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| Advisors' Forum |
Avoiding Entitlement
03/01/2007
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Given our lifestyle (my husband and I have three homes and use
a private jet), there is no question that our children know that we are
affluent. But my husband and I differ on how many details our children should
have about our wealth. I think sharing information about our assets and how they
are invested is a great way to educate our children (ages 7 and 11) about how
finances work—finances that they will someday have responsibility over. My
husband thinks it will make them feel "entitled" and burden them with stresses
they do not need to worry about at this point. Who is right?As you have observed, children
are astute—they know where they fit in the social pecking order, and yours have
already figured out that they have advantages. While we applaud your desire to
educate them about their financial inheritance, we urge you to proceed
cautiously.To the extent that privilege discourages a child from finding his
or her own purpose and reason for being, it can be an overwhelming burden that
lasts a lifetime. Your children are still young. Disclosing the family portfolio
to such impressionable eyes can give them a false sense of security. To a
7-year-old, $50,000 can seem like enough funding for a lifetime. Their youth
does, however, give you the opportunity to shape their relationship with money.
A tool used with great success by our clients is the creation of a family
foundation or donor advised fund. Discussing family philanthropy can turn a
young person’s focus from "What’s in it for me?" to "How can we use our good
financial fortune to make the world a better place for all of us?" It can
communicate key family values—ensuring that not just the family fortune, but
also the family legacy, live on. With your financial advisors’ help, the
charitable portfolio can also be used to teach financial lessons on topics like
asset allocation, security selection, cost/fee analysis and performance
measurement. This way, your children can receive both a solid financial
education and the knowledge that wealth implies responsibility and stewardship,
as well as privilege.
Carol Clark, Lowry Hill, Minneapolis Educating children on spending
and investing should be an ongoing part of the parent-child relationship, but
context is key. There is little good that can come from sharing full financial
information with young children. At ages 7 and 11, children can absorb a limited
amount of financial information correctly. Discussions on investing should be
deferred until a child is at least 13 years of age, at which time a small bank
account set up for the child can be used as a teaching tool. Until children are 21 years old, you should focus not on family
wealth, but instead on the fundamentals: budgeting and value. Instead of
addressing long-term issues such as compounding of money, it would be more
fruitful to discuss how one goes about researching and evaluating the lowest
price and/or best value for a planned purchase, i.e., by using the Internet, by
looking at ads in the newspaper, etc. Children need to have a sense of how much
money can be spent and over what period of time for various consumer items.
Armed with that information, children can be taught how to make healthy choices
about what to buy, in what order and at what price level.
Howard Sontag, Sontag Advisory, New York When it comes to teaching
children about money, lessons should be built on a foundation of good values and
principles, tempered with their ability to comprehend the subject matter. At
their young ages, it is wise to focus on personal money management. By values, I
mean showing them what you think is important about accumulating and managing
wealth, as well as the responsibility that comes with it. You could impart
simple lessons like giving them money to donate to a charity, or any activities
you think will help them understand the bigger picture. Money in and of itself
is only a tool; what you do with money is important. An allowance can be a great teaching aid. It provides
perspective and discipline on a personal level. However, the parent providing
the allowance makes all the difference. The child should earn the money by doing
chores around the house, for example, and must understand what the money is to
be used for, such as candy, toys and movies. One of the best lessons they can
learn is that money is not limitless and Mom and Dad are not going to come to
the rescue. If they run out of money, they have to wait until they earn more. An
allowance requires them to take responsibility, make choices and appreciate the
benefits and consequences of their actions.
Neil Elmouchi, Summit Financial Consultants, Westlake Village,
Calif. Send Us Your Questions:
Are you wrestling with family
issues, business governance or succession decisions, investment or estate
planning dilemmas, problems related to philanthropic activities or foundations,
or a similar predicament? We invite you to email a question to advisorsforum@worth.com.
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