How to stop your children from catching "Rich Kid-itis"
We’ve all heard the term “Trust Fund Kid”. Stereotypes readily come to mind: private schools, expensive 5 star vacations, equestrian lessons, luxury vehicles, post-secondary education abroad and the acquiring the latest piece of technology as soon as it hits the market. The list goes on…
You’ve worked hard and want your kids to have the best education, drive safe cars and to enjoy healthy hobbies and “luxuries” your parents maybe couldn’t afford.
And yet… having worked hard to grow your family’s wealth, you want to minimize “Rich Kid-itis” – a contagious social disease that children of wealthy families can be susceptible to when too much money is either given all at once or at too young an age without adequate preparation.
What is the concern?
Parents who have worked hard to set their family up for success often are concerned about their children falling into the potential pitfalls of Rich Kid-itis. Providing your kids with a better life was a primary goal of starting your business, correct? Without the proper succession and family enterprise continuity strategy, your children (often at no fault of their own) likely haven’t had the opportunity to be educated in becoming good stewards of their future wealth and to practice these skills before taking control over various components of the family enterprise.
Family wealth can rapidly disintegrate if not managed correctly. You want to set your children up to build on your success, not to destroy the wealth you’ve created.
What you need to know.
Parents are well advised to carefully consider how they prepare the rising generation to be good stewards of family financial wealth. Financial maturity doesn’t just happen.
Your daughter may have been a saver from the get-go, but your son may have spent every nickel and dime he can get his hands on. Think about who your children are and how to best set them up for success.
Education in financial literacy and cash management is often overlooked. Your children need to know more about money than merely spending it. Teaching them how to budget at a young age will instil them to value a hard earned dollar. It is now a best practice for families to attend seminars together as a tool to mentally and emotionally prepare children on inheriting wealth.
What can I take away?
There are many ways to pass on wealth through the generations, but when it comes down to it, education and governance (i.e. communication and decision making skills) are crucial to minimizing the risk of Rich Kid-Itis.
As parents of a family enterprise, the best thing you can do is to educate your kids on how to value wealth and spend it intelligently. It is also important to factor in each child’s unique character. This will allow you to cultivate governance structures that are smart, strategic and built to withstand multiple generations. A family trust can be used as an effective learning tool. Regular family meetings to talk not only about the trust but to teach values will foster positive communication and develop a true purpose for the financial legacy and social capital you have worked so hard to create, build and preserve.
Also see: Financial Times article: “How to stop your children catching ‘rich kid-it is’’ by Hugo Greenhalgh, 2016
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