The best way for wealthy parents to talk to children about family money
Many wealthy families face a tricky balancing act. On the one hand, they want to conceal important details even from adult children for fear of creating a sense of entitlement. But when parents are too secretive, it can make it much more difficult for the children when they eventually inherit those investments.
“The more secretive you are, the harder it becomes to talk about later on,” said Michelle Brownstein, a certified financial planner and director of private client services at Personal Capital in San Carlos, Calif, wsj.com reported.
Discussions about family money are especially important these days given that financial professionals estimate that tens of trillions of dollars in financial and nonfinancial assets will be passed from baby boomers to their heirs over the next several decades. How much to disclose — and when — will depend on each family’s dynamics and wealth situation. But, generally, financial pros say that discussions with children around family wealth should take place in stages, over a number of years.
“A lot of times, there’s a myth that talking about money means revealing the balance sheet,” said Stacy Allred, managing director and head of Merrill Lynch’s Ultra High Net Worth Strategic Wealth Advisory Group and Center for Family Wealth Dynamics and Governance.
“Instead, it’s this series of conversations and typically the very last thing that’s shared is the distribution of the estate plan.”
Here are some age-appropriate strategies — and mistakes to avoid.
Many agree that the tween years are a good time to start. At this age, children only need to know the family has money; not the specifics of their wealth or how the money is invested.
Don’t try to start a conversation when they’re engrossed in a TV show or busy texting a friend. Tell them how fortunate your family is and cite examples. Point out the vacations you’ve taken, the nice clothes they have, the fun activities they do and the great schools they attend.
Then tell them the family history — ideally as a story, said Randy Kaufman, senior vice president with wealth manager EMM Wealth in New York, which provides wealth management services for affluent individuals and their families. You might begin, for example, with how their great-grandfather boarded a ship from Russia as a child, frightened and alone, she said.
As the children mature, if there are family foundations or donor-advised funds, think about including the children in meetings and decisions about where to make donations, Kaufman said.
Start by asking them what is important to them. Do they love animals or children, or do they have a strong desire to help the homeless or sick? Explain how they can be a great source of financial help to such efforts, said Ms. Kaufman, who also advises taking the children to visit animal or homeless shelters so they can see up close the importance of lending a helping hand.
Another effective way to engage teens in discussions about money, she said, is to involve them in family decisions such as where to go on vacation. Kaufman suggested parents invite their children to come up with two or three vacation ideas that the family can then discuss.