A few months ago I came across an unbelievable video circulating on social media. A teenage girl from Beverly Hills went on an episode of Dr Phil, berating her mother for cutting her allowance from US$5,000 per month to US$1,000 a month, and refusing to get her a Mercedes G-Wagen worth over US$140,000.
In the cringeworthy video, the mother regretfully admits to spoiling her daughter, and is at a loss of how to salvage the situation.It isn’t talked about enough, but it is clear that dysfunction tends to breed among the wealthy, especially among the young ones.
For example, Paris Hilton, heir to the US$300mil Hilton hotel fortune. Paris, a symbol of celebrity privilege in America was famously remembered for the lavish and extravagant lifestyle that she has led. So much so that it has caused her grandfather Barron Hilton to pledge most of the family’s wealth to charity.
But it’s not all bad news among the wealthy.
There are also great examples of thoughtful parenting from the rich and famous. Bill and Melinda Gates are one of them. Despite amassing a total net worth of over US$96bil, their kids are well-grounded, highly-empathetic individuals whose aspirations involve pursuing further education and social work.
The news of the Gates deciding to dedicate almost all of their wealth to philanthropy and leaving just a comfortable amount of US$10mil to their kids both surprised and impressed the world. Not only are they immensely generous, but they both hold firm in their values that with great wealth came great responsibility to give back to society.
So, to all parents out there: how do you see yourself bringing up your kids? Do you want them to turn out privileged like the kids in reality shows? Or do you want them to grow into grateful and contributing members of society?
In my years as a financial adviser, I’ve seen countless of married couples make the mistake of underestimating the need to instill financial literacy in their children from an early age.
It is not only important for kids to grow up with the right values about money, but it is equally crucial that they know how to handle money.
While each family is unique in their own challenges and needs, wealth-related issues – such as expenditure, child-rearing, wealth distribution, and the complications of divorce, remarriage and extended families – are usually quite common throughout, even when you are wealthy.
So how do you ensure that your kids rise above and grow up to be individuals with a strong value system and a healthy mindset about money?
Many wealthy parents tend to put off talking about their wealth with kids, either because they do not know how to handle it, or they think the knowledge will change them. The problem with this is that these kids may end up unprepared in the future when they eventually inherit their parents fortunes.
It is important, therefore, to have the right conversations with your kids, and to bring them up with financial literacy to handle money matters that may come their way.
But before that, have you and your spouse aligned your values about money? Disagreements about finances can be sensitive and stressful to your family relationship. Therefore, it is a good idea to discuss this in finer detail before deciding what values to pass down to your kids.
Here are some questions to ponder:
What does money mean to the both of you? Our opinions of money is usually based on our upbringing. When you communicate the role that money played in your respective families in your formative years, you will understand each others financial habits more clearly.
Does your family have a coherent view about money? Once you have discussed your thoughts and feelings about money, it will be clear what values each of you hold, and how to align your value systems accordingly.
What’s yours, what’s mine, and what’s ours? Who does the money belong to? Do you share everything, or keep some aside for your personal spending? Should one of you contribute more or should both of you contribute equally? If only one of you are working, who “owns” the money and makes the financial decisions? Each family has their own preferred way of doing things, but more importantly, make sure that you both agree to this arrangement.
To what extent will you support your kids? Are you going to financially support your kids throughout their lives? Do you expect them to support themselves after a certain age? Will they be able to maintain the kind of lifestyle that they have now? A lot of wealthy parents forget that once their children start standing on their own two feet, the realities of a lifestyle change may come as a shock to them.
What values do you want to instill in your kids? Your values about money will ultimately become your children’s values about money. If you believe in working hard and spending hard, your children will believe the same. If you think that building a good career is in itself a reward regardless of money, then guess what, your children will grow up believing the same. If you think that money commands respect, then your children will grow up thinking that wealthy people are worthy of their respect.
Children mimic their parents’ values, so make sure you decide on healthy mindsets about money early on.
Communicating these values
Once you both have agreed about the values you want to pass down to your kids, make sure you convey it to them regularly. Children are sharp and pick up on your behaviours quickly. Therefore, make sure that you are both consistent about keeping your values when dealing with financial matters.
Most kids will ask their parents at one point in time about their financial status. When this happens, don’t shy away from the question – be as honest as you can in an age-appropriate way.
For example, if your kids are young, they may not understand the concept of a trust fund. Instead, teach them about how money is earned, budgeted, and saved. Allowances are a good way to help them practice this, especially if you make them earn it by completing chores.
Equip them with knowledge and principles about money instead of having it sprung onto them unprepared one day.
In fact, one of my youngest clients was indeed someone who unexpectedly inherited a substantial amount of wealth from his parents. As he was never primed for this knowledge beforehand, he was taken aback and was at a loss of what to do with the money. Moral of the story: Parents need to groom their children well before the time comes to pass down their inheritance.
Alternatively, to avoid such situations, some of my clients have appointed financial advisers for their children immediately after graduating from college. The idea here is to get a financial adviser that you trust to teach your children financial literacy and equip them with the tools to manage their wealth.
What is important is that your family is aligned on the legacy you wish to pass down to your children in terms of inheritance and values. Families are unique in their value system, beliefs and goals, and these get more complex as your family grows.
No parent wants their children to adopt dysfunctional values about money. To avoid this from happening, you need deliberate thought, support from your better half, and consistency when communicating your values to your children. Above that all, communicate these lessons from a place of love and dedication – things that money can’t buy.
Yap Ming Hui ( email@example.com ) is thrilled that his mission to empower every Malaysian with a roadmap to financial freedom has finally come to fruition with the release of a free DIY roadmap to financial freedom tool on the iWealth mobile app.
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