As a parent you want your children to be happy and to live a good life. If you are wealthy parents, you can offer opportunities to your children and remove their financial concerns. Exotic holidays, credit cards, trust funds, tuition fees, cars, and expensive trainers.
Parents worry that giving their children too much too soon could create ‘rich-kid-itus’. The TV programme Rich Kids of Instagram exposes the severity of ‘rich-kid-itus’. Rich Kids of Instagram shows wealthy unemployed 20-somethings spending their days drinking Cristal champagne partying on private yachts and splashing cash on Ferraris. All funded by their parents.
At Capital we can’t define, nor benchmark what being ‘rich’ is. That is personal.
Symptoms of ‘rich-kid-itus’ include a sense of entitlement, and a loss of work ethic. Plus, the ability to spend money like water. This can lead to symptoms like failing to settle into a career, living off the bank of mum and dad, and squandering wealth.
Several public figures have announced that their children won’t be inheriting any of their wealth. Jackie Chan says he will leave his money to charity. Nigella Lawson has said she doesn’t intend to leave anything to her children, because it would ‘spoil’ them. Gordon Ramsay’s four daughters won’t be receiving a penny of his £43 million fortune. Sting explained that he will not be giving his children trust funds because they create an “albatrosses around their necks”.
For many parents it isn’t as black and white as this. Your instinct is to help your children and protect them from stress. You have worked hard for your wealth and it’s natural to enjoy it and share it with your family.
How prevent your children from ‘rich-kid-itus’
As Warren Buffet said, “Give children enough to do anything but not enough to do nothing”.
The dilemma is to support your children enough to give them the greatest chances in life, whilst keeping them grounded.
As planners for affluent families, Capital has a fair share of experience in seeing the most effective ways of doing this. Here are our tips to avoid giving your children ‘rich-kid-itus’:
Providing a good foundation for success
Nobody wants their children to struggle and it is hard for ‘Generation Spend’ to start out. The job market is competitive, salaries are low, and house prices are too expensive. This combination of factors makes it tough to get a well-paid job and buy a home.
Forget the expensive watches, cars and latest iPhone. Provide your children with the foundations to make a comfortable life. Invest in a good education and introduce them to the right people. Help them onto the property ladder (perhaps with a modest mortgage to keep them involved). This should give them everything they need to be successful but not enough to party until they are 30.
Teach them the value of money
It seems that millennial children didn’t get a good financial education at school. Although this is improving, the onus lies with parents. A survey revealed that 70% of wealthy families lose their wealth by the second generation. If you want to avoid your children squandering your hard-earned wealth, read on.
Good money ethics means a healthy and happy relationship with money. It is essential for your children to know the value and meaning of money and understand how it is earned.
To help your children understand the value of money, you could consider the 50:50 rule. If your child wants something, say it’s a new car or a deposit for a house, ask them to save half themselves. If they want something they will be prepared to save for it. Your child will value the new car or house if they’ve had to earn money to buy it. For help on how to teach children of different ages about money click here to read our guide.
As your children get older, it’s important to educate them on budgeting, saving, gifting, debt, and investing. This ensures they will be able to manage their own money in adulthood. As well as giving you peace of mind, if they inherit your family wealth, they should be able to manage it for generations.
Be transparent with your children about the financial support you are willing to give them. Will you buy them a car but not their insurance? Will you pay for their university fees but not all the living costs? Will you support them until age 21 or 30? Establishing the boundaries will help to prevent your children from becoming dependent on you. The boundaries will help them to understand that they must provide for themselves.
At Capital, we encourage you to bring your adult children in for an intergenerational meeting. You can choose the agenda; whether you want to discuss their inheritance or trusts, or give them a brief education on managing their money and investments. We are happy to facilitate the meeting.
Raising your children to give to others
Educating your children to give to people less fortunate helps them to grow into charitable and socially responsible adults. Introducing your children to philanthropy embeds the concept of empathy and helps develop social and emotional skills.
Many parents encourage their children to volunteer. Meeting people from underprivileged backgrounds can help them to appreciate how fortunate they are.
Let your children have a say in what charity the family donates to. This can encourage them to play an active role in charitable giving and give them a sense of accomplishment. Some parents give their children money to donate to a charity as part of their birthday or Christmas present. Children could donate their old toys and clothes to charity or give a percentage of their pocket money to their chosen charity.
In the words of Bill Gates, the man who gave 85% of his wealth to charity: “With great wealth comes great responsibility”. If philanthropy is something that your family values, embedding this value in your children is essential for them to continue the legacy.
Build their work ethic and nurture their ambitions
Your children shouldn’t live in the shadow of your wealth. As role models in their life you can help to guide them onto their own path. Living off the family and never settling into a career can mean your grown-up child suffers a lack of purpose and direction throughout their life. Nurture their talents and skills and help them utilise these to create a rewarding career that they enjoy.
Encourage your children to undertake chores around the house to earn pocket money and when they are old enough, to get a job.
Lead by example, show your children how hard you work. Let them come to the office with you to see what you do. Whether you are retired or working, share stories and insights about your career for example what you do, challenges you’ve come up against, for jobs you liked and disliked.
Speak to your children about what they want to do with their life. What are their dreams and ambitions? Discuss how they can get there. Having these conversations can empower your children’s decision-making and steer them toward achieving education and career goals.
It’s a blessing to have enough money to provide your children with the best opportunities, education and experiences. However, it’s important to know when to step back and let your children drive their own success and learn from their own failures.
At Capital we believe parental wealth and nurturing is the fuel a child needs to shine on their own. Money isn’t there as a comfort blanket to stunt their success.
If you would like to speak to Capital about planning to help your children, please click here to contact us.