I’ve been a huge personal finance enthusiast since going off on my own. When I became a parent, I started asking myself how do I pass down wealth to my children beyond dollars and cents. I don’t have large sums to pass down. And if I did, how helpful would the money be alone? Would it help or would it hinder ambition?
Do others have these thoughts?
Do you know how to pass down your financial success to your children?
byu/financialfam_sam inpersonalfinance
Posted by financialfam_sam
19 Comments
Invest in their human capital and set them up for success. Paying for their college or other training (in part or fully) is probably a better gift than leaving them a larger inheritance down the line.
Besides that, teaching them healthy financial habits early on I guess? The importance of investing in your future through exercising, saving/investing, learning new skills, etc.
This podcast episode might be useful for you too: [Episode 175: Robin Taub: The Wisest Investment: Teaching Kids About Money — Rational Reminder](https://rationalreminder.ca/podcast/175)
Leaving money is easy.. Trusting they’ll do the right thing with it.. Is way harder for me. I’m willing to save up money for my little girl and give it when she’s adult.. But would a young adult make rational choices? What kind of money would be enough for certain goals?
Here it’s tradition that some parents save up money for their children’s driving license and possibly help buying first beater car.. But in 15 to 20 years, would we even still need licenses? Would we even still own cars?
Should I just save mindlessly and hope it works out? I’ve gotten through life without windfalls and made me appreciate money more. Think twice before spending hard earned money.
But then again, I don’t want to do the whole “I suffered, they should suffer” thing. Parenting can be hard in wierd ways.
One of the most fun things my parents did for me when I was in about 8th grade was they opened a brokerage account and any money I put in they also put in—immediate funds double. Then I got to pick what I wanted to invest in. I remember doing $25 in Abercrombie and fitch. I also remember how I felt watching it go up and down. It was an opportunity to learn about stocks, index funds, and investing in general. That lesson has held into my adulthood to not be scared of investing or the markets. Exposure that set me up for long term success. Wasn’t a huge capital cost but it has paid dividends in my life.
The other thing they did was put me on the car loan (interest free 1 year) at 16 which gave me a credit file and when I went to college I was the only roommate who could rent a washer and dryer because I had credit.
I’d intend to teach the lessons and spend all my money to die with zero. That way they are set up for success on their own.
If you don’t have large amount of money to pass down the next best thing is to educate them about budgeting , investing and not blowing their money on useless material items
Teach them to auto save x amount per paychecks, invest in index funds and not chase individual stocks for a quick buck by day trading
Teach them how to manage money early in life. Teach them about the value of money. You may have to repeat yourself several times over their lifetime but I remember my dad doing the same when I was young.
Set up a 529 for them. If you’re feeling really generous you can set up a UTMA for them and help them set up an investment portfolio early.
Travel – show them the world, show them cultures, people of different colors shapes and religion, how people live in countries from Vietnam vs Vienna, how people love, work, struggle, thrive, hustle, and survive. There is huge growth and mindset change when you take them away from their bubble and this will translate to financial competence also.
I have a brokerage account that I deposit our monthly credit card rewards into. My oldest is only in 3rd grade but when a bit older we will talk about investing and money management as this account is going to be for her first car.
Open a brokerage acct and have them to put a portion of whatever they earn or get as a gift to invest.
I think being an educated consumer and investor is important – just really knowing how money works.
I’ve talked to my kids about interest rates (when you want them high [lending/investing], when you want them low [borrowing]), and how to negotiate.
I’ve also talk them about spending money in the things that are important to you, and not spending it on things that aren’t. For me, travel – yes. Status car – no. But that’s just me, and they know it.
I think it’s also important to talk them them about good debt vs bad debt. Just make them comfortable with all of it.
You discuss finances with them from a very early age. Start in the first grade with simple things. Give concrete examples for things, like how long you have to work to be able to buy an ice cream cone or a Nintendo Switch. Give them the ability to earn some money of their own and manage it. And teach by example.
I think it’s true what they say that “more is caught than taught.” While we do plan for some specific “lessons” – setting up a Roth IRA side-by-side with them when they get their first paid job, teaching compound interest – I think that being verbal about your financial values goes a long way.
As far as gifts go, we’re planning to pay for college and hope to also be able to help with a down payment on a home. Our parents were able to pay for college (with a cap) and it was huge obviously, but we have friends whose parents were more “lavishly” generous (paying for cars, condos), and it seemed to affect their perception of money.
When it comes to inheritances, we are leaning towards leaving a set amount to each kid. I don’t know what the number will be, but our mindset is “life changing but not lifestyle changing.” In today’s dollars, we think about 500k would fit that description – they could buy/upgrade a house OR invest it and subsidize their annual income by 20k. Then remainder of our assets would go to the charities of our choice.
We talk about our budget with our kids. They know how much money we spend on necessities and fun stuff.
When they get money for birthdays, they suggest putting some in savings before they start spending it.
My parents said nothing about money, just that we were broke all the time. I messed up in the beginning but I’m doing much better now that I pay attention to my finances.
Get your kids the book “A Simple Path to Wealth” and have them read it. Warren Buffet’s annual letters to shareholders is pretty awesome too. My kids have had brokerage accounts since kindergarten and they pick their own stocks. You can set up UTMAs through Schwab or any other brokerage.
If you are in the midwest, the Berkshire annual meeting is super family friendly. Buy a BRK-B share and take the kids! The GEICO Gecko and Fruit of the Loom Guys are there and they set up a Dairy Queen and massive train tables inside the convention center. It’s wild.
I added my kids as an authorized user on a credit card. When they turned 18 they already had excellent credit.
As others mentioned, teach them the value of money and financial literacy at a young age, and those lessons will add up (or at least you can say “I told you so” when they mess up :-P).
I’ve found a lot of life lessons to be had around not just *making money*, but rather *recognizing value*. A stay-at-home parent doesn’t make money, but the work they do is extremely valuable to a household. Would you rather be Warren Buffet at age 98, or a broke adult at age 20? What is the value of your time?
There is something to be said for giving them assets or support when they are young enough to leverage it, rather than leaving them with a pile of assets when they are 60. As long as 1) they don’t get dependent on it, and 2) you don’t overextend yourself and end up needing their support when you are old.
Take them with you when you need to interact with financial institutions. My parents took me with them when they went to banks or negotiated for their business. I hated going to them as a kid but I remember most of them and it gave me a good basis for my own interactions and what questions to ask.
to me, its the knowledge of what you do with that money.
you going out to eat every day, or 1-2 times a week?
expensive car, or used reliable car?
if they ask for 5 toys from the store, do you give them all, 1-2, or zero? maybe reward them more if they have good grades?
Please talk to them about money. Talk about income, debt, property and assets, how to use credit well, investing and saving. Talk about taxes, keeping records and staying organized.
Nobody talked to me about money and I paid the price trying to figure it all out on my own. Worst part is the adults in my life really did know these things and were good at it but believed it was inappropriate to talk about money. Part of generational wealth is knowledge.
First priority for me is to teach my daughter to live on less than she makes.
Second priority is to teach her to save and invest and take advantage of compound interest. As a 19 month old, she’s a billionaire of time.
Third priority is for me to directly help her get her start. Help her stay out of debt. Especially for cars and school.
If all of the above goes well enough, I’d like to assist her to do the early things I wish I had done. Like maxing a Roth IRA from 18 to 30.
Not sure what will be best for all beyond that. Maybe helping with buying a house or something.
The thing I am sure of is that I want to give her useful and instructive portions of her inheritance early when she is young enough to enjoy it. Rather than holding onto every penny and her waiting for me to die and then her being old enough that she can’t take full advantage.