Have Straight Talk With Children About Your Wealth

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on April 21, 2017.

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Whether your family has a lot of wealth, some wealth or just a little wealth, there comes a time when you have to talk to your children about it. Most parents dread this conversation as much as they dreaded having the “the birds and the bees” conversation with their children. Being open with your children about money and wealth is similar.

Children are forming ideas about your wealth regardless

When you had the big talk with your children about where babies come from, were you surprised by how much they already knew? Once again, it’s the same with money. Kids know more than we think they know. They hear things from their friends. They can use Google. They also draw conclusions based upon the family’s lifestyle. Kids are resourceful and smart, but they need their parents to paint a full and appropriate picture for them. Otherwise, their imaginations and their expectations could run wild.

This talk could be difficult and you will need to prep for it. Depending on your financial situation and your plans for your children, there could be as many risks to telling them about the family wealth as there is to not telling them. You’ll have to determine the amount of information to share, and when, depending on your child’s maturity level and ability to understand.

It’s all about setting expectations

Let’s say your family earns a high income that supports living in beautiful home, driving expensive cars, taking fabulous vacations, enjoying the privileges of a country club, sending your children to private school — but you aren’t saving much money. Or perhaps you intend for your child to be responsible for their own education. Either way, that’s fine — so long as your child knows this. Otherwise, it’s safe to assume your child will expect mom and dad’s abundance to extend to college tuition, living expenses, graduate school, etc.

Let’s say your family is of much more modest means. Your lifestyle isn’t luxurious and you follow a strict budget — yet you are saving some money for your child’s college education and desire that he or she go. Your child needs to know the extent of support that you can provide and needs encouragement that the rest can be managed through low-interest loans and working through college. Otherwise, your child may have inaccurate expectations, perhaps of the too-low variety.

There’s no shame in being honest — in fact, there’s more risk in avoidance

Can you pay for college? Any college? Graduate school? Any graduate school? A dorm, an off-campus apartment, a car, other living expenses, spending money? Very few families have an unlimited budget for the education of their children, so there is absolutely no shame in telling your children exactly what your financial commitment can be to their education. Moreover, it is the only way for your child to make informed decisions not only about where to go to college but what career path to pursue. The difference between four years at an in-state public school versus five years at a private school followed by graduate school could easily be hundreds of thousands of dollars. That’s a difference that could devastate a family’s ability to maintain a lifestyle or fund retirement.

I’m reminded of a family that lived very modestly whose daughter developed a love for art at an early age. But as she grew up, she knew that an art career wasn’t practical, so she turned to finance instead. She eventually became a very successful investment banker on Wall Street, although it was never her passion. By 55, both her parents had passed away. Two weeks after her father’s funeral, she learned she’d been left $25 million. Her father had never wanted her to know lest it deter her from being a productive person. The next time she visited her father’s grave, she found herself screaming and demanding of the headstone “Why?”

Conversations with your children about money might be uncomfortable, but it is one of the best gifts you can give them regardless of how much they ultimately receive or inherit. This isn’t a “one-and-done” conversation but something that should be discussed repeatedly. If you’d like help on how to have these conversations with your children, talk to your financial adviser.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.