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How do I help my kids financially without “disabling” them?

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Many clients, especially those who have accrued a substantial amount of wealth, want to be able to create a comfortable life for themselves and their families, as well as successfully pass assets along to their heirs. While financial advisors can help clients create a solid estate plan that includes children as the beneficiaries of college-savings accounts, trusts and life insurance policies, they often find that offering advice to clients on how to give money to their children is a touchy subject.

When it comes to making big purchases like paying for their children’s education, rent, weddings or down payments on a home, parents who can afford those gifts may be concerned about the potential negative impact they might have on their kids. Gifts might seem helpful, but children in wealthy families sometimes expect their parents to step in for these large expenses, which can lead to the formation of attitudes of entitlement, something clients typically want to avoid.

“Many clients will look back over their own lives from the vantage point of success, and when they do, they will often say that the years when they were building, when they were even struggling, were the best. And in the very next breath, they say, ‘But I don’t want my kids to have to struggle the way I did,’” says Glenn Kurlander, managing director of Morgan Stanley’s Family Governance and Wealth Education service.

So, how do people of means give money to their kids without destroying their motivation to succeed on their own? How can parents help, without creating attitudes of entitlement? Is there a way to help that is empowering, allowing kids to accomplish on their own and not removing every challenge they might face?

Parents can create a way for their kids to learn how to manage their earnings, expenses and debt responsibly.

One way for parents to help inspire motivation within their kids is to replace the impulse simply to give by creating opportunities for children to earn. For example, parents could say, “I’ll make an investment in you, and help you buy a reasonably priced new car, but you have to go first: You need to make an investment in yourself and earn and save a defined portion of the purchase price.”

Instead of simply buying something for their children, parents can create a way for their kids to learn how to manage their earnings, expenses and debt responsibly. The earlier they learn, the better. By starting from an early age, children will learn how to invest in themselves.

There is a certain amount of sacrifice that should come with each financial decision, and children should be able to understand the opportunity cost of foregoing current purchases for future savings. Parents can help ease their kids’ financial struggles but still ensure that they understand the value of their assistance through the creation of a culture of family teamwork.

By offering to split the cost of something with their children, or creating a way for children to earn their own money, parents can teach their children how to make better financial decisions. Those who want to help their kids financially can also have them make choices between receiving help with such needs as paying off college debt or paying rent when they graduate.

Jeffrey S. Gerson and Shawn P. Landau are Financial Advisors with the Wealth Management division of Morgan Stanley in New York City. The views expressed herein are those of the authors and may not necessarily reflectthe views of Morgan Stanley Smith Barney LLC, Member SIPC. Morgan Stanley Financial Advisors engaged Worth to feature this article. Gerson and Landau may only transact business in states where they are registered or excluded or exempted from registration ( Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Gerson and Landau are not registered or excluded or exempt from registration. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and federally registered CFP (with flame design) in the U.S. CRC1313712 11/15

This article was originally published in the December/January 2016 issue of Worth.

Family Matters

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