Some people are born to wealth; others have wealth thrust upon them. But both kinds worry about how to handle it with their kids.
Many of my wealthier clients’ questions revolve around this issue. How should they educate their children about the family’s affluence? How should they give them money? How can they leave an inheritance that doesn’t take away the kids’ initiative or turn them into spoiled brats?
Even if you haven’t yet dealt with these dilemmas, chances are good that you will. Here are ideas on how to handle them.
A client couple tell me that their 16-year-old daughter shops constantly, buying designer clothes and accessories that are worn once (if at all). Although the parents are wealthy enough to afford a $450 tab for a pair of shoes, the casualness of her spending worries them. They’re considering putting her on an allowance, but are afraid it may worsen her anorexic tendencies. Since they have never been comfortable discussing money with her, they have asked me to help.
First, incipient anorexia is a red flag. If your clients’ daughter is not already being treated for this condition, they should act quickly to make sure she gets psychological care. Her eating disorder specialist may be able to suggest when and how to discuss the subject of spending limits with her.
Generally speaking, this will involve their sitting down with her at an unstressful time and place to address the taboo subject of money. To take the pressure off this young woman as the “identified patient” (that is, the one in the family with the “problem”), the parents should apologize for having neglected this important area of communication and training. If they wish, they can say that this realization came to them after talking with you.
They can then discuss the social pressure to keep up with one’s peers and share their own struggles growing up with similar challenges. The tone throughout should be respectful and non-judgmental.
Finally, the parents should say that everyone needs to set limits, regardless of their level of wealth. Reassuring her of their love, the parents can say that for their own peace of mind, they need to know that she can manage money well. They should ask for her views on an appropriate monthly spending level, and try to get her commitment to a sum they feel is reasonable.
I would also suggest that they encourage the daughter to keep records of her spending, so they can all regroup after a few months to see if the allowance is adequate. This will hopefully be the start of a dialogue between parents and daughter.
A recently widowed client has a large sum she wants to leave in trust for her two teenage children, but she is concerned that knowing about it will encourage them to be slackers. She is also debating whether to leave equal amounts to her 15-year-old daughter, who is exceptionally frugal, and her 17-year-old son, who has no money sense. What’s the fair thing to do?
A good solution is an incentive trust. This would allow her to provide adequately for both children, with financial rewards for behavior and attitudes she favors. For example, the trust might be structured to match their contributions to charity, or to advance tuition money if a beneficiary pursues further education. Your client may also want the trust to provide extra income if they attain a certain net worth or, alternatively, if they enter an important but lower-paid career such as teaching or social work.
Before setting this up, she should have a serious talk about money with both kids. I would recommend that she applaud the daughter’s thriftiness, but urge her not to deny herself all the immediate pleasures that can make life more enjoyable. She should also find something to praise about her son’s behavior (perhaps his open-handedness with his friends?) and reveal her concern about his tendency to overspend.
She can tell them both that she intends to give them financial help and support in the future, but doesn’t want them to stop trying to become well-educated, caring people doing meaningful, productive work. She might resolve her concern about her son’s spendthrift tendencies by informing him that unless he controls his spending enough to save a certain sum by a certain date, his inheritance will be doled out in a much more controlled fashion.
Whichever way your client is leaning, she should allow ample time to discuss the matter with her kids–not only to be sure they understand her motivation, but also to let them contribute to her final decision.
My client was horrified when his only son, then 18, was expelled from private school. The boy dropped out of touch for two years, bumming around the Caribbean, Europe, and the Himalayas. Recently, my client got a request from him for the airfare to come home. Torn between hope that his son will finally amount to something and fear of further disappointment, he can’t decide whether to advance the money. The boy’s stepmother doesn’t want to be involved in the decision.
This is a very difficult situation. My instinct tells me that your client needs to have a long, thoughtful talk with his son, preferably by phone (e-mail would be a weak second choice) to see what the boy plans to do next. If his son just wants a ticket back to the U.S. so he can keep wandering aimlessly, your client should refuse.
On the other hand, he might voluntarily offer more funds (a loan, not a gift) if his son is interested in becoming a responsible member of society. These funds might be earmarked strictly for finishing his education, buying a car, starting a job, etc.