Shaun Meintjes | Franchise Principal | Financial Adviser | Consult by Momentum | mail me |
Preparing your children for wealth starts long before an actual inheritance. You need to prepare them to manage it with responsibility and perspective. As financial advisers, we spend a great deal of time helping people build and preserve wealth.
I have worked with numerous clients who have spent decades building businesses from scratch and managing investment portfolios. They are driven, hard-working and eager to grow and safeguard their wealth. However, while they are used to managing their money, they often fail to equip their children to do the same when the time comes. Ultimately, raising financially capable children should become part of every family’s wealth strategy.
Money shouldn’t be a family secret
It is easy to understand why. No one likes thinking about what will happen when they are no longer around. However, leaving your children a lot of money without preparing them for it can set them up for failure. You cannot assume that the next generation will know what to do with the wealth they have never had to build or think about. They need guidance and perspective, and that starts with honest conversations.
The single biggest mistake you can make when discussing wealth and inheritance is not talking about it at all. I have sat across from adult children who had no idea that their family had significant wealth until a parent passed away. Consequently, they became completely overwhelmed. That is not protection; it is a failure.
I have also seen children who only ever heard that “money doesn’t grow on trees”, while their parents preached frugality and lived lavishly. This creates confusion and resentment. Then some children see wealth as a reward rather than a responsibility. When all you tell your children is that they will one day inherit everything, they can develop an entitlement mindset instead of a stewardship mindset.
All three of these scenarios increase the risk of poor financial decisions because the children have never learned how to think about wealth or how to look after it. This is precisely why raising financially capable children requires open and honest communication.
Raising financially capable children takes intention
Preparing children to manage wealth goes far beyond teaching them how money works. You need to instil the value of delayed gratification because it underpins sound financial decisions.
You can teach a child about a balance sheet. However, if they cannot distinguish between what they want now and what they need in the long term, they may burn through their inheritance faster than you can say yacht holiday in the Mediterranean.
You also need to teach children how to tolerate discomfort and uncertainty. Markets fall. Businesses fail. Economic conditions can change with every news bulletin. Children who have been shielded from every difficult experience tend to panic when things go wrong financially. Therefore, you need to help your children develop resilience and patience.
This goes hand in hand with accountability. Wealthy families often insulate their children from consequences. However, if poor financial decisions are quietly erased with Mom’s bank card, children learn nothing.
Building resilience and responsibility
There must be proportionate exposure to real outcomes. For instance, give them a fixed allowance and do not top it up when they overspend.
The final value I would encourage parents to instil, and demonstrate, is empathy. Children need to understand that wealth carries a social responsibility, especially in South Africa, where the gap between the wealthy and those who have nothing is enormous.
Children who grow up with no awareness of that context often make poor decisions about how they deploy capital. They can also lose sight of the broader communities within which their businesses and investments exist. Raising financially capable children means teaching them that wealth comes with both opportunities and obligations.
These values, namely patience, accountability and empathy, become part of family life through regular conversations and habits. Start with your spouse. You need to align by agreeing on the values you want to transmit, when you want to talk to your children, and the role you expect them to play in managing the family’s financial affairs.
From there, bring your children into the conversation in an age-appropriate way. A 10-year-old does not need to know how many zeros the family trust contains. However, they should understand how money works, what things cost and what it means to earn it.
Getting your children ready for inheritance
As they get older, introduce them to the family’s financial structures, life cover, and estate plans. You should also give them a budget that they must manage themselves, such as a clothing allowance or petrol money. Do not present it as a windfall. Instead, present it as a responsibility that they need to take seriously.
You should also rely on your financial adviser for guidance on what your child needs to understand about your wealth before you are gone. A good adviser will sit with the next generation separately and walk them through the basics of the estate plan and any trusts so they understand their roles and responsibilities. Advisers will also build a relationship with your children. Consequently, your children will not have to start from zero with a stranger when you are gone.
In conclusion
Children should also know who their accountants and attorneys are so that they understand that wealth management involves professional relationships. You can also consider creating a “family constitution” or “letter of wishes”. It does not have to be a legal document. Instead, think of it as a written explanation of why your family built its wealth, what you hope it will achieve and the responsibilities that come with it. Some families do this as a collaborative exercise with their children, which in itself becomes an incredibly valuable conversation.
Having these conversations early and giving your family years to prepare will ensure a smooth wealth transfer. More importantly, it will ensure that money is not the only gift you leave your children. In many ways, raising financially capable children may become the most valuable legacy you ever pass on.
