As parents, we work hard for our children. A lot of our financial decisions are specifically made with them in mind, but a lot of children are not aware of that. In fact, according to research done by investment banking company Edward Jones, despite nearly half of Americans (48%) intending to leave an inheritance, over a third (35%) of those surveyed admit they have no plans to discuss a wealth transfer plan with their families. It’s tempting to just take care of everything, but if you really want to set your children up for financial success, you’ll want to start an ongoing dialogue with them on family wealth.
Without these conversations, families risk confusion and potential disputes, especially as life expectancy increases and inheritance expectations may shift. As parents ourselves, we understand the importance of having these conversations, and how tough it can be to facilitate them. But these conversations don’t have to overwhelm you or your kid. We recommend you don’t wait to start teaching your kids about finance. If your child is still little, it’s probably not the best time to explain what a bond or a 529 plan is, but it’s a great time to introduce to them how money works.
You can accomplish this by giving them allowance for household chores. Some parents even present this as an opportunity to teach their child the art of negotiating, fair pricing, and knowing their worth by having them draft a “contract” for each of them to sign and agree on. Once your child starts earning money through chores, coach them on how to spend, save, and share it:
SPEND:
This portion is for immediate enjoyment or day-to-day expenses. Kids can use this money to buy things they want, like toys, games, or treats.
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SHARE:
This is money set aside for giving to others, whether through charity, tithing, or helping someone in need.
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SAVE:
This is money put away for larger future goals that will take time to save for, like a car when they turn 16.
It’s also important to remember that your children learn so much by simply observing you. If you are demonstrating all the above in front of them already, they’ll naturally pick up on it. This is why it’s important to make sure you keep up with your own financial health.
As your children get older, you can start including them in more complex financial conversations. While it’s important to teach them how to build good credit or what an annuity is, the conversation you’re really going to want to focus on is the one about your legacy. This means discussing family values, wealth transfer, and your shared financial vision. As a parent, you will want to align your legacy plans with family values to prevent money-related tension when you’re no longer here.
Proactively addressing these matters with transparency helps prevent misunderstandings and helps ensure your legacy is passed on according to your wishes, creating a smoother transition and stronger family relationships. Below are some points to consider when initiating these delicate, and sometimes difficult, conversations:
- Gradually Start the Conversation
While having the wealth transfer conversations with your children is essential, it’s important to strike a balance to avoid overwhelming them. Instead of delving into every detail of your estate, focus on key aspects like expected assets and responsibilities. This approach helps set realistic expectations and reduces future confusion. Open lines of communication allow beneficiaries to ask questions and understand your intentions. By introducing these conversations early, you don’t have to rush and can have them at a more comfortable pace. This will help your children gain confidence and clarity about their roles and make it easier for them to manage their duties when the time comes.
- Align Estate Planning Documents with Intentions
Making sure your estate documents reflect your current wishes is crucial to a smooth wealth transfer process, especially in complex family situations. As baby boomers live longer and spend more, it’s vital that wills and trusts align with changing financial circumstances and family dynamics. Some may choose to pass wealth directly to grandchildren or charities, bypassing children altogether. By keeping legal documents in sync with evolving intentions, you can prevent potential legal disputes and misunderstandings among family members. Proactive planning helps provide clarity for both you and your beneficiaries.
- Regularly Review Plans for Potential Adjustments
Try to regularly reflect on your wealth transfer plan and see if adjustments are needed to reflect financial realities, and communicate changes to your children as they happen. The last thing you want is to accidentally cause confusion when it’s time to execute your plan due to a last-minute change that was never communicated.
Remember, despite the best attempts at creating a precise wealth transfer plan, rising healthcare costs, volatile markets, and rising costs of living could require an adjustment to one’s overall plan. When having these wealth transfer conversations, be cognizant that despite what you plan, life may have other plans, and encourage your children to recognize that as well.
While it can be uncomfortable to talk about when you’re no longer here, it’s important to sit down and explain your wishes and outline what will be expected of them once that time comes. If you need help preparing for the conversation or would like support in creating a plan to present them, we’re here! You can reach Park City Wealth Advisors by calling or texting 435.500.5979!
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