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When it comes to teaching kids about money, the super rich are different from average Americans.
But it’s not only about the amount of wealth they have.
It’s also because money is something that many of them would rather not talk about, said Rich Morris, co-author of the book “Kids, Wealth and Consequences.”
“For the most part, money is a taboo subject in this society and wealthy people do not do all the things they need to do,” he said.
It requires more intention than ever and really an active action plan, a proactive plan.
They may also turn to financial professionals to do the job for them.
Arne Boudewyn, who leads the Institute for Family Culture at Abbot Downing, said his group is often asked to interview clients’ adolescent and young children to “find out what’s on their minds” or to educate them without the influence of family dynamics.
The end goal is to make sure kids are learning about how to be responsible and have a healthy attitude about money.
“Parenting is hard no matter what,” Boudewyn said. “Add significant wealth, there are some things you have to think about.”
On top of that, many parents think their children are learning personal finance in school — when in reality, that’s not usually the case. Only 17 states require that high school students take a personal finance class, according to a 2018 survey by the Council for Economic Education.
“There is a big disconnect, and that extends to the affluent and ultra-high-net-worth people,” Boudewyn pointed out. “People think more is getting passed along to their kids than actually is.”
“It requires more intention than ever and really an active action plan, a proactive plan,” he added.
That means implementing a strategy that starts when your kids are young. And it isn’t always just applicable to the wealthy — everyday Americans can also apply many of the strategies in their financial teachings.
The big picture
The No. 1 thing wealthy parents have to do is talk to their kids about money — how much wealth the family has, their plans, how they built their wealth and whether they plan on leaving the kids anything in their will or if their children are going to be on their own, said Morris.
It’s not just one single conversation, he added: “It’s conversations often and at every age and every maturity.”
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Parents should start with teaching a basic understanding about money and communicating what their family’s values are when it comes wealth.
That can be explaining what it costs to buy something and what the family’s annual spend is, say, on something like school activities.
Boudewyn suggests helping younger kids with things such as counting money, talking about the history of money and giving them a tour of the state’s Federal Reserve bank or any local bank. Also, he suggests having them divide their allowance into savings, spending and giving.
Even basic investing principles can be introduced — such as explaining what a stock is and what it means to have equity in something, he said.
At this age, it’s a good idea to talk about budgeting basics, said Boudewyn. Children can be introduced to banking and taught how to manage their own financial lives.
Taking a little bit of a deeper dive into investing basics is also a good idea. You can give your kids a small amount of money to invest, or you can create a mock investment account that they can build and manage over time, he said.
The core topics in the later teen years should be around budget management.
“They should be getting ready for life on the road,” Boudewyn said.
Whether they are going to leave home for college or a job, teens should start to understand about the dos and don’ts of renting an apartment, buying a car and handling a roommate situation. They should also learn how to manage their money, know the pros and cons of credit cards and have an understanding of their credit rating.
As your children turn into young adults, they should start to understand personal investing and understand their risk tolerance. They should also set personal financial goals.
That includes “really thinking about how can I start to set aside money for taking care of myself in the future,” said Boudewyn.
Young adults can also use the family enterprise to start learning about wealth opportunities in the context of running a business, he added. That can mean pulling them into the business meetings and giving them an overview of the enterprise.
Ages 22 and up
At this age, your offspring may be thinking about whether they should rent or buy a home.
If they are buying, they need to understand mortgages and how they want to borrow and how they can preserve their cash. They should also start to review their credit report and think about their experience with debt management.
For the children of the wealthy, this is also an opportunity to give back. Because their family’s wealth is assured for the next several generations, many like to look at how they can improve the world. They can also take a job at the family business, Boudewyn said.
The bottom line
Don’t become overwhelmed when thinking about taking on a financial literacy program with your kids, said Boudewyn.
“It’s finding teachable moments every day,” he said. “You can really help children make choices, understand the value of a dollar, understand risk and reward.”
“There are so many ways you can support kids.”