intention to get better over time).
They may not need the 10,000 hours that Malcolm Gladwell famously tells us we need for mastery, but they need more than an afternoon, a single conversation.
The ‘steps’ below are offered in the hope that this will get a rich, challenging—and of course more rewarding—journey started.
1) Don’t, talk about wealth. Talk about values, purpose, family vision and goals. Often. Even when they roll their eyes or seem to ignore you. Keep talking. Start with your values, not the money.
2) Talk some more about values, purpose, family vision and goals. Families get derailed when they talk about wealth because they begin with the money, not the purpose of that money; the values driving the money, the story and history behind the money.
3). Introduce transparency on a micro-level. If you think you’re aligned with your children (at any stage or age) on values and purpose (this usually takes a year or two), introduce transparency in a grounded, practical way: what is the cost of their current lifestyle? Not, how much will they inherit or what is the net worth of the family. Start on a practical scale: what does it cost to live the life they are currently leading; how do they want that to change and what are they doing to attain their goals?
Families who are providing invisible allowances (covering credit card bills, subsidizing rent, taking care of insurance, health costs, travel, etc.) are not giving the next generation the real data they need to manage more complex information later on. Reveal the cost of the things you and they assume are covered by parenting responsibilities. This is not a punishment or a judgment; it’s just an acknowledgement of what is real.
4). Provide opportunities to exercise judgment, independence, resourcefulness. Make that invisible allowance visible and start a beta project to let them manage their independence. (This is much more appealing than asking them to manage a budget.). Give them data: this is what you spend to maintain the car; live in that apartment; eat out; shop at XZY Boutique, ski in the Alps, etc.). Now hand over the cash that you have been providing behind the scenes and let them manage it. This is called practice and it’s the opportunity you provide before giving them access to funds on a larger scale. If your 24 year old can’t manage $25-$50K, or $75K; they’ll be challenged to manage $100K, $1million, and more.
5) Up the Ante. Give them REAL Responsibility. Are they handling their personal finances fairly well? Invite them to co-invest with you in a fund, a project, anything that is understandable enough that it can be used to teach due diligence, cost/benefit assessments, balance sheets, growth (long and short term), stakeholder management (who are the stakeholders in this investment and what are their interests? What happens when interests are conflicting?). You may have started your kids on training wheels when they first learned to ride a bike. Co-investing is the financial equivalent of training wheels. Talking about ‘wealth’ before they have a true understanding of how money works is a little unkind, like sending a 4-year old on a bike without the training wheels.
6) Support the Development of Character. If you don’t have a family foundation they can easily participate in, invite them to set up a donor advised fund. Don’t do it for them, coach them, advise them, help them through the steps. Then coach them through the process of thinking about what matters to them. (back to that values conversation; see Steps 1 and 2). And don’t just give them money to give away. Teaching kids to give away money without developing the concomitant skills of developing strategy, purpose, and a connection to one’s values is just teaching kids to give money away—it does little to develop thoughtful philanthropists. And of course philanthropy is not just about the money (see Step 2 again). It’s about an intention to use one’s talent, time, AND money in meaningful ways. How do they spend their time, as well as money and talent, making a difference for others?
7) Connect them to the world. The point of practice is to prepare them for the responsibilities of wealth. This includes participating knowledgeably in significant meetings; meeting potential mentors and colleagues (the better prepared they are the more seriously they will be taken). Read the news with them, include them in important conversations. When traveling, do more than vacation, use your trips to expand their worldview and give them context for the world they are investing in. They cannot vote or invest responsibly without understanding the world around them.
8) Now refresh your family vision with their input. If they have achieved the kind of financial fluency you hoped, now is the time to let their voice help shape a next generation vision. Review the family governance policies to make sure there is room for next generation voices.
The odd thing about these steps is that if you commit to the process, you never really have a ‘conversation about ‘wealth.’ Rather you have a conversation about life, what’s important, purpose, dreams, hopes, the stuff of family, the stuff that has real meaning.
