Teaching Your Children About Your Wealth at Different Life Stages

Guidance for sharing personal finances and estate plans with your kids.  

Image of mother and daughter sitting on the couch and talking

Families of high net worth often have questions about how much information they should share with their kids about their family's wealth — and when.

"There is no single, right answer for every family," admits Karen Brown Josephson, Senior Wealth Planner with Wells Fargo Private Bank. "The amount of detail you share with your children, and at what age, depends on two very personal things: your own comfort level with talking about your wealth and your judgment about your kids and how they will handle the information," she says. 

Here, Josephson offers some tips that have helped other clients start these sometimes challenging conversations.

Elementary school 
At this age, your kids may begin noticing differences between their friends' families and yours. For instance, you may have a larger home or newer car or go on more vacations. Still, at this age, your children are not likely to understand big concepts around wealth. If your child outright asks "Are we rich?" keep the answers simple. Josephson suggests:

  • Consider the underlying question. Your child probably isn't asking you to detail your take-home pay. "Are we rich?" often is a child's way of asking: "Are we financially safe?" A simple, clear answer can be: "We will always take good care of you. We have plenty to eat, a nice place to live, and we give money to our favorite charities." 
  • Don't focus on comparisons. Instead of explaining why some families have more or less than others, simply talk about how you make the financial decisions you do. For example: "We bought this house because we love the neighborhood, and it has extra space so family and friends can visit."

Teenagers
At this point, your child probably has some sense of your family's wealth, even if you don't talk openly about it. The teen years — if not a little earlier — is often a good time to discuss your family's financial values and begin setting expectations about how much you're willing to help your child financially, says Josephson. 

  • Remind kids whose money it is. When teens say things like "Because we're well off…" Josephson suggests correcting them with a response like: "Actually, while Mom and Dad have the means to give our family a comfortable life, you, on the other hand, are not yet supporting yourself."
  • Watch for signs of low motivation. If knowing your family has wealth is stopping your teen from working hard, either don't share too many details or start using incentives. Offer to match money your teen saves for a car or pay college tuition only if they keep their grades at a certain level. 
  • Share as much information as you feel comfortable revealing. "If your children may one day inherit a large sum of money — or if you plan to donate much of your wealth to charity — it may be a bit unfair to spring that kind of information on them later in life," says Josephson. "That news could affect the way they make decisions now — even the major they choose in college. It’s all about managing expectations."

Young adults
Josephson says there is no "magic age" at which you should divulge all your family financials to your children. Here are ideas for conversations to have with your newly minted adult headed off to college:

  • Ask about their life goals. Are they hoping to buy a home? Start a business? Choose a career (education, social work, etc.) that may inspire them but may not be highly compensated? This may be the time to talk to your children about any financial help you may be willing to offer now or if your preference is to leave an inheritance for them later. That knowledge could help your kids make some important choices now. On the other hand, if you want your children to pay their own way, be clear about that now, too. 

Adults starting families
Once they're well into their lives, and grandchildren are coming along, your adult children may again question whether any of your family's wealth might trickle down to them or their kids. 

  • Consider your children's best interests. By the time your adult children are old enough to start families, you probably have a good sense of their values and capabilities. If you worry that a child may not responsibly handle inherited wealth, a good place to start is a candid discussion with your financial relationship team. They can help you understand different options to consider as you look for ways to provide guardrails around your child's inheritance. Conversely, if they've been good stewards of their own money, you may want to reward your children. You and your team can discuss the various ways to gift money or investments to the next generation of your family — either now or in the future.

In general, Josephson encourages wealthy parents to begin giving their kids a good financial education as early as possible — and not just about savvy spending, but about gratitude, giving, and smart financial planning, too. However, adding in detailed information about your family's financials is a piece of your children's education you can add in whenever you — and your kids — are ready.  

Teri Cettina writes about personal finance and business from Portland, Oregon, and is a frequent contributor to Conversations.

Image by iStock

What can Wells Fargo do for you?

Creating a plan for every generation of your family can be a challenge. Schedule time with your team to get started.

Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors is not a legal or tax advisor. Please consult your tax or legal advisors to determine how this information may apply to your own situation.

This information is provided for educational and illustrative purposes only.

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