The U.S. is in the middle of a $30 trillion wealth transfer — from baby boomers to millennials — and will be for the next 30 years.
The wealth management industry is positioning itself to help manage those funds — which will be go to children born between 1976 and 2000, according to a 2010 study from Washington, D.C.-based advisory firm FTI Consulting — but parents can be proactive to ensure their children are empowered, not entitled, with the money they expect to receive, advisers said. “It doesn’t matter if it’s significant wealth or not,” said Katherine Dean, national director of Family Dynamics, a branch of Wells Fargo
dedicated to families and wealth management. These lessons can help them avoid the nightmare of a situation where siblings end up fighting over inheritance or kids slack off because they know there’s guaranteed money in their future, she said.
Of course it may seem like the wealthiest of people will be the ones with this problem, but that’s not always the case. Look at billionaires like Facebook
co-founder and chief executive officer Mark Zuckerberg and Microsoft
co-founder Bill Gates, both of whom prioritized charity above their children’s inheritance. Also, being a billionaire doesn’t necessarily ensure staying one — in the past 20 years, 70% of 780 billionaire fortunes did not remain above the billion-dollar mark beyond the first generation and another 20% didn’t make it beyond the second generation, a 2016 report found.
And yet money and inheritance remain a taboo subject in many families. More than one-third of parents of high- and ultra-high-net-worth adults didn’t talk about family finances with their children because they thought it would negatively impact their work ethic, according to a 2015 U.S. Trust survey, and one-fifth said they have been taught themselves never to talk about their wealth.
Here’s how to keep your kids from becoming entitled:
Don’t be afraid to have the talk
Talking about money is perhaps one of the most important conversations for parents and children, and yet most families aren’t having the talk: 21% of children were told how much they would inherit, according to a survey of 2,700 adults by Ameriprise Financial, a Minneapolis-based financial services company. Avoiding the conversation could put kids and adults in a tough spot — expectations may be overblown. Parents should share as much information as they feel comfortable with, advisers said, but with one caveat: say the future is never certain, said Mitchell Kraus, an adviser at Capital Intelligence Associates in Santa Monica, Calif. Consider setting up regular meetings — once or twice a year, or however many are necessary, to discuss finances with your children, especially as those finances become more complex, said Brett Anderson, president of St. Croix Advisors in Hudson, Wisc.
Explain the value of the money, and hear it back
One in three Americans who receive inheritance had negative savings within two years, according to a 2015 study from the Federal Reserve and a National Longitudinal Survey. Likely, “that wasn’t the intent of your parents,” Anderson said. Parents should have an agenda of what they’d like to see come of that money, and work with their children to see that it isn’t wasted, he added. Parents should also explain the flexibility they invoke in their plans — such as unequally dividing the assets, or leaving money to a charity, said Ana Harris, founder of Cela Advisors in Miami. In talking with children, you may learn what that money means to the children — in one case, Kraus saw two brothers argue they should receive more money than their sister, because their parents paid more for her to go to a private school. (Of course, inheritance is often a very touchy subject, as seen in MarketWatch Moneyologist columns: some have unknowingly signed their money away, kept their inheritance a secret, or seen that money stolen.)
Think of alternatives to inheritance
Some parents and guardians may want to consider options other than giving their money to their offspring, such as charity or spending it on themselves. “It doesn’t make you a bad parent if you choose to give your wealth elsewhere,” said Edward Vargo, founder of Burning River Advisory Group in Cleveland, Ohio. “Set the expectation that just because they are family doesn’t mean they are ‘entitled’ to receive an inheritance,” he said. You could even make charitable donations a family decision — such as talking about philanthropy, choosing causes together and making volunteering a family tradition.
Teach them money fundamentals
Teaching children the importance of money management and a strong work ethic as they grow is one way to avoid entitled children, said Kevin Meehan, regional president of Wealth Enhancement Group in Chicago. Along with being good students, children should experience being a good employee, such as showing up to a job on time and working full days, which can help them see money truly doesn’t just grow on trees. Other ways to teach your kids about money? Discuss saving and budgeting for what they want, don’t lie to them about household finances and don’t bribe them either, suggests Beth Kobliner, author of “Make Your Kid a Money Genius — Even If You’re Not.”