As a financial planner, it is seldom that a conversation with my clients concludes without the subject of their children’s financial stability emerging. As a mother of two sons, I find myself sharing many of my clients’ concerns, even into our children’s adulthood.
These concerns, it seems, are with good reason.
A US study has revealed a pattern regarding the passing on of wealth within families: the first generation makes the money, the second maintains the money, and, in 90% of cases, by the third generation the money is gone. This gradual decline is captured in the cultural proverb: “from shirt sleeves to shirt sleeves in three generations”.
Are there certain practices that we as parents can put into place to help our children create their own financial freedom? How do we balance messages of recognising the importance of money and of guarding against materialism?
Teaching responsible money management
My son, Ryan is extremely competent, has a strong personality and holds down a very demanding job. I have no doubt that he would cope were I no longer around.
Donovan is a gentle man, with a dream of being a missionary … but with a wife and tiny daughter, his idealistic nature is simply not putting food on the table. I worry constantly about how he would manage were I absent.
I am fascinated at how some of the younger generation are so capable and competent whilst others are just not ready to take on the responsibilities of adult life. And, of course, proper money management is very much a part of creating a successful career and family in our adult years.
I have distilled from my wider reading some great tips for helping parents create the ‘scaffolding’ for their children to establish a healthy and responsible attitude to managing their money.
- Talk to your children about your values, your money, your life. Do they know what sacrifices their grandparents and parents made to create lives of relative ease, or even indulgence, for them? Do they make a connection between hard work and prosperity? Do they know that work is a great source of a sense of personal achievement?
- Allow them to be different to you. They have grown up with a completely new set of social norms, even though you have passed on your values. They may, for example, value a variety of jobs over the kind of stability or loyalty you have treasured. That’s OK – their generation is going to live longer and will probably have to be job-nimble.
- Teach them to be independent. A sense of control over their own lives engenders confidence and a belief that their actions and attitudes impact their world. Model healthy and independent relationships yourself; let your kids know it’s fine to be separate – be alone and sometimes to disagree; seek opportunities to show your own perseverance in the face of difficult tasks.
- Don’t take their troubles away – they need to work through their own trials and tribulations in order to grow. The Monarch Butterfly needs to force its own way out of the chrysalis in order to strengthen its wings to fly, or it will not be strong enough to survive.
- Tell the family stories, especially to your grandchildren, of what life was like when you were small – this is the glue that holds a family together, and also helps to maintain the family history for when you are not around one day.
- Make family memories: give with a warm hand. Plan and share special celebrations together.
Imagine a gift that you could give to your children, even your adult children. This gift will enhance their self-esteem, create the foundation for a confident approach to life, and develop skills that will stand them in good stead throughout their lives. This is the gift of being financially responsible.