Warren Buffett recommends wealthy parents “leave their children enough so they can do anything but not enough that they can do nothing.”
Helping parents find that sweet spot is central to Kathleen Grace’s job as the CEO of Fiduciary Family Office, which manages about $800 million of total assets for around 60 families.
“Most families come in and say to me: ‘How much should I give my kids? How much is too much in order to not ruin them?'” Grace told Business Insider.
She said that most of her clients — who have $25 to $30 million in liquid assets on average — are self-made, which makes it especially tricky as they want to “help and support their children, but not in a way that takes away their motivation or their desire.”
Staving off entitlement and keeping their children grounded is no simple feat. “It’s awfully difficult when you fly on private jets and take very unique and once-in-a-lifetime family trips to help your kids understand the value of a dollar,” Grace said.
She laid out five ways for wealthy parents to raise hard-working, responsible kids who won’t fritter away the family fortune.
1. Teach them about money early
Grace said the “biggest mistake” rich parents make is failing to teach their kids good financial habits when they’re young. They need to understand the difference between needing and wanting, learn to delay gratification, and judge if a purchase will actually make them happier, she added.
Parents should give their kids an allowance, educate them about money, and talk to them about saving, spending, investing, and giving, tailoring their advice to their children’s personalities, Grace said. She suggested kid-friendly budgeting apps and books with infographics as learning aids.
These early steps are vital in molding children into responsible stewards of family wealth, she said.
2. Build their financial skills
Practical exercises can reinforce money lessons and build good financial habits, Grace said.
Running a lemonade stand for a day can teach a child not just the basics of business and turning a profit, but also encourage entrepreneurship and embed the idea that work is rewarded, she said.
Giving a piggy bank with three slots for saving, spending, and giving is a “cute way to teach kids” how to divide their money across things that are important to them, she added.
3. Make the connection between work and wealth
Fund manager Ross Gerber recently told Business Insider that he and his wife make sure their children understand that having nice things is the result of hard work.
Grace told Business Insider that’s a critical lesson for kids to learn. She said that when her daughter was young, she spent afternoons after school at her office so she could “see the connection between what mommy does all day and the fact that we could go on nice vacations.”
4. Encourage giving and volunteering
Encouraging children to be charitable and help others can sculpt them into kind, compassionate, empathetic adults who want to put their money to good use, Grace said.
Grace said she took her daughter to volunteer at a charity for domestic violence survivors, where they sorted donations for Christmas gifts. Now 22, her daughter still has “great empathy” for people who are worse off or had troubled childhoods, Grace said.
Modeling thoughtful, generous behavior as parents is what “creates the character in your kids later on,” Grace said.
5. Stop them from squandering
Grace said most of her clients want their children to be “comfortable” but not able to access large sums of money on a whim. One strategy is to use an irrevocable trust with a trustee who acts as a “gatekeeper” to ensure the next generation spends wisely, she said.
Parents can use a trust to direct how the money is spent, allocating sums to specific purposes such as starting a business, buying a house, finishing graduate school, or paying for a wedding, Grace said.
She compared those controls to “bumpers when you’re bowling,” as they keep the kids’ spending on the right track.
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