In my day, we grew up hearing that it isn’t polite to talk about money or politics. While I think that still holds true in most instances, the one area where it may not be true, at least where money is concerned, is with your heirs. There is a difference between discussing money with your kids and telling them every little detail. Discussing money with your kids is important at each stage of life for a host of reasons. This week, let’s dive deeper into what you might want to discuss and when.
For young children, set them on a path to understanding how money works, the importance of saving money, and making smart decisions about spending and understanding the difference between needs and wants. If you don’t teach them these important concepts, when and where will they ever learn them? It’s better to impart your values around money on them at a very young age so that they start making good decisions as soon as money starts to become a part of their lives.
I think the teen years are where many parents drop the ball when it comes to kids and money. When kids don’t understand the fundamentals of saving, and now investing, their natural tendency is to overspend. I’m often floored by what I hear from clients about what their kids spend money on and how much. From food delivery services (the ultimate waste of money by kids from my viewpoint) to buying every single thing they want, when they want it. These poor money habits are setting teens up for a rough road in the future. The real world is expensive, so if teens aren’t saving when they are young, they will undoubtedly find it much harder to save when they get older. Worse, they are missing out on the most important part of investing, the miracle of compound interest.
The teen years are when they start to understand your financial situation. At these ages, kids start to try and grasp the differences in financial situations between themselves and others.
Adult children, if taught properly, may be well on their way to financial freedom based on what you taught or modeled for them in their younger years. This is where you may want to start discussing more about your own finances with them. Adult children, more often than not, need to understand at least some of your finances, because they may affect them in the future. Thirty years ago, we retired and died a few years later. Now, retirement can last for several decades, which can not only put a financial strain on you and your finances, but also on them. Caring for aging parents is the fastest-growing burden facing adult children.
If you are fortunate enough to have financial resources, your children should be involved in your estate planning. Saying that “they will find out what they get when they get it” is not a good planning strategy. Again, they don’t need to know every detail down to the penny, but they should have an idea of the size and makeup of your estate. If you intend for them to be an executor/executrix of your estate, then the more they understand about your situation, the better.
If your estate is mostly investments, then relay that to them. The same goes for business interests, real estate, etc. I often suggest telling them a range of your assets if you don’t want to be specific. For example, telling them if it is around $1M, or over $5M, can at least give them an idea of what they are planning around. I suggest going as far as having them involved in some level of your estate-planning process. I see too many adults who are completely in the dark about their parents’ situation, and it can make their expectations for settling your estate more challenging. Many times, when we are involved in the estate-planning process, well-intended wishes can be more efficiently and effectively fulfilled by having some level of input from heirs, which could simplify the process. I remember a client who was adamant about planning around a property that they wanted to pass to their children. They went to great lengths (and expense) to plan for this, only to find out that the kids really had no interest in the property. Many hours of planning and even more dollars could have been saved by knowing this information up front. It never dawned on the parents that the kids might not want the property. If you have raised financially responsible kids, then involving them in the process can certainly be beneficial.
Next week, we will discuss what to do if, despite your best efforts, your children are not financially responsible, and how to plan around that fact.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
