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Family Wealth Blog

Step #1 to Preserving Family Wealth: Teach your Kids Good Financial Decision-Making

Photo of author, Brian Gongaware, CFP®, SE-AWMA™.
Brian Gongaware, CFP®, SE-AWMA™
Director of Advisory Services

As much as we connect our hopes and dreams to financial wealth, do we invest an adequate level of time, effort, and resources to strengthening our family’s relationship with money? There are many studies that show a general lack of financial literacy among youth and adults in America. Are there ways to improve wealth management decision-making for young and old alike?

Here are six successful practices used by our clients to teach good financial decision-making for a multi-generational benefit:

#1 Establish a healthy relationship with money by learning about its use, its power, and its danger.
Before we can begin to discuss sound, financial decision-making, we need to learn about the many facets of money. Wealth and financial resources can equip a family with stability and opportunity for generations; or conversely, it can lead to an irrevocable family rift. Even when all family members have developed a strong, vigorous relationship with money, the introduction of “outsiders” (through marriage or influence) can shake that core foundation.

One of my favorite exercises to lead with clients is called the Money Egg. The Money Egg exercise, which was designed by financial advisor Rick Kahler, encourages couples and family members to explore their early and evolving relationship with money -- the point being, when we reflect on our early money lessons, we can start to see the foundation that impacts us today.

Not all experiences are positive. Many times, we can experience financial pain, abuse, betrayal or neglect. Sharing your Money Egg story is powerful, but hearing the story of others is even more so.

#2 Start early and start small.
We spend more time teaching our children and grandchildren how to safely drive a car, than we do about how to properly and safely make financial decisions. More often than not, young people are left to make their own way. Some will watch and learn from others, but that is the minority of cases.

Clients who have openly talked about money with their children and grandchildren at an early age are laying an initial foundation for future lessons. For example, teaching the simplest trade-off between stopping at the local convenience store for a $3 bottle of water or waiting to get one at home in three more minutes is an opportunity. Teachable moments are frequent; we just need to recognize them.

An Allowance System
Many clients choose to initiate an allowance system for their children. Usually it takes the form of a nominal weekly amount. Having access to currency can create an interesting dilemma for a young person. A favorite approach of mine is one in which the child receives (or earns) a set amount. The child is then are asked to consider how much of that amount to set aside in three ways: a short-term fund, a medium-term fund, and a long-term fund.

Each “fund” has its own anticipated uses, such as day-to-day spending money for the movies or the mall (short-term) or saving for a large future need like a cell phone or laptop (long-term). But the young person needs to decide how much to put into each of his three buckets. Usually this is done at the beginning of the year (or period) and maintained at that level until an allowance increase occurs.

Many clients have added a fourth fund to the list – a fund dedicated for giving to others. This can be a church tithe or charitable giving plan that encourages young people to support the causes they care about.

#3 Implement a Matching Saving Strategy.
Many clients have found success encouraging children and grandchildren to save and invest by matching what their child contributes. When a young person sees the compounding effect of your $100 on top of his/her $100, that can certainly be motivating. We have had clients do such matching to help children with earned income make contributions to their Roth IRA account, for example.

#4 Implement a Sharing Expense Strategy.
Transitioning expenses from parents to children can be a delicate issue. While we want our children to get a good head-start financially, we don’t want to continue paying all their expenses once they are earning an income. Begin sharing expenses, such as cell phone bills and auto insurance, so your children understand the costs and obligations incurred in living a certain lifestyle.

#5 Talk about money and financial concepts.
Not all discussions have to be a deep dive into the intricate aspects of a personal financial statement or complex wealth management strategies. Below are a few examples of financial discussion topics that may be relevant for your child or grandchild:

Basic Financial Decisions/Knowledge:
1. Why is saving important?
2. How does investing work?
3. What is supply and demand?

More Complex Financial Decisions/Knowledge:

1. Can I save for retirement now?

2. Should I borrow for this purchase?

3. Should I invest aggressively or conservatively?

Introduce your Financial Advisor
When it comes to wealth management and financial decision-making, it’s important to let your kids know that they don’t have to go it alone. As teenagers or 20-somethings, introduce them to your advice-givers. Help your kids or grandchildren understand the roles of trusted advisors and how to evaluate them. Clients that know how to access good help and how to receive help are far better prepared for the future.

Educational Programs
Another helpful resource are local educational programs devoted to business and finance. For example, encourage your kids to attend a High School Business Bootcamp. These pre-college programs are typically offered in the summer and expose high school students to the many facets of business lessons that are also life lessons. They learn to adapt to working with groups and experience hands-on opportunities with finances.

#6 Write a Legacy Letter.
A Legacy Letter can be a powerful, simple, and straightforward way to share your values

Write a Legacy Letter jpg

and life lessons with loved ones. Although not intended to be a legal document, a legacy letter most commonly is shared with family members to communicate certain choices and messages. Writing a legacy letter can be even more meaningful to the author, as it provides a means for reflecting on one’s growth, blessings, and life.

In summary, always remember that when it comes to finances, mistakes will be made. We all have made them and, most likely, will make more. But certainly, none of us want to see our children make irrevocable financial mistakes that will linger with them as a burden for years. Investing some time and effort to impart upon your children core fundamental practices related to finances will yield dividends for a lifetime. Your help may be needed to minimize the number and size of their mistakes.

While the above captures a sampling of successful strategies used by our clients, there are many more resources available. Below are a few more that have been positive tools in our work. Also, to reinforce just how important good financial decision-making is for our children and grandchildren, I share this interesting article: "70% of Rich Families Lose their Wealth by Second Generation."

“The Ultimate Gift (2006)” movie
Rod Diaz (MCWS) Blog: “Happy Money, Happy Legacy: Rethinking How You Invest Your Time and Your Money
Steven Z. Leder “More Money than God: Living a Rich Life Without Losing Your Soul
Richard A. Morris and Jayne A. Pearl “Kids, Wealth, and Consequences: Ensuring a Responsible Financial Future for the Next Generation
Mindy Crary, Forbes Contributor “15 Ways To Improve Your Relationship With Money

Please feel to contact me directly if you would like to learn more about the Money Egg exercise or any of the experiences and concepts identified above. I can be reached at or (724) 940-4400.


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