It’s considered good parenting to talk to your children about “the birds and the bees.” But many parents are reluctant to provide them a financial education. According to a whitepaper recently published by Merrill Lynch, the investment advisors, there are many reasons why:

• They are afraid of robbing their children’s motivation.
• They are uncertain about exactly what their financial situation is – particularly if ownership of a business is a significant part of the wealth.
• There are no clear “stage of life” cues to prompt such a discussion. When a child turns 15, most parents teach the child to drive. There is no such point at which it organically makes sense to start talking about family finances.
• Even though they may be successful – even very successful – professionally, they may not feel as comfortable with managing financial matters, or with their ability at “financial parenting.”
• They may feel uncomfortable talking about financial matters, viewing it as a bit unseemly.
• They believe that they face an “either/or” decision: tell the children nothing, or tell them everything.

Why is that a problem?

The paper highlights several reasons why avoiding these discussions may be unwise:

• If you don’t provide a financial education to your children, they may grow up without the skill of handling financial matters.
• If you decide not to divide your assets equitably and not equally, it could cause resentment if family members were not aware of that ahead of time. (See the Nielsen Law blog post about “equal” vs “equitable.”)
• Without explicit discussions, children may not know where to turn to get financial help to conserve and grow their assets.

Helpful suggestions

Fortunately, the paper also has a number of suggestions:

• Resist the temptation to think about financial education of your children as an “either/or” endeavor. Think, instead, about increasing amounts of funds to your children, and engage in active dialog on how to effectively save, spend, invest and share money.
  • In one example, a son used his “emergency” savings for a romantic trip to Paris. The next month, when his car broke down and he had no funds to fix it, the parents didn’t fix it for him. Rather, they had a discussion about the importance of maintaining an emergency fund. They let him experience the “desirable difficulty” of figuring it out himself.
• Involve the children, as age-appropriate, in financial matters. Engage them in active discussions about various hypothetical scenarios.
• Discuss charitable giving with your children. Tell them where you give and why, so they can start thinking of their own responsibility to give.
• Ask your financial advisor and estate planning attorney about ways to align your financial and estate planning with your values, and ensure that your children understand those values.
• Help your children understand the jargon of trusts, foundations and other gift and estate plan elements.
• Talk to your children about financial decisions you’ve made, and the reasons for them.
• When you feel you’ve provided a financial foundation for your children, and they are mature enough, have a comprehensive discussion with them about the complete financial picture, including estate planning.

William T. LaFond, of Wilmington Trust, which was founded to handle the du Pont family wealth, says the following:

“The generation that receives the money has no {financial} education and no {financial} skills and wakes up a lottery winner. You don’t want your kids to be lottery winners.”

Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area.  For more information and to learn about our firm, please contact us.