by Mike Joslin

If there’s one thing I learned when I became a dad, it’s that children are very observant. They watch, they imitate, and heck, I think even when my boys were six months old, they judged. At the 20+ year mark, they rarely watch, infrequently imitate, but always, always judge. No one said parenting was easy, eh?

Kids are curious and perceptive

By the time kids are eight to ten years old, they know if their family has some level of affluence. The toys they receive, the cars their parents drive, the clothes and shoes they wear, the size and location of their house, the restaurants and vacations they enjoy, the schools they attend — all these data points are collected in their young minds and help build the grid through which they view themselves and others.

It’s not uncommon for children this age to ask their parents and grandparents about money. Do we have any? Are we rich or poor? Somewhere in between? And of course, your kids will talk to their friends about all this, as well. When asked however, most parents stammer and stumble, as though the question was about the birds and the bees.

In a 2015 U.S. Trust survey of households with investable assets greater than $3 million, 64% of those polled indicated that they had shared nothing or nearly nothing about their net worth to their kids* . Keeping information about family wealth close to the vest is usually advised, but raising children ignorant about money matters, especially if any legacy is involved, is not.

The tension between knowing too much or too little

As a parent, how should you respond to these questions? How much information should you reveal? We all want our kids to feel secure. But we also want them to be motivated to go out in the world and kill a few dragons. We want to see them make their own way, learn to be independent and eventually to stop drawing from the National Bank of Mom and Dad.

9 ways parents should address family wealth

In over 35 years as a CPA or investment advisor, I’ve fielded many a call from parents and grandparents about this topic. With that in mind, and from my own experience with my two boys (now young men), I’ve learned a few things that may be worth passing on.

1. Tailor conversations to your child’s age and maturity

How much to share and when, should depend on your child’s age and level of maturity. Keep in mind your goal should be to “grow” your kids into being responsible, informed adults who could prudently handle their inheritance if you and your spouse both got hit by the proverbial truck tomorrow. One conversation will not get your kids there. Imparting and absorbing financial wisdom is a process that involves years of conversations and living life in front of your kids, where you’re appropriately transparent about both your successes and your failures.

2. Keep your answers simple

When younger children ask, “How much money do you have?” or “Are we rich?” start by giving limited but straightforward answers and see how they handle it. Be sparing in the details. Too much information will only create confusion and can quite possibly work against you. An answer like, “We’ve got enough to meet our needs, and we can always work more if we need to,” is a far better answer than one that conveys to Junior that mom and dad have fully funded his college account, for example, so he’ll never need to work to help cover this expense.

3. Teach the value of a buck

• Let them “earn” money by doing chores.
• Teach them to save money.
• Teach them to give money. Build a sense of philanthropy!
• Help them develop a simple monthly budget.

Set a percentage to save, to spend and to give to a worthy cause. You’d be amazed at how price-conscious kids become when they must pay for part of their Xbox Live or cellphone bill — even if you’re fronting the money with some sort of allowance.

4. Tell stories about how and why you built your wealth

Such stories will leave a lasting impression and impart important values. Because it’s not just about money. It’s about the leadership, knowledge, values and purpose it takes to build, sustain and pass on wealth. It’s also about the value and meaning of work, in and of itself. Your stories (and your parents’ stories) will be way more interesting and meaningful than simply offering a peak at the family coffers.

5. Talk about money as a legacy

In and of itself, money is neutral. It gains value and purpose when it is tied to the idea of a being a legacy for future generations; a legacy that you and your kids must protect and preserve for family who will come after you. Millennials are all about leading fulfilling lives, so they will be all over this.

6. Disable the entitlement mentality

When you talk about money as a legacy that you and your kids are charged to protect and preserve, the issue is propelled to an entirely different level. Now it’s not so much about what you get and how much you can spend, but about what is your charge to give. We’re talking about a family mission here. One that inspires a sense of responsibility, purpose and a desire to work hard. This is the best remedy I know of to fight against that insidious sense of entitlement that threatens to take our kids hostage.

7. Include your kids in family money meetings

For older, mature children (say, late teens to college-age), it’s a good idea to include them in “family meetings” where they can sit in and observe the parents (how about along with their advisors!) discuss the family budget, cash flows, business holdings, the pros and cons of a particular transaction, listen to a portfolio or estate planning review, etc.

8. Be a curious coach

Ask your kids what they want to achieve and how they think they can make it happen. Help them set realistic goals they can use to measure their progress. Commit to being a financial mentor.

9. Skip the proselytizing

Lastly, and honestly, try not to proselytize. (I know, I know. That’s what we parents do best. It’s way too easy to slide down that slope! My own boys have heard my story innumerable times of walking to elementary school in 3-foot snowdrifts during the winter months, uphill both ways…)

Family values do count. Usually families that enthusiastically embrace work for its intrinsic benefits (being productive for the family, for society at large, a stronger feeling of self-identity, etc.), as opposed to gloomily seeing it as drudgery or penance that must be endured to survive, tend to have kids with a more grounded view of wealth.

I don’t say this as a psychologist (because I am not). I say it as a dad, a financial advisor and as someone who has observed it consistently over the years.

Money is a touchy topic, whether you have a lot or a little. Don’t let that keep you from giving your kids the gift of financial literacy as well as a sense of legacy.

Now that’s a great inheritance.

*www.reuters.com/article/us-money-generations-strategies-idUSKBN0OX1RH20150617June/17/15

Advisory services are offered by Joslin Capital Advisors, LLC, an SEC Registered Investment Advisor.