How to Keep from Spoiling Your Adult Children in Four Steps

We are in the middle of a massive, $68 trillion-dollar wealth transfer. This epic shift of wealth from Baby Boomers to Millennials will be one of the largest financial transfers of all time.
Kathy Longo, CFP®, CAP®, CDFA Tuesday, 23 April 2019

How to Keep from Spoiling Your Adult Children in Four Steps

Baby Boomers are the wealthiest generation in history and 45 million households will move trillions of dollars to the next generation.[i] But with that transfer comes worry and fear of spoiling or creating an entitled generation. We’ve all heard sayings about how most wealth is lost in three generations. Interestingly enough, it’s actually often lost in two. In fact, 7 in 10 wealthy families have lost their fortunes by the second generation, and that number goes to 90% by the third.[ii] The theories for why this occurs focus on a lack of communication and a lack of financial preparedness for the heirs. In this article, we will go over four different steps to pass your wealth onto descendants without spoiling them or leaving them ill-prepared to manage their newfound wealth.

Step One: You Need to Talk About Money

Regardless of the tax bracket, a lot of parents find it difficult to talk openly about wealth. This is all the truer for the ultra-wealthy. Parents often feel that telling their children about their wealth would make them less motivated to work. When the parents create an environment where it’s awkward to talk about money, intentionally or not, it’s almost impossible for the next generation to know how much they have or how much they might need. Creating a healthy, open channel to discuss money is vitally important to help a family manage and retain wealth down the line, especially if children will potentially receive a large sum of it. Having inheritance conversations helps to manage expectations. Considering that 70% of Millennials believe they are getting an inheritance and only 40% will, it is better to manage expectations than to be surprised.[iii] It is best to have frank conversations with your children and remind them that the future is never set in stone. People live a lot longer than they used to and the markets and changes to the tax code could affect inheritances as well. Having yearly check-ins to touch base and debrief the next generation will keep everyone on the same page. This does not have to be to the level of showing all of your bank statements because it’s perfectly acceptable to share at the level you are comfortable. However, it’s important to remember that the more you prepare your children in advance the better off they will be down the line. 

Step Two: The Value of a Dollar

From the time our children are toddling around at our feet, they are learning from us. In fact, children have a basic understanding of money by the age of 3 and their money values are often set by the age of 7.[iv] You are teaching at all times by how you pay bills, how you discuss expenses, how you shop, or if you bribe them to behave because all of it has been teaching money lessons. You need to guide your children if you want them to have strong money values and understand the value of a dollar. Unfortunately, a third of Americans have spent their entire inheritance in 3-years’ time;[v] it’s doubtful you worked so hard to have that money vanish so quickly. On the other hand, if you are leaving differing amounts to different children, or are leaving more money to charity than to family, being able to discuss that with them before you pass on may save a lot of heartache and acrimony. Leaving a windfall to someone unawares, or giving them less than expected, can often result in it disappearing in record time.

Step Three: You Don’t Have to Leave an Inheritance

It may sound shocking, but your children are not entitled to your wealth when you pass away. In fact, people like Michael Bloomberg, Bill Gates, Mark Zuckerberg, and Warren Buffet are not leaving much to their children because a large amount of their wealth will be going to philanthropic causes. For many, the idea of giving their children huge amounts of wealth does little to help them in life, and if anything can be a hindrance to work ethic and ambition. If you share those concerns, you may want to look at an alternative to giving it all to them, and instead find organizations or even set up a charitable trust that they could be on the board of. You are also intended to live how you please on your own dime and it’s your prerogative if you would prefer to spend it then save it for future generations. On top of all that, people are living longer and health and long-term care are very expensive. Depending on your end of life costs, there may be less available than anticipated. Like the above two steps, communication here is key. If you are going to be leaving your estate to a charity or organization, it’s important that your family is aware of that and understands in advance.

Step Four: The Gift of Money Management Fundamentals

You wouldn’t give car keys to one of your children if they don’t know how to drive, right? Think of a large inheritance the same way. You need to give your children the tools to manage their wealth and even help it to grow for future generations. These money lessons should be happening throughout their life. Learning the value of a dollar, having a small allowance, having to work a job, or having to save up and pay for certain things themselves are all important lessons that teach your children how to manage their money. Even the wealthiest children should understand that money is not a limitless resource, and it can vanish in a blink if they are reckless. Properly prepared, the next generation will be able to manage their inheritance. In fact, it becomes more likely that they will not only be able to maintain it, but perhaps grow it and pass it along to create a powerful legacy.


[i] https://www.cnbc.com/2018/11/20/great-wealth-transfer-is-passing-from-baby-boomers-to-gen-x-millennials.html

[ii] https://www.marketwatch.com/story/heres-why-90-of-rich-people-squander-their-fortunes-2017-04-23

[iii] https://www.cnbc.com/2018/08/22/over-half-of-millennials-expect-an-inheritance.html

[iv] https://www.pbs.org/newshour/economy/making-sense/money-habits-are-set-by-age-7-teach-your-kids-the-value-of-a-dollar-now

[v] http://money.com/money/3925308/rich-families-lose-wealth/

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About the Author

Kathy Longo, CFP®, CAP®, CDFA

Kathy Longo, CFP®, CAP®, CDFA

Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.

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