Ensuring our children become financially stable doesn’t always mean that we leave them everything needed to have a cozy life. Generational wealth most often comes from helping them establish themselves, wander out into the world, and learn to thrive.
Post-pandemic, we are in the middle of one of the most significant wealth transfers in history from the baby boomers to millennials, and millennials are now working to include generational wealth planning as part of their financial situation.
Leaving tremendous material things beyond our lives is fabulous, but leaving behind the values that help our kids grow and become exceptional is far more remarkable.
The New Generational Wealth Goal
Although there is much to be optimistic about, the reality is we live in a period of tremendous technological disruption and global uncertainty. Parents want to allow their children to attend the school of their choice and not experience the stress of substantial financial hardship. They want their kids to have fulfilling lives, the ability to move on from unhappy jobs, and the security of knowing their bills are paid.
The new generational wealth goal isn’t about preventing hardships for your kids or leaving them a one time major windfall when you're gone, but opening up options for kids to find the lives that work best for them with support and security along the way.
Teach Financial Literacy to Children
Financial literacy is one of the most essential tools in our lives but is often neglected, and personal finance is rarely taught in schools. When entering adulthood, there are few things more important to be proficient in to foster success.
Two strategies are essential to teaching financial literacy for kids that will guide their financial decisions throughout their lives.
1. Get Them Involved Where Appropriate
Nothing is better than learning from doing, and introducing children to money when they are young is the most effective way to get them on the road to financial literacy. Start with activities such as:
Showing them how to save and why it is vital to do so for their financial health.
Letting them see your investments and the investment performance over time to better understand the value of compounding interest and long-term investments.
Having them do household chores for money or work a summer job when older.
Getting them a bank account when they're a teenager.
Adding them as authorized users on your credit card to learn credit management and how interest rates work. (This has the added benefit of helping them build credit.)
Helping them set up a simple budget and financial goals.
Being open to talking about financial mistakes.
2. Get Them Working With Their Own Financial Advisor Early On
Working directly with a financial planner and starting their first investment accounts is an incredible learning experience for kids and their parents. Instead of you setting up generational wealth plan accounts alone, the process now includes the intended beneficiary working toward their financial future.
As they see the returns, experience how different investment types work, and participate in the financial planning plan for their lives ahead, they aren’t only gaining knowledge but the road map to a financially responsible lifestyle. Here at Plancorp involving future beneficiaries in conversations, answering questions, and building that knowledge base and comfort level is a table stakes offering. Not only does this reduce stress for our clients today, it helps prevents the all-too-common loss of wealth after a transfer. We want to be a partner in ensuring your legacy is long-lasting.
Contribute to an Education Savings Account
You want your kids to have life options, including the chance to attend post-secondary schooling as young adults and ease the tremendous burden of student loans. Educational costs continue to rise, and establishing an education savings account allows you and them to save for their ongoing education tax-free, minimizing student loan debt.
Again, involve them in the process of contributing to a 529 plan and let them watch the account grow. Research ideal universities and investigate what those might cost so they better understand the value of the investments growing within their plan as well as the opportunities they have to spend it on education to invest in their own future.
Establish Connections/Network Early On
Our networks matter in life. Introducing your kids to professionals and mentors helps prepare them for the future, as they gain respected insights from many sources. In that mix of relationships they develop, ensure they know their personal banker, wealth planner, and other professionals who can offer guidance when seeking financial assistance.
Gift Stock Options
As children are not allowed to trade stock shares, the parent can do so on their behalf in a custodial account that they will receive upon reaching adulthood.
Shares of stocks can be gifted to the child’s education savings account or directly to your child. If you're curious about this and are a Plancorp client, get in touch with your Wealth Manager to add this to your next planning meeting. If you aren't a client, but are curious to learn more, check out our guide to pursuing a better investment experience.
Help Them Invest in Property/Home Ownership
Real estate is a cornerstone for learning financial responsibility and getting a solid start in life. But the reality is the current housing market makes jumping into the market more difficult than it has been for more than a decade.
Helping a child buy their first home with down payment assistance gives them a sense of ownership, and knowing they have to make a monthly payment helps foster financial thinking and financial independence. Be sure to vet these gifts with your Wealth Manager. With their help you can plug this gift into your financial plan, as well as provide recommendations to avoid a situation where the beneficiary is unable to keep up with tax, insurance, or maintenance costs on their own. Purchasing an investment property with them is an outstanding lesson in how money and real estate work together, and it’s another excellent way to develop the sense of responsibility that comes with ownership.
For more information on the specifics of how to help your child buy a home, check out this recent article from Senior Wealth Manager, Sara Gelsheimer.
Help but Don’t Enable
We all want our children to have security and options in life, but we also want them to realize the value of doing for themselves and the tremendous work, planning, and strategy that goes into building long-lasting financial security. The goal of generational wealth isn’t just gifting assets but teaching responsibility and setting our kids up for successful and fulfilling lives.
If your adult kids live at home and you're worried they're missing out on financial literacy learning opportunities, consider setting a rent and place that money in an investment account. If you have an investment property with them, make them responsible for the upkeep.
The value of money is realized with active involvement in its management and earning it. The purpose of creating generational wealth isn’t to give something away but to enable successful lives for the generations behind us.
There is no time too early to start building generational wealth and involving your children in learning and practicing financial responsibility. The expert wealth managers at Plancorp involve your kids in the process of building generational wealth while crafting and managing a plan that will provide them with security.
Learn more about wealth management and how the advisors at Plancorp can help you today.