Financial education and clear communication of your goals can help you leave a positive legacy.
For many affluent parents, few things are more satisfying than knowing their wealth can give those they love a financial head start in life, the freedom to pursue education or a dream career, and, possibly, a measure of security for later on.
Yet, when children come into money before they’re ready, temptations may be overwhelming. Without proper financial education or controls, money that was intended to be used for education or housing might go for a fancy car or to friends seeking investors for unsound deals. Other heirs, out of generosity, may simply give away more than they can afford.
In fact, The Ohio State University’s Center for Human Resource Research reports that heirs researched as part of a study spend, lose, or give away nearly half of what they inherit†. And research from the Family Trust Institute shows that 70% of surveyed families fail to sustain their wealth across multiple generations‡.
Even if the money survives from one generation to the next, it may not yield the positive results the founders envisioned. Dan Griffith, senior vice president and director of wealth strategy at Huntington Private Bank®, cites, for example, one family whose large business has provided wealth for several generations§.
“Unfortunately, they’ve experienced a nightmare,” he says, with younger family members prone to reckless spending and poor life decisions. “The family preserved the wealth, but they didn’t pass on the values that enabled the founders to create it in the first place.”
The following considerations could help ensure that the wealth you’ve created not only survives, but also inspires the best in your descendants.
Educate early on money and values
With money, children often learn best when starting young. “By first grade, when they’re learning basic math, start teaching them about spending and saving,” suggests Griffith.
One teaching method is to provide each child with three piggy banks: one for charity, one for personal savings, and the third to spend. “It’s a good lesson that you can’t spend everything you have,” Griffith says. During adolescence, progressively larger allowances can be tied to jobs around the house or volunteering, he suggests. “A better way to communicate is by example,” he adds. If your kids see you making careful, deliberate spending decisions, they’ll be more likely to adopt that behavior.
Philanthropy can be an excellent teaching mechanism, especially when practiced as a family. For families with private foundations, involving the children and even letting them choose some causes to support can instill a sense that wealth involves responsibility for others, Griffith says. And consider donating time as well as money.
“Volunteering together can help develop a sense of shared purpose,” he says, “and it communicates the importance of living according to your values.”
Another valuable lesson involves learning from mistakes— especially as children enter high school and college and begin to control more of their own money.
“Some parents shelter children from any sort of failure,” Griffith says. Letting them deal with their own excessive smartphone bills or running out of cash after overspending could offer long-term rewards. He adds, “Children who understand the consequences of financial mistakes may be less likely to make them on a larger scale later on, when recovery could be difficult or impossible.”
Establish your own legacy goals
As you teach your children financial responsibility, think about your own legacy, the amount and the way you intend to give to them, both during your lifetime and in your estate. The more specific you can be, the better, Griffith suggests. For some parents, a legacy means entrusting the next generation with significant funds from the time they reach adulthood. For others, it may mean help with education or buying a house—after which they’re on their own until receiving an inheritance.
“A lot of clients struggle with the question of how much is too much,” Griffith notes. Wellmeaning gifts or bequests can backfire emotionally, dulling a recipient’s ambition and drive, or even engendering feelings of guilt or failure when the money runs out. “They don’t want their child to be a ‘trust fund baby’ who never develops a work ethic,” he says. “On the other hand, they want them to have something to fall back on.”
For some, the answer lies in tying gifts or bequests to positive behaviors. “I’ve seen situations where, by age 25, the child has to have graduated from college or a vocational school, or started a business,” Griffith says. “Once you’ve defined your goals, you can look for strategies to help accomplish them.”
For example, you might consider a trust that would kick in only when a son or daughter reaches one of these milestones. Of course, attempts to oversteer children into certain careers or lifestyles can also backfire when your vision of their future conflicts with theirs. “It’s a delicate balance,” Griffith says. The key may be to emphasize core financial values such as education and financial responsibility, while still giving your children the flexibility to follow their own paths.
Communicate your intentions
Once your goals are in place, don’t keep them to yourself, Griffith advises, though exactly how much you share about the specifics of your wealth depends on what you’re comfortable with and the age of your children. According to one CNBC Millionaire Survey, 44% of surveyed wealthy parents, with assets of $1 million or more, have not shared information on their inheritance with their children¶. While such conversations can be difficult, silence may lead to greater problems later on.
“I see a lot of conflict among siblings after parents have passed away,” Griffith says. “Once you’re gone, you’re gone, nobody can ask you anything,” he says. “They may end up in arguments that can damage relationships.”
Formal family meetings can be an excellent way to share your plans, especially after your children have grown up and moved away. “I would suggest meeting at least once a year,” Griffith says, since life, health, and financial conditions continually evolve. Many families set up meetings around Thanksgiving or the holidays, he says. Your Huntington Private Bank advisor can help you organize and even facilitate meetings.
“They can be the financial moderator, and when things start to go off course or get emotional, they can help keep the conversation focused.”
Your advisor can also help you assemble a team of professionals, including estate planning specialists, an attorney, a tax specialist, and others, to help ensure that your legacy plans work smoothly with your other financial needs. In the end, says Griffith, it’s not about controlling your children’s future or denying their desire to make their own choices. Rather, it’s about instilling a sense of responsibility that they are part of a larger tradition. He adds, “It means understanding that they should stay true to the values they’ve inherited and pass them on to the next generation, so the legacy continues.”
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