One of the perennial concerns of high-net-worth (HNW) families is how to raise their kids in an environment of privilege and material abundance.
Over the years, I’ve met with dozens of HNW business owners who have brought up happy, well-balanced kids with positive wealth values. The one thing these parents share: the ability to set “wealth limits” for their children. Simply put, they are able to say “no” when appropriate.
How do they do it? Here are some tips and hints, all based on conversations I’ve had with wealthy parents.
It’s natural: when our child cries “Help!” we come running. But there’s a difference between a child asking for a band-aid and one asking for a handout. If kids feel they always have credit at the “bank of mom and dad,” they are more likely to make rash and unwise financial decisions.
Most successful HNW parents I know have thought carefully about the message they’re sending when they give their kids money. While they are generous with “investments” in their children’s life (education, life-enriching experiences, family vacations, etc.), they are cautious with allowances, major gifts, trust funds and the like. They tell their children early and often that they expect them to be full, productive members of society.
A wealthy business owner I know was approached by his newly married son for help making a down payment on a large home in an expensive part of Vancouver. Dad realized that even with his financial aid, mortgage payments and taxes would be more than the new couple could afford on their own. So he said no, politely, but firmly. The decision was not well received, but the son learned a lesson about living within his means. As a result, the couple bought a more affordable home, and both son and daughter-in-law are motivated to work harder if they want to move up the property ladder.
When it comes to wealth, experience is often the best teacher. That’s why successful HNW parents give their children financial autonomy, allowing their kids to enjoy the freedom to make their own spending decisions and allowing them to feel the pain of loss when those decisions turn out to be foolish or short-sighted.
A client of mine told me about some wealthy family friends who had recently allowed their teenage son to buy an expensive mountain bike with his savings – this despite the fact that his old bike was less than a year old. Because of the purchase, the child didn’t have enough money for a biking trip with his friends to Whistler. While mom and dad were sympathetic, they didn’t bail him out. This caused some short-term grief, but the child learned an important lesson in budgeting and setting financial priorities.
In most of the HNW families I’ve met, the idea of “giving back” has been introduced at an early age. By involving kids in the family’s charitable work, the parents hope to instill a sense of financial humility in their children and an understanding that with wealth comes responsibility.
Case in point: a wealthy family I know that makes charity a central feature of the Christmas season. Each December, mom, dad and their three young boys (the eldest just turned nine) hold a family meeting and decide on a family charity (the local SPCA was the winner this year). By getting their boys involved with giving, the parents are giving them a financial conscience. They’re teaching them that the most powerful thing about wealth is the power to change the world for the better. If that’s not a positive wealth value, I don’t know what is.