Talking to children about money

How do you teach children about money? And once you have, how do you decide how much money to allow them to inherit? It isn’t easy, says Kara Gammell in The Observer.

Most parents do pretty well when it comes to teaching manners and road safety, but have a “blind spot” when it comes to money. That’s a problem – research shows that parental behaviour is, in money as in everything else, the most significant factor in influencing children. So how can you get it right?

Start early: adult money attitudes are largely set by the age of seven. Focus on the difference between want and need: talk about money and how it is earned and spent, then make it clear that some spending is a choice and some is not.

Save for specifics: labelled jars for pocket-money savings can help teach a degree of delayed gratification ability. Most importantly, “lead by example”. Don’t lie about money, live within your means and don’t make going shopping into a leisure activity.

Financial communication is particularly important for wealthy families, says FT Money: how do the rich stop their children, who are likely to have “no immediate need to provide for themselves”, being more indolent than ambitious?

Some reckon the answer is just to pay for a brilliant education for each child, then leave them to their own devices. Pop singer Sting has said, for example, that he has no intention of leaving his children with trust funds strung “like albatrosses round their necks”.

But most families don’t see it like that; they want to “preserve as much capital as possible” for the next generation.

And ask a wealth manager or lawyer who deals with the rich and they will tell you that the most successful families are not those who cut the kids out, but “those who spend time communicating and debating their financial priorities before writing a plan that can be agreed by all”.

The lesson? The rich, just like the not-so-rich, need to talk about money – early and often. That can be facilitated by “next generation” courses at the likes of FF&P Asset Management, which gives kids a basic understanding of financial planning, or perhaps by giving children an amount of charity money to be responsible for – the rich often set up charitable foundations for their offspring to run (I’m not sure I approve of this – but there it is).

Finally, parents need to be aware that whatever they do, the family will usually be saying goodbye to the money relatively soon, says James Pickford in the FT.

A recent study showed that in two-thirds of cases family wealth does not “outlive the generation following the one that created it”. In 90% of cases it is exhausted by the end of the third generation.

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