Talking to Children About Matters of Wealth Involves More Than Dollars and Cents
When Lionel Sauvage began to pass the financial baton to his adult children, he never expected the process would be quite so smooth or — dare he say it — enjoyable. Sauvage and his wife, Ariane, imparted lots of financial wisdom when their two kids were young, stressing the virtues of prudence, hard work and humility. When the children reached their early 20s, the couple decided it was time to actively involve them in the family finances. With the help of their Capital Group Private Client Services Investment Counselor and an outside advisor, the Sauvages revealed details of their wealth in a series of meetings and informed the children that they would now share in decision making about philanthropy and other matters.
The couple used the conversations in part to try to put their wealth into context. They related stories about their childhoods, careers and values, explaining that the entire family was obligated to preserve their resources for future generations. Early on, the four family members discussed their individual communication styles to foster openness and honesty when broaching the fraught topic of money.
The result? A written “family constitution” that spelled out details about inheritance, charitable donations and financial stewardship. Beyond that, Sauvage found that sharing the collective task — and the free-flowing discussions it entailed — drew his family closer together.
“What I learned is that it’s not about transmitting the wealth, it’s about transmitting values, empowering your children and giving up your authority, because your children are adults,” Sauvage says. “It’s not my wealth; it’s not their wealth; it’s our wealth.”
Start early and keep teaching children about wealth as they grow.
Next to sex or death, few topics can be as uncomfortable for families to discuss as money. Beyond the inherent awkwardness, there can be fear of spilling too many details or breeding complacency or entitlement. But it’s important to address these topics, starting with fundamental values when children are young and progressing to more substantive issues as they mature into adulthood. In addition to instilling financial responsibility, forthright discussions can head off harmful perceptions that are hard to break in later years.
“Attitudes about money can be formed at a very early age, and there’s a risk that children learn negative messages, such as that you can’t talk about money or, if you’re wealthy, that it’s shameful to discuss,” says Michelle Black, who counsels families on these topics as head of wealth advisory at Capital Group Private Client Services. “It’s important for children to develop healthy attitudes toward money and to learn to be responsible with it.”
That’s the approach that Capital Group Private Client Services client Erika Glazer took with her two children. Among the lessons this investor, real estate developer and part owner of the Golden State Warriors professional basketball team instilled over the years: Use money to make lasting memories, not to spend ostentatiously or haphazardly. Give back to society and to the less fortunate. And be good people because “what you have doesn’t make you a better or worse human being.”
Glazer didn’t follow a strict timeline for these discussions, but instead addressed issues in straightforward fashion as they came up. She was careful to take cues from her children about what to impart and when. Her guiding principle was to be “continual and consistent” — in other words, to initiate conversations when opportunities unfolded rather than putting them off to the distant future.
“I’ve always tried to talk to my kids about how I’m doing and how I’m making money, which is kind of hard when it’s just sort of inside your brain,” Glazer says. “There is no formula for that. It all depends on the kids, and they’ll let you know how much they can take and when to stop talking.”
Be aware of the emotional components of family wealth.
Conversations are often less about revealing that a family is well-off — “Children don’t know the details, but they pretty much can figure it out,” Sauvage says — than about putting those circumstances into perspective. There can be emotional issues, such as helping children develop self-worth unrelated to money or preventing a sense of entitlement. In addition, sharing family history can engender a sense of responsibility, according to Black.
“Understanding where the wealth came from is important,” she says. “If your family worked really hard, you want to make sure the children understand that and don’t squander that money.”
On a mundane level, it’s useful to plant the seeds of financial literacy by introducing basic concepts when children are mature enough to understand them, Black explains. That can begin with simple principles, such as financial discipline, when kids are young, and progress toward nuanced concepts, such as the effects of inflation or benefits of compounding, as they get older.
Steady and consistent messages over time go a long way toward helping parents imbue children with desired values and attitudes.
“I wanted my kids to know the enormity of the responsibility,” Glazer says. “Money’s great, but it’s also a big responsibility.”
The above article originally appeared in the Winter 2019 issue of Quarterly Insights magazine.