Yesterday, JOYN CEO David Geller was quoted for his expertise in behavioral wealth management in The Wall Street Journal’s “The Best Way for Wealthy Parents to Talk to Children About Family Money”* by Cheryl Winokur Munk. It’s a pressing topic since “tens of trillions of dollars in financial and nonfinancial assets will pass from baby boomers to their heirs over the next several decades.”
*Editor’s note: You may not be able to access the article online if you’re not a WSJ subscriber. You can find it in the Wealth Management section in yesterday’s print edition – top of page R4. We have a limited number of reprints – contact us if you’d like one.
Most wealthy parents feel conflicted about talking to their children about family money. Munk captures the essence of the problem:
On the one hand, they want to conceal important details even from adult children for fear of creating a sense of entitlement. But when parents are too secretive, it can make it much more difficult for the children when they eventually inherit those investments.
Ideally, parents should have age-appropriate discussions about family wealth over a number of years. Unfortunately, that’s not always what happens.
“As behavioral wealth managers, we know that when we humans are faced with decisions involving risk and difficult discussions, we have a tendency to avoid it,” David explains. “But sticking your head in the sand isn’t the best way to help your children become good stewards of family wealth.”
David & the other professionals recommend wealthy parents talk early and often with their children about money. “Unless you spend or give everything away before you die, your children and grandchildren will inherit substantial wealth. So long before that happens, begin sharing your family’s story and your values about money. As parents, we want to give our children tools to manage money responsibly. We also want them to understand how wealth can—for better and worse—affect their lives.”
A good wealth manager should help parents talk with children at each stage of their children’s development. Ideally, parents should start in the tween years. When we’re stressed, we tend to catastrophize. Advisors can help by explaining what is—and isn’t—age-appropriate.
However, talking about wealth doesn’t mean “revealing the balance sheet” to your twelve-year-old, Munk writes. However, it does mean communicating expectations about money with your children. Sharing David’s wisdom, she writes:
Adult children need to understand what’s expected of them…. [David] told his children they could live at home for up to a year after college graduation to save some money. After that, he expected them to move out.
Most parents need some coaching and encouragement for crucial conversations. As parents, we often think we’ll have more time. Yet reality has a way of catching up with us.
David’s advice: Don’t wait. “Make these conversations fun and meaningful, something your children will remember in the years to come. Weave your story into the fabric of the family and make it relevant to them. By doing so, you can help your children develop a healthy relationship with money.”
Among parents who do talk to their children about money, David highlights two of the biggest mistakes:
Many parents send confusing messages … about how much support they are willing to give their adult child. “After college graduation, parents will just continue paying the bills and then suddenly, they get disgusted, and turn off the money spigot leaving the child confused and angry.
Another common mistake: trying to control the children with family money. Again, Munk refers to David’s advice:
Don’t say things like “I spent a lot of money on your education, and I expect you to find a career that justifies that expenditure,” Mr. Geller says. And avoid criticizing your child’s financial decisions; let them make their own mistakes.
David wholeheartedly agrees that parents introduce their adult children to the family’s advisors including your lawyer, accountant, and wealth manager. Invite them into the business of the family and give them responsibility early on. Munk notes that doing so can “help them learn more about the family’s investment and financial philosophies and about setting goals for their own money.”
Finally, David recommends that you document your decisions and intentions in “an old-fashioned letter.”
“Often, the scope of the challenges adult children of wealthy parents face doesn’t fully hit them until they’re in control and have to make all the necessary financial and investment decisions themselves. They’re often unsure about how to deal with unexpected issues. In those cases, it can be enormously helpful to refer back to their parents’ written wisdom.”