This article is adapted from our forthcoming book, Perpetual Wealth: How to Use “Family Financing” to Build Prosperity and Leave a Legacy for Generations by Kim D. H. Butler and Kate Phillips. The book contains a whole chapter on raising financially responsible children, since financial planning to have a baby includes raising it.

There is a saying attributed by some to Abraham Lincoln, “You have to do your own growing no matter how tall your grandfather was.” This is especially true when it comes to money!

Even when great sums of money are passed on to future generations, multi-generational wealth rarely lasts more than a generation or two. It fails when the children—even if they are middle aged “children”—haven’t done their own growing. Money given to someone not ready to hold it is like water poured into a leaky bucket. 

It’s every parent’s nightmare to raise a child who grows into a spoiled, dependent adult. Maybe you are willing and able to pay for your child’s first car and college, or assist them in starting a business or buying their first home. But how do you ensure that your support doesn’t stunt their financial ability and confidence? And if you are a “parent of means,” how can you take measures to inoculate children from attitudes of entitlement? 

Fortunately, there are many things parents (or grandparents) can do to help prevent children from growing up entitled. There are ways to prepare a child to be financially responsible and independent, as well as a good steward of money they may one day inherit. It IS possible to raise financially responsible children! Let’s look at several strategies that will nurture self-reliance. And read our Ultimate Guide to Financial Planning Myths for the secret of great financial education. 

One: Talk About Money

In his excellent book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, Ron Lieber says, “Every conversation about money is also about values. Allowance is also about patience. Giving is about generosity. Work is about perseverance.” 

Money isn’t dirty, it’s not shameful, and you’re not greedy if you discuss it! Yet if you DON’T discuss it, don’t teach your kids about it, don’t communicate about your intentions to transfer (or not to transfer) wealth to heirs, you’re setting your children up to fail financially. (You also might be laying the ground for a family feud!)

A family is rarely served well by the old taboo, “It’s not polite to talk about money.” Discuss your own financial decisions and priorities. Discuss decisions you made in the past, when perhaps you had much less money than you have now. Talk about your giving, your budgeting, and your long-term intentions and goals with money. 

You don’t have to discuss dollar amounts of inheritances. It may be better if you don’t, suggests Rick Randall of the National Network of Estate Planning Attorneys. It’s the concepts and the conversation that are important. These conversations help you prepare your children mentally and emotionally for an inheritance.

Two: Expose Them to Money Management.

As Kim discusses in a Prosperity Podcast Episode, “Talking With Your Kids About Money,” opportunities arise early to teach children about money, such as when they see something they want in a store. When our children ask us to buy them something, it can be an opportunity for us to educate them about:

Saving: Is there something that they want that is modestly priced? Give them an allowance (whether automatic or as a reward for extra chores), and teach them that they can save towards it. Ron Lieber suggests to start with small allowances and give a “raise” each year on their birthdays. With children under 10, 50 cents to $ 1 a week per year of age is a good place to start. 

Values and Priorities. Perhaps you don’t personally choose to spend money on certain items, such as health-sabotaging junk food, violence-based games, or luxury apparel brands that cost five times more than comparable items without the label. Our spending is an important expression of our values, and it’s instructive to let your kids know why you don’t spend money on certain things. 

Try not to default to “We can’t afford it.” That’s an over-used phrase based in scarcity thinking. If an expense just isn’t important enough to spend money on, say so!

Budgets/Spending plans. Educate children that adults don’t spend “whatever they want.” Rather, they have guidelines to ensure that they live within their means. Lieber suggests teaching the concepts of budgeting with younger children by having them split their money into three clear plastic containers: one each for spending, giving, and saving. This is, in effect, a first budget. With older children, perhaps envelopes or even different bank accounts can be used for different things.

Math. If they are old enough to do some shopping for themselves, let them add the cost of items and tax together to ensure they have money to pay for what they want. 

Choosing Priorities. Let children make their own choices with limited amounts of spending money. Kate’s daughter has managed her own spending since grade school, when Kate expanded her allowance to cover school clothes as well as lunches. The money still came from Mom, but she had to learn to prioritize lunches and other priorities before shopping. 

Shopping for Deals. When my daughter (Kate’s) started to pay for her own clothes, I was amazed at the deals she found! When I paid directly for the clothes, she would just ask for what she wanted with without looking at the price tags. When I gave her money to shop with, she made it stretch. She quickly learned to find discounts—even designer dresses—on sales racks. It built her confidence and also showed her a practical application for math.

Find opportunities for your kids to practice shopping for discounts. Perhaps they can help with grocery coupons or help you price something online. 

Concepts of “No” or “Not Now.” Just because a child wants something does not mean we should buy it! We can teach them to work towards what they want. Studies such as the famous Stanford Marshmallow study have proven that kids who can delay gratification will be measurably more successful in life. 

Three: Give Them Responsibility.

Make sure that you are not “doing” too much for your kids, but encouraging them to do for themselves. Kim’s sister has had her kids doing their own laundry since they were in grade school! (Taking responsibility for their own laundry also solved the problem of ruined and lost clothes.) Given the chance—or sometimes a little “push”—kids can do more than you think.

