Conversations about money are often difficult, especially when you’re concerned about how your children will adapt to a sudden increase in family wealth.

“Are we rich?” Lina was shocked when she arrived home from work to be faced with this question from her nine-year-old daughter Natalie. She had tried so hard to ensure her children led ‘normal’ lives in spite of the success of her business. Yes, they went on some exciting holidays and lived in a comfortable house, but nothing extravagant. What would happen when the press announced her share of the proceeds from the sale of her company in a few weeks? Would it completely distort the sense of purpose and values for Natalie and her two older brothers? Would their friends treat them differently?

How do I talk about money with my children?

When families consider what they want their offspring to know, there are universal goals common to raising children to be responsible adults. However, many families have expressed their concerns in discussing wealth and the hardest part comes when they have to initiate the conversation: “How do I talk with my children about money?”

It is true that talking to children about money can be problematic for many reasons. In some cases, it comes from cultural beliefs, where it is taboo to talk about money. In others, people are concerned about taking away their children’s sense of motivation and purpose in life, or are worried that they may see wealth as a burden, rather than an opportunity. However, avoiding talking about money can have unintended consequences, such as children feeling untrusted, dismissed or unprepared. Lack of communication about money and its purpose and not having a clear process for decision-making on financial matters can negatively affect family harmony. A study conducted in 2003 showed that 70% of families failed to successfully transfer their wealth beyond the third generation, and the main reason was the breakdown of communication and trust in 60% of cases.

How do I teach my children about money?

Wealth can create opportunities and challenges for the younger generation that can have positive and negative outcomes. At JP Morgan Private Bank, we have worked with a leading educationist, Susan Doty, to develop a practical guide for parents and grandparents on how to prepare children for wealth – financially, socially and emotionally. There is no magic formula and what children need to learn about money be introduced in a phased and age-appropriate way. The aim of such activities is to help them master key concepts and habits over the years. According to Maya Prabhu, Head of Wealth Advisory EMEA, children’s understanding of money is created cumulatively over time by verbal and non-verbal cues.

Within the process of empowering your children in money matters, the first step is to understand what they need to learn. Our experts have identified seven skills that can help them handle wealth effectively, supporting the decision-making process in line with family values:

Exhibit A: Understand what your children need to learn

Source: J.P. Morgan, Teaching Your Children About Wealth – A Guide For Parents And Grandparents, 2018
Exhibit A shows the seven fundamental skills to support informed decision making in line with your family’s values.

Exhibit B : Use activities to help turn goals into realities

Source: J.P. Morgan, Teaching Your Children About Wealth – A Guide For Parents And Grandparents, 2018
Exhibit B shows age appropriate activities that can help turn goals into realities.

For preschoolers, for example, keeping a piggy bank might help reinforce the idea of delayed gratification. Early childhood age is an appropriate time to introduce an allowance, with the simple piggy bank evolving into three clear jars with ‘spending’, ‘saving’ and ‘sharing’ labels. The journey develops into further expense planning and stock market games in the teenage years, culminating in a life plan and potential future expenses when they are young adults. Once your child reaches age six, it would be an appropriate time to start teaching them the core skills of cybersecurity and online safety.

It is important to be a good role model for your children by articulating and demonstrating your family’s values. Shared values can bring your family together and help define your attitude to the purpose of wealth and guide decision-making on financial matters. As the adage goes, ‘actions speak louder than words’, and how you and your family live by your values is critical. For instance, if parents are keen to reinforce frugal spending as one of their values and then take multiple luxury holidays, it can be confusing for their children.

How can I involve my children in money matters?

A key question that clients ask us is whether they need to reveal their balance sheet to their children if they enter into these conversations about wealth. The answer is no. Discussions around principles, purpose and values can take place without mentioning numbers, which can then be shared when everyone is more comfortable talking about money. Although in today’s world where a lot of information is readily available online, children (or their friends) may know or guess the family’s financial status anyway.

So, how did Lina respond to her daughter Natalie’s question? She explained that they were financially comfortable and would have more than they needed after the sale of her business in a few weeks’ time. Lina then asked her daughter what had prompted her question. Natalie responded that her best friend told her that she had heard her family is very rich.

Lina arranged a meeting during family time on a Sunday evening as she had a project she wanted to discuss. With the sale of her business soon completing, she said she would like to set up a charitable foundation to share some of the proceeds. This reflected the core family value of ‘sharing’ – a word very familiar to Natalie and her brothers as they heard it constantly, especially when they argued over toys. The family project involved choosing a name for their charitable foundation. Lina invited Natalie and her brothers to discuss it themselves and propose a name at their next family meeting in two weeks’ time. The children did their homework and after much debate proposed the name ‘The Happy Foundation’, as they wanted to make other children happy through their charitable work.

Natalie is now 28 years old and, along with her older brothers and parents, is a steward of the family wealth and a trustee of The Happy Foundation. She describes the foundation as the golden thread running through their identity and purpose as a family. It is the crucible to discuss the meaning and purpose of their wealth; to set the foundations of their family’s communication and decision-making on money; and learn crucial financial lessons by examining charity balance sheets and investing the foundation’s endowment.

Natalie also says the foundation has given her and her brothers a sense of fulfillment by making the world around them a better place. Each of the siblings also had the opportunity to contribute first a part of their pocket money and now their salaries to The Happy Foundation, providing them with a strong sense of ownership over the family’s philanthropy. Aside from philanthropy, family projects on planning a holiday can also be an enjoyable way to learn about prices and financial choices.

Preparing the next generation for wealth can be a rewarding journey that brings the family even closer together. There are many ways to approach this process that fit with your family’s values and preferences. At J.P. Morgan, we can help you in your efforts to guide your children and set strong examples. Please don’t hesitate to reach out to your J.P. Morgan adviser to learn more, and for any help with your wealth planning needs.