Bobby, a 16-year-old boy in a middle-class suburb, was well liked and well-adjusted. Then one of his friends showed him a surprising newspaper article. His family’s business had just sold for a record $700 million. For the first time, Bobby realized that his family’s income was well beyond everyone else’s he knew. Overnight, his world turned upside down.
Perhaps Bobby’s parents intended to do him a favor by hiding their wealth from him. Rather than relying on wealth for building relationships and self-esteem and for learning how to earn money, Bobby had learned to rely on his own skills and resources. But the sudden revelation of his family’s wealth left him unprepared to deal with the new powerful reality of his existence.
Wealthy parents should help their children learn as early as possible how to handle their wealth. This is a complicated task because wealth’s power can be used as a tool, a weapon or an unhealthy psychological defense. Learning how to handle wealth in an emotionally and financially responsible way is essential if children are to develop a positive self image and healthy interpersonal skills.
Be aware of your own attitudes toward your wealth. To help your children learn how to handle the family’s wealth, you need to be clear about your own attitudes toward wealth. Some questions to consider: How should you use your wealth? What responsibilities (if any) does your wealth carry? What impact does your wealth have on your sense of who you are?
You may well find that some of your attitudes toward wealth often conflict with your actions. That’s perfectly normal and healthy; human beings are emotionally complicated creatures living in a complicated world. Such contradictions cause trouble only when you fail to notice or acknowledge them. Then contradictions become hypocrisy and children are natural hypocrisy detectors.
When you give an inconsistent message to children, you usually end up teaching them the very lesson you didn’t want to teach: to say one thing and do another or to voice noble messages to the world while acting ignobly when no one’s monitoring them.
You can’t avoid your own contradictions, but you can notice, acknowledge and discuss them with your children. Do you donate thousands of dollars to foundations but refuse a homeless person a dollar? Do you talk about the importance of family over money and argue bitterly with relatives about finances? Acknowledging such contradictions when they occur and discussing them honestly with your children will turn a hopelessly confusing experience into a positive learning experience.
Teach children how to save AND how to spend. Use allowances to teach children how to handle wealth. Have them divide their allowance into three equal parts. One-third goes toward their own pleasure, one-third into savings and one-third to charity. This method helps them learn about other uses of money, beyond buying them things.
For younger children, use a transparent piggybank so that they can literally watch their savings grow. Making charts or graphs helps them visualize their growing savings and gives them a head start in math. You can help your children research charities and find one that genuinely resonates with them. You can encourage your children to think about how to give their money—whether to send a check or buy food, toys or clothing for a shelter. Younger children are concrete and so we suggest making the giving as concrete as possible, donating in person rather than through the mail.
Adapt allowance strategies to your children’s ages. As children grow, you should help your children develop a more sophisticated savings plan. You can establish a kind of 401(k), matching children’s savings and discussing investments. You can teach more about budgets and credit by giving your teenagers a prepaid credit card.
Parents can also help children think more deeply about charitable giving. Around the fifth or sixth grade you can teach children about the eight levels of charitable giving developed by the Jewish philosopher Maimonides. (At the lowest level is the person who fails to give enough and gives in bad grace. Higher levels include giving anonymously and helping a person to save a business or job so that he will no longer need charity.)
Finally you should never tie allowance to chores or responsibilities or use it as a reward or punishment. Wealthy children should learn what to do with their allowance, not what to do in order to receive it. After all, they are already wealthy, and they will continue to be wealthy, whether you withhold their allowance or not. The lesson that ultimately affects not just themselves but their family, their friends, their community and the wider world is the lesson that teaches them how to handle their wealth.
Checklist for Teaching Wealthy Children about Money
Being a responsible parent means teaching your wealthy children both the abstract and concrete responsibilities of wealth. That means being clear about your own attitudes toward family wealth and then helping children to learn how to handle the power of wealth.
- Identify any issues about wealth that your family avoids discussing. Make sure you know which issues you avoid and why. You can continue avoiding them, but be aware that you’re avoiding those issues and understand your reasons for doing so.
- Know the family values—both real and professed—toward the responsibilities of wealth. Then start communicating them.
- Tell children, often and sincerely, what you value in addition to wealth. Point out other things in which your family is rich.
- Be clear and honest about what wealth has made possible for the family.
- Encourage your children’s active, genuine participation in financial matters, such as deciding how much allowance they should receive, participating in family budgets, planning vacations and buying school supplies.
- Teach your child the difference between their wants and their needs. Teach them to shop wisely—to consider quality, need and price.
- Help your children feel grateful about the family wealth. Acknowledge the wealth.
- Identify family wealth as a resource to be used, respected and nurtured instead of used up, taken for granted and abused.