Developing a Healthy Family Wealth Culture

As a parent, it’s important to have productive conversations about money with your children—especially if you’ve accumulated significant wealth. Indeed, for high-net-worth families, developing a healthy family wealth culture can go a long way towards preserving generational wealth. It can also help set the next generation up to achieve their own success.

At the same time, there’s often an emotional component involved with inheriting wealth. Giving your children the tools to make smart financial decisions isn’t just about educating them on the technical aspects of personal financial management, although that certainly helps. It also means instilling the right values and helping them develop a positive attitude towards money.

Consider these four tips to develop a healthy family wealth culture:

#1: Instill Shared Family Values

It’s natural to want what others have—especially friends who always have the latest and greatest toys and gadgets. However, “keeping up with the Joneses” can be a slippery slope. If your kids see you spending frivolously to keep them (or yourself) happy, they may adopt similar habits as adults.

To develop a healthy family wealth culture, consider focusing on values and goals rather than material possessions. Instilling shared values in your children—for example, hard work, persistence, and charitability—can help your kids become better decision-makers. In fact, studies show that child goal-setting can help build resilience, confidence, and motivation—all important traits for managing and protecting wealth.

#2: Be Transparent about How You Accumulated Wealth

While it’s certainly possible you became wealthy overnight, chances are your wealth results from hard work, sound financial planning, and smart decision-making. Perhaps one of your parents started a business and passed it on to you. You’ve continued to manage it successfully so that now it’s your family’s primary source of income.

Alternatively, maybe you’ve climbed the corporate ladder and now enjoy executive compensation and benefits. Or you worked for a startup that had a lucrative IPO. Regardless of how you earned your money, you’ve likely made a multitude of smart choices along the way to get where you are now.

Naturally, your children may not need to know every detail of your financial life (nor do you want to share every detail). However, being transparent about how you accumulated your wealth and what wealth means to you can impart responsibility and perspective. In addition, sharing positive stories about your family’s wealth can help your children develop a healthy attitude towards money.

#3: Prioritize Financial Education to Preserve Generational Wealth

While you may assume your children will learn about money in school, the truth is financial literacy starts at home. In fact, only 18.4% of U.S. high school students must take a personal finance course to graduate, according to research from Montana State University.

The good news is educating your children from an early age can help them make better decisions and understand the importance of preserving generational wealth. Consider the following exercises to help your kids learn to manage their money responsibly.

Earning and Managing a Weekly Allowance

Often, children need to have some skin in the game to truly understand how money works. Paying them an allowance is an easy way to give your children hands-on experience. Some families automatically give their children money each week or month to use how they like. However, you may want to tie their earnings to work so that they connect the two as they move forward in life.

In addition, consider creating an incentive system so they learn to save and invest—not just spend. Encourage them to set goals and schedule monthly check-ins to assess (and reward) their progress.

Establishing a Savings Account

If you’ve done well for yourself financially, your kids may never know what it’s like to go without. However, learning how to save for larger-ticket items or an emergency is a key financial principle. Getting your kids into the habit of saving can help ensure your wealth is preserved for generations to come.

Exploring Investment Principles

Investing can be a complicated topic—even for the most financially responsible adults. As a result, teaching your kids about investing may not come naturally.

If that’s the case, don’t be discouraged. One solution is to enlist the help of a financial advisor, who can facilitate these conversations for you. If you already work with an advisor, consider including your children in some of your meetings when they reach an appropriate age.

The important thing is that your children understand the benefits of investing, as well as the potential risks. While investing prudently can help preserve generational wealth, fly-by-night investment schemes can erode wealth quickly.

#4: Lead by Example to Develop a Healthy Family Wealth Culture

Lastly, make sure you practice what you preach. Regardless of what you teach your children, they’ll notice how you behave when it comes to money. Leading by example is often one of the most effective ways to instill healthy values and a positive money mindset in the next generation.

Developing a healthy family wealth culture requires patience and perseverance, but the payoff is often worth it. Ultimately, you’re preparing your children to inherit, protect, and grow your family’s wealth, so it can be passed on to future generations. In turn, they’ll be better equipped to carry on the legacy you envision for your family.

SageMint Wealth is an independent wealth management firm for high-net-worth individuals, families, and business owners. We’re committed to growing our clients’ wealth and investing in a better future. If we can help you grow your hard-earned wealth and preserve it for future generations, please contact us. We’d love to hear from you.