Talking with your kids about money

Financial planning

Feb. 21, 2021

When it comes to transferring generational wealth, start with the basics—financial literacy and communication. We've got three simple tips that can help.

There’s an old proverb that says, “Shirtsleeves to shirtsleeves in three generations,” meaning the wealth accrued by one generation disappears by the end of the third, leaving the fourth generation to roll up their sleeves and recreate the wealth.

The meaning of this proverb is clear: Generational wealth transfer isn’t guaranteed. In fact, according to a 2010 study by Roy Williams and Vic Preisser, roughly 70% of generational wealth transfers fail. The same study finds that financial errors only account for 15% of those failures—the rest are due to poor communication, lack of trust, and unprepared heirs.

“Parents are more willing to talk to their children about sex than about money.”

— David Herritt, head of the Truist Center for Family Legacy

“Parents are more willing to talk to their children about sex than about money,” says David Herritt, head of the Truist Center for Family Legacy. “But if you’re not communicating, how will you prepare them for their future responsibilities?”

Make time to talk

Talking about wealth doesn’t come naturally. Parents often fear that if their children know about wealth, they’ll become spoiled, unmotivated, or entitled. “They also worry their kids will feel isolated from friends,” Herritt says. “And as kids get older, parents may worry about what to say when estate plans change or conflicts arise.”

Despite these concerns, a recent study found that most of the next generation of inheritors do want to talk about money with their parents. They just don’t know how.

You can start with these three tips to engage in conversation with your kids, no matter their age.

1. Communicate

You can start discussions about money when your kids are as young as 5 years old. Begin by focusing on family values.

“Your values and beliefs guide every decision in your life,” Herritt says.

“If you communicate your values around money, then when you face a difficult decision or conversation, you can point back to those values.”

Herritt suggests creating a family mission statement. “Family members can share what’s most important to them,” he says. “It helps create a roadmap based on what the family wants to accomplish in the future.”

2. Educate

Financial literacy is essential, but very few K – 12 educators include it in their curriculum. That means it’s up to parents to guide their children on this important subject.

Even very young children can learn how to save, spend, invest, and give. Older kids and adult children can absorb more complex topics.

When you’re paying a bill or making a credit card purchase, use those opportunities to educate your kids on financial topics. You can also find age-appropriate books, apps, and materials on subjects such as saving, investing, and philanthropy. Explore topics that are particularly important to your family.

Take time to teach your children about your family history. Who created the wealth and how?

Understanding those sacrifices can inspire the next generation to protect the family legacy.

3. Collaborate

Include your children in the decision-making process and create learning opportunities for them. Let them make mistakes when the stakes are low. Kids who make mistakes will learn about consequences and will carry these lessons with them.

“You want the next generation to have a seat at the table and know you’re willing to listen to them,” Herritt says. “As they get older, they can step confidently into their role as responsible caretakers of the family wealth.”