We have the privilege of accompanying many clients and their families on the journey of transferring generational wealth. Passing along inheritance is an intricate issue that involves emotions, complex family dynamics, and sometimes different values.
Money alone is not enough
Wealth transfer will happen whether planned for or not. You would be shocked at how quickly the money can disappear: It is estimated that 70% of families go through all of their generational wealth by the second generation, and 90% lose it by the third generation! This goes to show that if all someone bequeaths is money, without passing along wisdom and good financial habits, the wealth does not last long. Financial literacy is an acquired skill.
Given these statistics, you would think that our educational system might incorporate teaching our kids basic financial literacy. Hopefully, this will become a requirement across the board one day soon, but as of right now, only 25 states actively require one semester of personal finance before high school.
As the mother of two young boys, I have been thinking a lot about ways to teach them such skills and help them form positive habits from a very early age. If I have observed anything about kids, it is that they are perfectly capable of grasping big concepts much earlier than we give them credit For.
I recently read Value Creation Kid by Scott Donnell and Lee Benson. They framed the concept of financial competency as a means of teaching our children to be value creators. How can we open up opportunities for our kids to participate in society in a way that produces something valuable both for themselves and others, thus changing the mindset from ‘taking’ to ‘creating and giving’?
What you can do to raise financially literate kids Scott Donnell’s credits also include co-developing GravyStack – an app with banking features that allows children to gain experience with real money under the supervision of their parents. It gives kids and teens the opportunity to play games with financial themes, earn money from their parents by completing real-life tasks (such as mowing the lawn or painting the fence), and learn budgeting concepts through features such as save/spend/give jars.
Chad Willardson, the co-creator of GravyStack, offers these seven tips for raising money-smart kids in an increasingly complex financial world:
- Open checking accounts for them at an early age (and involve them when appropriate).
- Have them earn their allowances rather than hand them money for nothing.
- Pay them to read books on personal finance or goal-setting.
- Teach them how to spend, save, and donate.
- Share your own financial goals and plans with them.
- Involve them when planning big purchases.
- Be transparent about the cost of everything you buy.
In our office, we love it when clients start including the next generation in meetings and conversations as this helps create purpose for the future. Personally, I am learning at home that the wealth transfer process starts early by layering in useful habits and nuggets of knowledge.
We may live in a world where everything money-related is becoming more digital by the day, but teaching tangible skills remains as important as ever. I am in the early stages of this parenting journey, so I would love to hear your best tips on raising kids who are givers and value creators. I hope you feel the same joy and sense of privilege I feel as I watch my boys learn and help them grow into responsible, financially literate individuals.
– KRISTIANA DANIELS, CFP®, EA, BFA™
Wealth Advisor