My (Kim’s) kids are anything but spoiled, and have helped on the farm and been responsible for chores for a long time. They came home from college and helped us at home with a big landscaping project. Recently, my daughter spent several days working hard and cheerfully, helping her grandfather on home projects. 

We’ve covered their college expenses, but they truly do earn our support! I (Kim) don’t tell my son or daughter that they “deserve” college tuition or other financial help—I say they have earned it! And that’s because they have. They have always contributed to the household cheerfully, whether that meant helping with farm chores, working jobs to pay a portion of their own college costs, or pitching in whole-heartedly when another family member needed assistance.

Four: Start Them Saving!

A survey conducted by Wells Fargo found “71% of adults surveyed learned the importance of saving from their own parents. Despite this, only a third (36%) of today’s parents report discussing the importance of saving money with their children on a frequent basis, with 64% indicating they talk about savings with their kids less than weekly or never.”

When children want something that won’t be covered by their allowance, such as a vehicle or a trip, teach them to save for it. Depending on their age and the saving project, this could include: giving them extra allowance for extra work, matching funds, assisting them with a mini-business (from lemonade stand to lawn mowing), encouraging them to get a part-time or summer job, or starting a fundraising campaign.

Saving money is its own reward, but it’s also a habit that impacts a child’s thinking in essential ways. Saving money teaches: 

• Patience and perseverance: Good things come to those who wait—and save!
• Priorities: “Would you rather buy the $5 toy or put $5 towards the new bike?” 
• Financial self-control: Discipline and delayed gratification translates directly into success.
• Resourcefulness: “Want the bike or a new iPhone faster? What could you do to earn money/save more?” 

While whole life insurance is great for long-term savings, we don’t use policy loans for small things that we can save separately for. For short-term savings (a bicycle, new phone), consider a money jar, envelope, or even a separate savings account (just make sure it doesn’t have monthly fees that will siphon off the savings!)

Five: Educate and Serve Outside the Classroom. 

As valuable as reading, writing and arithmetic are, no education is complete without exposure to those less fortunate and participation in service work. Whether volunteering in a soup kitchen or shelter, viewing documentaries about the third world, or taking a “vacation with a purpose,” there are many opportunities to learn service, gratitude, and the bigger picture of the world.

In high school, my (Kim’s) daughter Kaylea had an opportunity to travel to an impoverished part of South Africa with a non-profit organization, The Simuyne Project. This was a life-changing trip for her, one that gave her a completely new look at the world. 

We don’t do our kids a favor by keeping them sheltered—they need to experience the world for themselves and have a chance to understand the challenges, meet mentors, learn teamwork, develop compassion, and make a difference.

Six: Teachable Moments: Is Anything Really “Free”?

When Kaylea said that she would get a “free Gym membership” at college, I corrected her thinking so she understood it was not “free,” rather, it was “included” as part of her tuition package! Teaching children to think critically about costs and also advertising is an important part of parenting. And when they get offers for “0% credit cards” in the mail, they need to understand there is no such thing as free money.

The news headlines can also provide good topics for discussion. Is there such a thing as “free” healthcare and college? What could the impact be of dramatically raising the minimum wage or continually inflating the national debt? What kind of public policy leads to thriving businesses, and where do you notice businesses contributing to the public good? For this type of conversation with older children, you’ll find some good resources at FEE.org, the website for the Foundation for Financial Education.

Seven: Foster Independence.

In The Cycle of the Gift: Family Wealth and Wisdom, the authors tell the importance of allowing children to “pay their dues” and make their own way in the world. For instance, you don’t do a child a favor by hiring them for positions in family businesses for which they are not qualified. Sometimes it is better to let them earn their experience elsewhere first. 

Children of any age that are repeatedly rescued, subsidized or promoted without earning it lose the ability and confidence to help themselves. Often, they live beyond their means without a clear sense of responsibility or the value they bring to the marketplace. And they will keep coming to the “Bank of Mom” (or Dad) for their next financial fix. 

Thomas Stanley, author of The Millionaire Next Door, The Millionaire Mind, and other books, called such financial gifts “economic outpatient care,” and was adamant that such gifts usually backfire. The research gathered from many interviews with millionaires shows that the more a child is given, the less they tend to save, and the less financially responsible they end up being.

The fundamental lesson that Stanley repeats again and again in his books is this: If we want our children to be self-supporting, we have to stop supporting them.

The Bottom Line: Wealth education starts young—and it’s not all about dollars and cents! Financially responsible children are typically exposed to money management early in age-appropriate ways. They are given guidance, taught independence, and allowed to learn from their mistakes.

Read the rest of the chapter on raising financially responsible children!

We list six more strategies to raise money-savvy kids in chapter 13 of Perpetual Wealth. Plus, you’ll find MANY stories and strategies throughout the book (including a sample letter given to heirs when they are old enough to participate in “Family Financing”). Watch for the book launch in Spring of 2021! Find out more in “The 4 Cornerstones of Generational Wealth” and “Family Banking 101.”

Partners for Prosperity specializes in creative and multi-generational life insurance strategies. We love helping people find a better way to save!