4 Steps To Talking To Your Kids About Your Family’s Money
Avoid future friction by talking to your kids early and often about the money they stand to inherit.
Sharon Mccutcheon/unsplash For all the parenting books and blogs that cover how to introduce "the birds and the bees" to your children, there’s not enough guidance on how to talk to kids about another potentially sensitive issue: The family’s money and what will happen to it after you’re gone.
If you’re like most parents, you may find talking about money and inheritance with your children intimidating.
You don’t want your kids to feel entitled to receiving money, but you also want them to understand your family’s attitudes toward money and how any inherited money would be best used.
Unfortunately, many parents realize too late that they should have started talking to their kids much earlier about the family’s values when it comes to finances.
This lack of dialogue and communication leaves parents to make guesses later in life about what their children will or won’t do with the money left to them.
So, how much is enough but not too much?
Decisions about financial inheritances are personal and nuanced, so it’s difficult to come up with one number or formula for figuring how much to leave your children.
Start by considering your expectations and hopes for them.
To what degree do you want to finance their lifestyles and to what extent do you simply want to provide a safety net for them?
Your decision-making process around the amount to leave your children involves several considerations.
For example, bequeathing too much money can diminish their motivation to earn their own living and establish independence. Leaving them too little could make them think you’re being stingy or unfair.
You also want to be confident that your kids will spend the money in ways that honor your money values (for example, spending it on a family home versus a blowout trip to Vegas).
Ultimately, your goal should be to leave a legacy of helping your children with their personal finance, rather than harming them by demotivating or leaving them ill-prepared to manage money effectively.
To maintain clarity around the family’s money attitudes and to set expectations with your children around inheritance, here are 4 steps to take.
1. Include them in money discussions when they’re still young.
The more secretive you are about money through the years, the more difficult it will be to bring up the topic when your children are older.
As soon as they’re old enough to understand, start communicating your values toward money in an age-appropriate way.
For example, when you make a donation to a church or non-profit, explain what you’re doing and why.
And when you give your kids an allowance, tell them what you expect them to do in order to earn the money and what their options are for saving, spending, and donating.
When kids grow up having these conversations with their parents, they’re more likely to understand and share their parents’ values about money later in life.
2. Be crystal clear in your communications.
Clarity is key during money conversations. When your children are older, sit them down and explain what is expected of them.
For instance, I told my adult children they could live at home for up to a year after college graduation to save some money. After that, I expected them to move out.
I told them, "You can figure out how to live on your salary, even if it’s modest," to get them thinking more realistically about their job preferences and money habits.
Too many parents send mixed messages to their children about the level of support they’re willing to give.
If you say things like, "I spent a lot of money on your education, so I expect you to pursue a lucrative career to justify it," you put undue pressure on your kids.
That may end up burning them out rather than motivating them, especially with how difficult it can be to break into new industries after graduation.
3. Consider your interfamily relationship dynamics.
Managing your parent-child relationship can be tricky enough, even when money isn’t involved.
But, if you give consideration in advance to the role of money in your relationships, you can prevent blips in communication down the road.
Think about how giving your children additional money could help them and how it could become an obstacle for them.
There are many unknowns around how a money transfer will impact relationships within a family, especially if the family hasn’t historically discussed money matters.
This can lead some parents to make negative assumptions or to imagine the worst possible outcome — that money will damage their relationships with their children or the relationships among siblings.
Remember that there’s no universal answer to this — it’s all individual to you and your children — and you can uncover what’s right for you through communicating early and often.
4. Introduce your children to your financial advisor.
When you feel that your adult children are ready — maybe in their 20s, depending on their maturity level — consider introducing them to your financial advisor.
It’s important that they have a relationship with your advisor so that if anything were to happen to you, they would have a trusted resource to help them navigate their future.
Plus, this gives you a reason to sit down with your advisor and children and walk through your total financial picture.
You don’t need to completely pull back the curtain. But at least give them a general sense of what and where your accounts are and your general attitude toward savings, spending, and investing.
This meeting is also a good time to discuss any legacy goals you may have, whether it’s leaving money to your kids or to causes you care about.
Ultimately, parents want what is best for their children and there is no one "right" answer for everyone. We all have anxiety about money.
But by starting the money conversation early and managing expectations, you can ensure your wishes are honored and your children are set up for future success.
David Geller is a money coach and founder of JOYN’s Behavioral Wealth Management.