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Teaching Your Kids about Money

A high-net-worth household faces special challenges. Here’s how to set your children on the right course.

How should you talk to your kids about money? All parents face the question of how to raise financially literate and responsible children, but affluent families encounter special challenges.
The key is starting early—perhaps even as soon as when your child receives his first tooth-fairy dollars. One couple with a large auto-sector business decided to begin involving their elementary-school-aged children in financial decisions. They invited the kids to family meetings, which opened with Lego-car racing, then launched into philanthropy with a discussion of how the company contributed to society and how the children could participate. The kids decided to raise money for their favorite charity by hosting a barbecue and car wash and selling duct-tape purses and bookmarks that they made themselves.
“Hearing how the company contributed to the world…started their thinking around philanthropy,” says Wendy Sage-Hayward, a consultant at the Family Business Consulting Group in Chicago and an adjunct professor at the Business Families Centre of the University of British Columbia’s Sauder School of Business in Vancouver.
Begin with what you know, advises Erika Vujnovich, the founder of Bodeeo.com, a financial-education site for parents and children. First, she says, parents should explain the basics: what a job is, and what it means to earn and spend money.
When her own young son asked her whether she made a lot of money, Vujnovich told him, “We make enough to be sure you and your brother have enough food and clothes, and you’ll be taken care of, because Mommy and Daddy work hard.”
Particularly when children stand to inherit trust funds, Vujnovich says, it’s crucial for parents to teach financial discipline from an early age. That’s important because kids who grow up thinking that money will come to them without any action on their part can run into trouble.
What’s driving parents to have these discussions with their children? The specter of raising spoiled brats, and the fear that the kids will grow up to squander the family’s wealth.
That outcome is avoidable, says Ron Lieber, a New York Times columnist whose book, The Opposite of Spoiled, advises parents on how to head off difficulties. Spoiling a child has surprisingly little to do with material possessions, he notes, and much more to do with how the parents expect the child to behave and how they enforce consequences for breaking the rules.
Not letting kids fail—such as by intervening with teachers and friends—is another way to end up with a spoiled child, Lieber says. “They come quickly to the conclusion that they do not have to do anything themselves, that they will be taken care of.”
In addition to setting firm limits, he says, parents can take several other steps to ensure that their children have a good perspective on money. One is modeling generosity, such as by inviting your child’s entire class to his or her birthday party. (“Bogus community service trips,” such as expensive forays overseas that don’t involve much interaction with locals, have little value, Lieber says.)
Another key strategy: go out of your way to ensure your kids have friends from a range of backgrounds. Depending on where you live, this might mean signing them up for Little League one town over, or choosing a chorus with a wide catchment area. The family can also join a house of worship with a diverse congregation, Lieber says.

Travel offers many possibilities to introduce kids to new situations. “I know families who—upon realizing that the only things their kids knew from vacation was the different ways poolside amenities were presented—decided that they wanted their kids to experience different ways of life and would send their kids away with relatives to stay in national parks,” Lieber says. And even when staying at a luxury resort, families can ride public transportation or eat in a restaurant where people don’t speak English.
When it’s time for kids to go to overnight summer camp, choose the most low-key one possible, Lieber advises. That will help reset the children’s relationship to their possessions: “When kids are away with no power and no electronics, they learn important lessons about relying on each other for companionship.”
The biggest question for children with well-to-do parents, Lieber says, is often: If you have the resources to buy me anything I want, why won’t you? He suggests using the language of tradeoffs. Expect your children to be confused and to seek to understand how you make financial decisions: “If they want to show horses in Florida or go to the Super Bowl, it’s your job to explain to them why you are not going to do that even if you could afford to.”
Linda Davis Taylor, CEO of the wealth-management firm Clifford Swan Investment Counsel in Pasadena, California, recommends attacking the problem as you would a business project by defining a family mission and values, holding family meetings and training family members. This takes time, she says: “It’s not that one make-or-break conversation.”
Be sure to account for your kids’ values as well as your own, says Taylor, whose book, The Business of Family, was published this summer. One client family had trouble getting the younger relatives engaged with charitable giving, she says, noting that the kids “did care about philanthropy but not about the symphony that their parents were [aiding]—they cared about the environment.”
One reason parents shy away from bringing up money with their children, Taylor says, is that talking about money means discussing mortality. One day, the older generation won’t be around to run the business or administer the family assets, and the younger generation will have to know how to handle things.
“Ultimately, it’s succession planning,” she says.

Chana Schoenberger is a business journalist who has worked for The Wall Street Journal, Bloomberg News and Forbes.