Work hard for your money, even if you can afford not to.
That’s what wealth counselors tell parents about how to raise kids to appreciate what they have, and earn their fortune.
“We don’t want a world full of trust fund babies,” Lynn Ballou, a certified financial planner with EP Wealth Advisors, told MarketWatch, of coaching some well-to-do parents who want to ensure their kids don’t become spoiled by their wealth.
‘We don’t want a world full of trust fund babies.’
Take it from high-profile families who set the precedent early on. The late fashion designer Gloria Vanderbilt, who passed away in June at 95, left almost her entire inheritance to her youngest son, CNN
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anchor Anderson Cooper.
But during her life, Cooper said she made it clear there would be no trust fund to support him, he told Howard Stern in a radio interview in 2014. He said he was glad his mom didn’t share her fortune with him when he was growing up, because it wouldn’t have helped him grow, he said.
“I don’t believe in inheriting money…I think it’s an initiative sucker. I think it’s a curse. Who’s inherited a lot of money that has gone on to do things in their life? From the time I was growing up, if I felt like there was some pot of gold waiting for me, I don’t know if I would have been so motivated.”
Wealth counselors agree, when parents shower their kids with money early on, it diminishes work ethic, and promotes entitlement.
“It takes away the sense of accomplishment, or knowing that you can get somewhere on your own efforts,” said Dr. Mariana Martinez, a consultant with the family dynamics group at Wells Fargo Private Bank
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Giving kids access to money without restraint deprives them of learning the value of it, and worse, cripples their ability to budget or practice restraint in the long term, she said.
‘When you have too much too soon and you can have anything you want whenever you want it, as a young adult you don’t have the ability to delay gratification.’
“When you have too much too soon and you can have anything you want whenever you want it, as a young adult you don’t have the ability to delay gratification,” Martinez explains, adding that this behavior can lead to debt in worst case scenarios, or make it difficult for someone to deal with finances if a crisis arises or money runs out.
Those skills are important to maintaining future financial health: research has shown that the ability to delay gratification plays a bigger role in determining someone’s future affluence than other factors such as race or height.
While some parents are determined to shield their kids from wealth, their children feel the exact opposite. Many millennials raised in wealthy households are banking on inherited money sooner rather than later, new research suggests. One in seven young adults expect to inherit money before they’re 35, when realistically they won’t be getting it until at least age 55.
Don’t miss: Here’s one way parents can teach their kids to be smarter savers — and better people
Ballou and Martinez say there are ways parents with money can assist their children with financial milestones while also making them contribute to their own financial success. Here are a few ways to do it:
Teach kids about charity when they’re young — it could help them learn to budget
Teaching a child the ability to manage money through giving is the most practical finance lesson, Ballou says.
“Look at three different charities and say, ‘Let’s pick something that matters to us. Helping children? Working with elderly? Getting books for schools?’ Put your family behind it, and make it a year-round thing that becomes part of the family DNA,” Ballou said.
Teaching kids early life lessons about giving to others can contribute to their personal and financial well-being later in life.
Research shows that teaching kids early life lessons about giving to others can contribute to their personal and financial well-being later in life, and make them better at managing money, a study published in the Journal of Family and Economic Issues found.
Setting up a college fund or other savings plan for educational expenses is fine, but instead of having the parents be the only contributors, consider offering to match the dollar amount of what your kid earns on their own.
“Tell them we want to support education for you, so we’re going to set up a fund to help pay for your college, here’s a copy of the statement and every year, we’re going to show you how it’s growing. Tell them you’ll match it by putting in a dollar and having them earn one,” says Ballou.
Gift a portion, not the whole thing
When helping kids buy homes or start businesses, Martinez and Ballou say it’s better to contribute a portion to the financial goal, rather than just writing a check for one lump sum.
“Gift enough for a down payment for a home, but make sure the kids can afford the monthly payments — and not just the mortgage, but the property taxes, and the repairs, and the upkeep. That way they don’t have to wait for an inheritance,” says Ballou. “It can be used as a carrot to encourage good financial behavior while parents are still alive to help.”
Same goes for helping a family member or child to start a business. Martinez says funding a portion is fine, but it’s important to let them fund raise capital on their own, and ensuring they pay back the loan can also promote financial responsibility.
If your kids or whomever you’re gifting an inheritance too is financially reckless, don’t put another sibling in charge, even if they are better with money.
Ballou says this will only cause conflict in the family. “Get an independent trustee if you really feel there’s too much money for anyone to manage,” she says.
Source : MTV
